In a recent blog post, we discussed the legal issues associated with employer use of payroll debit cards in lieu of printed paychecks. We concluded that because of the lack of federal and state regulatory guidance on the issue, it was unclear whether employers could elect to pay wages exclusively through payroll debit cards.
Recently, the federal Consumer Financial Protection Bureau (CFPB) issued Bulletin 2013-10 (pdf) on the subject of payroll card accounts. The Bulletin broadly defined payroll card accounts as "accounts that are established directly or indirectly through an employer, and to which transfers of the consumer's salary, wage, or other employee compensation are made on a recurring basis." The Bulletin stated that the Electronic Fund Transfer Act (EFTA) and its implementing Regulation E apply to payroll card accounts and described numerous consumer protections under Regulation E that apply to payroll cards, including certain mandatory disclosures, access to account history, and error resolution rights.
In the Bulletin, the CFPB stated its position that "Regulation E prohibits employers from mandating that employees receive wages only on a payroll card of the employer's choosing." Instead, the CFPB believes that an employer may "offer employees the choice of receiving their wages on a payroll card or receiving it by some other means," including paper check or direct deposit. The Bulletin concluded by noting that the CFPB has the authority to enforce the EFTA and Regulation E against both financial institutions and employers.
With Bulletin 2013-10, the CFPB has made clear that it believes that the EFTA and Regulation E prohibit an employer from mandating that employees receive wage payments exclusively through payroll cards. Whether this position could survive a legal challenge remains unclear. Unless and until such legal challenge occurs, employers should be aware that at least one federal agency has publicly taken the position that mandatory use of payroll cards is unlawful and stated its intention to enforce its position on the issue.