Payroll Cards – The Inquiry Broadens

As we reported in our July 11 legal alert, New York Attorney General Eric Schneiderman has commenced an investigation into the widening practice of employers paying hourly employees through the use of prepaid payroll cards. The Attorney General is reportedly looking into whether card usage fees are excessive, insufficiently disclosed, or violate New York wage and hour and wage payment laws. The use of payroll cards raises a host of legal issues in addition to those being investigated by Mr. Schneiderman.

Now, a group of 16 Democratic U.S. senators have written a letter to the Consumer Financial Protection Bureau (CFPB) and U.S. Department of Labor (DOL), terming it “shocking” that low-wage workers incur so many fees using their payroll cards that “their net income ends up below the minimum wage.” 

The senators are seeking clarification from the CFPB on whether particular fees violate Regulation E, which implements the Electronic Funds Transfer Act, and whether Regulation E requires employers to offer employees a payroll payment option other than through a particular payroll card. These senators expressed the view that “mandating the use of a particular payroll card, with no available alternative, seems clearly to violate federal law.”

Similarly, the letter asks the DOL to clarify its role in overseeing these types of payroll payment programs and requests that the agency advise on what disclosures employers must currently provide employees regarding fees associated with the cards. The senators urge the DOL to consider additional rulemaking in this area, including requiring employers to post workplace notices to provide employees information necessary “to make sound decisions about their paychecks.” 

We can expect further attention to this area, which is currently marked by a patchwork quilt of state and federal laws governing payroll payment systems and practices.