Executive Summary:  Many employers are using or considering using payroll cards to pay employees.  A number of states have wage payment laws restricting employers' use of such cards.  On September 12, 2013, the Consumer Financial Protection Bureau (CFPB) issued a bulletin stating that under federal law employers cannot mandate that their employees receive wages on a payroll card.  Employees who choose to receive wages on a payroll card are entitled to certain federal protections.

Use of Payroll Cards

The CFPB's bulletin states that the Electronic Fund Transfer Act (EFTA) and implementing Regulation E apply to payroll card accounts.  Payroll card accounts are accounts that are established directly or indirectly through an employer and to which transfers of the consumer's salary, wages, or other employee compensation are made on a recurring basis.

Regulation E prohibits employers from mandating that employees receive wages only on a payroll card of the employer's choosing.   Regulation E permits an employer to require direct deposit of wages by electronic means if the employee is allowed to choose the institution that will receive the direct deposit.  Alternatively, an employer may give employees the choice of having their wages deposited at a particular institution (designated by the employer) or receiving their wages by other means, such as check or cash.  An employer may offer employees the choice of receiving their wages on a payroll card or receiving it by other means.

Protection for Consumers Who Receive Wages Via Payroll Cards

• Disclosure of fees:  Payroll card holders are entitled to receive initial disclosures of any fees they may incur for electronic transfers of funds to or from the card.  These disclosures must be clear, in writing, and in a form that consumers may keep.
• Access to account history:  The card issuer must either provide periodic statements or generally make card holders' account balances and 60-day account histories available – by phone for the balance, and online, as well as in writing if requested, for the account history.  The account history must include information on any fees imposed for fund transfers.
• Limited liability for unauthorized use:  Payroll card holders' liability for unauthorized use of their card is limited, provided the unauthorized use is reported within a certain period of time.
• Error resolution rights:  If a card holder reports a payroll card account error, the financial institution must respond so long as the report is received within a certain period of time.

State Laws

A number of states have laws with additional restrictions on payment of wages via payroll card.  The EFTA and Regulation E preempt state laws only to the extent of any inconsistency between the state laws and the EFTA and Regulation E.  A state law is not considered inconsistent if it affords consumers greater protections than the EFTA and Regulation E do.

Enforcement

The CFPB is authorized to enforce the EFTA and Regulation E against anyone who violates them, including employers and the financial institutions that issue payroll cards.  The CFPB has enforcement authority over covered persons offering payroll cards under the Consumer Financial Protection Act.