Employers should be aware that payroll cards are subject to federal regulation under the Electronic Funds Transfer Act (EFTA) and Regulation E, which implements the EFTA. Regulation E, among other things, requires that the employee receive certain disclosures concerning the fees associated with the payroll card, places limitations on the employee’s liability for unauthorized transfers using the payroll card, and provides error resolution procedures relating to the payroll card.
In addition, the Consumer Financial Protection Board (the “CFPB”)
recently issued a bulletin instructing employers that Regulation E
prohibits an employer from mandating that its employees receive their wages only on a payroll card selected by the
employer. The CFPB’s bulletin makes
clear that the employer may require employees who do elect to receive their
wages on a payroll card to use only an employer-selected card, but the employer
must also offer its employees other options for receiving their wages, such as
by direct deposit to a deposit account at the employee’s financial institution
or in the form of a check or cash.
The CFPB was formed in 2010 and has become increasingly active in
enforcing consumer finance laws and regulations. The CFPB has now been authorized to enforce
the EFTA and Regulation E against employers that issue payroll cards to
pay wages. To avoid being subject to
CFPB enforcement action, employers should ensure that, if they use payroll
cards for the payment of wages, the payroll cards are one of several payment
options available to employees and that the terms that apply to the payroll
cards are compliant with the EFTA and Regulation E.
In addition, an employer needs to be sure that its wage payment methods
and any payroll cards used to pay wages comply with applicable state law. The EFTA and Regulation E permit states to
adopt laws that provide for greater protection to employees than the EFTA and
Regulation E. Minnesota, for example, allows
the use of payroll cards as a wage payment option, but imposes requirements
similar to Regulation E on the terms applicable to payroll cards. In addition, Minnesota law does not permit an
employer to mandate that employees accept wage payment by direct deposit, but
allows employers to provide direct deposit as a payment option.
A post by Phil Bohl, Guest Blogger
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