In my last blog post, “To Fee or Not to Fee—The Pros and Cons of Payroll Cards,” I discussed the growing popularity of payroll cards and several U.S. senators’ plea for guidance on this burgeoning pay practice. Perhaps in response to that letter, the Consumer Financial Protection Bureau (CFPB), on September 12, 2013, issued a bulletin, CFPB Bulletin 2013-10, regarding payroll cards and the effect that the Electronic Fund Transfer Act (EFTA) has on them. So, just what does this bulletin that has caused so much buzz say? Surprisingly, the answer is—nothing new. In fact, the CFPB explicitly states that it is issuing the bulletin to “reiterate” the application of Regulation E of the EFTA to payroll cards. This bulletin does not change the current state of federal law regarding payroll cards, and it does not have any effect on state laws.
Regulation E’s Payroll Card Provisions
But, while we are on the topic, let’s look at the question that the bulletin purports to answer—what effect does Regulation E have on payroll cards? Regulation E imposes requirements on financial institutions (not employers) offering payroll card accounts, including the following:
- Disclosures. Regulation E provides that payroll card holders are entitled to receive certain disclosures, including information regarding fees that they may incur for using the payroll card, limitations on liability, the types of transfers that they may make with the payroll card, and error resolution.
- Access to Account History. Regulation E states that a payroll card issuer must provide periodic statements regarding the payroll card account. Alternatively, the payroll card issuer may: (1) make the account balance available by telephone; (2) make a 60-day history available via the Internet; and (3) upon an oral or written request, promptly provide a written history of the account transactions for at least the previous 60 days.
- Limited Liability for Unauthorized Transfers. Regulation E’s limited liability exceptions apply to payroll cards, which means that the payroll card holder’s liability for unauthorized transfers will be limited, provided the cardholder reports the unauthorized transfer in a timely manner.
- Error Resolution Rights. The payroll card issuer must respond to a report of errors from the payroll card holder if it is timely received.
Regulation E’s Impact on Employers
So, does any part of this bulletin apply specifically to employers? Yes. The CFPB bulletin reiterates that Regulation E states that no “financial institution or other person” (i.e., employer) can mandate that an employee receive direct deposit into an account at a particular institution (i.e., a specific payroll card). In other words, Regulation E prohibits employers from mandating that employees receive wages via a payroll card of the employer’s choosing with no other options available. These other options could be direct deposit, check, cash, or any combination of the three. The bulletin also reminds us that Regulation E preempts state laws relating to payroll cards, but only to the extent that the state law is inconsistent with Regulation E.
Does the CFPB Bulletin Change the Way Employers Should Pay Employees?
While the CFPB bulletin does not offer any new guidance, it does offer insight into the attention agencies are giving to payroll cards and to possible violations of the laws regarding them. It is clear that payroll cards are not going away any time soon, and neither are the agencies that regulate them. That said, it is in the best interest of employers to dot their I’s and cross their T’s when dealing with payroll cards to avoid being targeted by government agencies or possibly defending a class action.