10.09.14 |
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Navigating State and Federal Guidelines for Payroll Card Compliance

NavigationRegulation E, which implements the Electronic Fund Transfer Act, is a federal regulation addressing payroll cards, and its stipulations can often be confusing for both employers and employees. While much of Regulation E applies to financial institutions offering payroll card accounts, the Consumer Financial Protection Bureau (CFPB) has clarified its applicability to third parties, including employers.  The CFPB has stated Regulation E prohibits employers from mandating that employees receive wages via a payroll card of the employer’s choosing without offering another option like direct deposit into an account of the employee’s choosing, check or cash.[1]

In addition to federal rules, employers should pay attention to the varied state payroll card laws and regulations.

Despite the regulatory complexity, payroll cards are still gaining ground among consumers, and employers should be prepared to follow federal and state compliance laws. The following are some best practices, highlighted earlier this year in PAYTECH, that can help employers comply with state and federal payroll card regulations:

  •  Don’t accept a vendor’s claim that it must charge fees. Instead, negotiate terms to help ensure that employees have access to all of their wages without fees at least once each pay period (or more frequently if required by state law).
  •  Remember that most ATMs only dispense in $20 increments and some ATMs have daily withdrawal limits. Make sure employees can obtain their full wage amounts by offering other surcharge-free withdrawal options, such as over-the-counter bank teller withdrawals.
  •  Work with your payroll card provider to confirm that free withdrawal options are conveniently located for employees. A surcharge free ATM or ATM network that exists in one state may not exist in another.
  •  While it is acceptable to promote payroll cards, you must not force payroll cards on employees. Instead, offer at least one other payment option, provided the option(s) comply with state law.  It is also important to inform employees of their options, obtain consent and make payroll card account histories easily accessible to participating employees.
  •  Decline vendor commissions and payments based on enrolling employees in payroll card programs. Commissions and other payments can be a red flag for attorneys general and may also violate many wage payment statutes.

Above all, seek more information about payroll cards if you have any questions.


[1] See CFPB Bulletin 2013-10, September 12, 2013.  See also Regulation E of the Electronic Funds Transfer Act, http://www.federalreserve.gov/boarddocs/supmanual/cch/efta.pdf


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