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Paycards 2 of 4: Regulation E

In addition to keeping up with paycard regulations in the states in which your business operates, it’s also necessary to know the rules that were established to help protect consumers nationwide.

Regulation E was issued by the Federal Reserve to set procedures for electronic funds transfers (EFTs), customer liability rules for unauthorized card usage and guidelines for the issue and sale of electronic debit cards.1 Regulation E also provides a basic framework to establish rights, liabilities and the responsibilities of cardholders.2

Money Transfer

 

It’s important to have these rules in place to safeguard consumers. When Regulation E was established, paycards were not one of the consumer accounts outlined in the rules. In 2007, the Consumer Financial Protection Bureau amended the regulation to extend the application of the Electronic Fund Transfer Act and Regulation E to paycards. 3 It also issued a bulletin in 2013 to reiterate and communicate this amendment.4

Paycards are issued directly or indirectly through an employer to pay an employee’s wages, salary and other compensation.5  The protections placed on consumer paycards mirror those of electronic transfer funds, with a few exceptions.3  Paycard protections under Regulation E include:

  • Disclosure: Cardholders are entitled to receive disclosures of any fees issued by the institution when the account is opened or before the first transaction occurs. 6
  • Access to Account History: Paycard issuers must either provide periodic statements or make the customer’s account information available via telephone, electronic history or in written form, upon request. 7
  • Limited Liability for Unauthorized Transfers: Limited liability protections fully apply to paycards.8
  • Error Resolution Rights: Financial institutions must respond to a consumer’s report of errors within 60 days of a consumer accessing its history, receiving written notice or within 120 days of the alleged error – whichever comes first.9

Regulation E prohibits employers from mandating that employees receive wages via paycard, although an employer can require direct deposit of wages as long as the employee can choose the institution that will receive the direct deposit.10

Learn more about how to stay compliant with paycard regulations when evaluating your company’s wage payments options. Click here for more information about alternative forms of payment that businesses are turning to, including ADP’s electronic payment solutions.

 

Learn More About ADP SmartCompliance® Wage Payments


The information provided in this blog post is for informational purposes only and not for the purpose of providing accounting, legal, or tax advice.  The information and services ADP provides should not be deemed a substitute for the advice of any such professional.  Such information is by nature subject to revision and may not be the most current information available.

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1 “Regulation E Electronic Fund Transfer Act,” Consumer Compliance Handbook, p. 1.

2, 3 “The Scope of Regulation E Now Covers Payroll Cards,” Compliance Corner, p. 1.

4, 5, 6, 7, 8, 9, 10 Payroll Card Accounts (Regulation E), CFPB Bulletin 2013-10, p. 1-4.

 

 

 



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