The Consumer Financial Protection Bureau (CFPB) has published a bulletin reminding employers that they cannot require their employees to receive wages on a payroll card. The bulletin also explains some of the federal consumer protections that apply to payroll cards, such as fee disclosure, access to account history, limited liability for unauthorized use, and error resolution rights.
“Employees must have options when it comes to how they receive their wages,” said CFPB Director Richard Cordray. “Today’s release warns employers that they cannot mandate that their employees receive wages on a payroll card. And for those employees who choose to receive wages on a payroll card, they are entitled to certain federal protections.”
The CFPB has heard reports of employers, particularly in the retail and food service industries, distributing wages solely through payroll cards. Federal law, however, prohibits employers from mandating that employees receive wages exclusively on a payroll card. Payroll cards fall under the CFPB’s jurisdiction under the Electronic Fund Transfer Act (EFTA) and Regulation E. State law typically governs which alternative payment methods employers must offer.
Some employees receiving wages on employer-sponsored payroll cards have complained of unexpected fees for activities such as ATM use, teller withdrawals, and checking the balance of a card. Federal law contains provisions specific to payroll cards that provide employees with certain consumer protections, including:
Disclosure of fees: Payroll card holders are entitled to receive disclosures of any fees that 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 cards 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.
With some limited exceptions, the CFPB has authority to enforce the EFTA and Regulation E against anyone who violates them, including employers and the financial institutions that issue payroll cards. The Bureau intends to use its enforcement authority to stop violations before they grow into systemic problems, maximize remediation to consumers, and deter future violations. The Bureau also has supervisory authority over larger depository institutions engaged in, among other things, providing payroll cards. The Bureau will be looking to ensure that entities comply with federal consumer financial laws.
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