New Rule in Using Payroll Card Accounts

HR Resource
October 16, 2013 — 2,592 views  
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The Consumer Financial Protection Bureau brought out a bulletin in September where it reiterated how the Electronic Fund Transfer Act and Regulation E were applicable to payroll cards also.  However, the high point was the press release that accompanied the bulletin.

In this press release it warned employers against using payroll cards exclusively. It also said that there was a specific reason behind the publication of the bulletin. The press release said that the CFPB had received reports that certain employers, especially in the food service and retail industry were using payroll cards as the sole means to distribute wages. The agency also said that it had received complaints that unexpected fees were being charged for activities like teller withdrawals, balance inquiries, and ATM use.

Payroll Card Accounts and the EFTA

The electronic transfer of money to and from consumer accounts is regulated by the Electronic Funds Transfer Act. The EFTA defines the payroll card account as an account that the employer directly or indirectly establishes, and to which the consumer's wages, salary or other benefits are recurring transferred. A large number of employers view payroll card accounts as necessary to deposit paychecks, even though many employees do not have bank accounts.

Regulation E of the EFTA

Payroll cards are strictly regulated by both the federal and state rules. As per Federal laws, payroll cards are covered by the CFPB, under the EFTA. Regulation E of the EFTA is directed towards payroll cards and is applicable whether the payroll account is company administered, or administered by a third party.

According to Regulation E, employers cannot force their employees to receive their wages on an account that the employer has chosen for him or her. If the employer has chosen direct deposit to pay their employees, the employees must be free to choose which institution will receive the deposit. The employee can also choose to receive it through other means. This is also permissible as per state laws. Examples include cash, paper check or some other means.

Regulation E also places many other requirements on employers.

What Does it Mean for Companies?

Employers who are paying their employees through payroll cards, especially in the food service and retail sectors should be ready for inspections by the CFPB. Further companies should also review their payroll processes to ensure that they are in compliance with state laws concerning payment of wages so that they remain fully protected.

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