Monday, September 16, 2013

Employers cannot force employees to receive their pay on electronic 'payroll' cards

After complaints from employees about high and unexpected fees on debit cards, the Consumer Financial Protection Bureau (CFPB) has issued a new bulletin warning employers against using only so-called payroll cards to pay employees.  The CFPB says that workers must be able to choose how they receive wages and if they choose to be paid with payroll cards, employers must clearly disclose all fees in advance.

This guidance comes two months after the CFPB received a letter from 16 Senate Democrats expressing concerns that employers might be taking advantage of their workers and pressuring them to use the cards. According to a report in The New York Times, businesses can sometimes receive commissions for getting their employees to use the payroll cards. 

“As the CFPB has now made clear, employers who provide payroll cards must allow their employees to opt out and must clearly disclose all fees in advance,” Sen. Richard Blumenthal (D-Conn.), who signed the original letter, said in a statement. 

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.