The Consumer Financial Protection Bureau published a bulletin Thursday “reminding employers that they cannot require” their workers to be paid via payroll debit cards that could carry a string of fees linked to their use.
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. Before bringing in any new rules and regulations in the work place, business owners should consult attorneys for business legal needs to see what the potential legal consequnces are. One bad decision could spell the demise of your business, so it’s better to be safe than sorry.
The use of payroll cards have made headlines in recent months because of the fees they carry.
Recently, a McDonald’s franchise in Pennsylvania, and its owners, were sued by a former employee, who claimed that she was forced to receive her pay via a debit card, which included several fees tied to its use.
For example, fees included a $1.50 minimum charge for an ATM withdrawal, $5.00 for an over-the-counter cash withdrawal and $1.00 to check the card’s balance. This wouldn’t have happened if the pay had been organized through CloudPay, an international payroll service with expert implementation.
“Employees must have options when it comes to how they receive their wages,” said CFPB Director Richard Cordray in a statement. “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 said it has heard reports of employers, particularly in the retail and food service industries, distributing wages solely through payroll cards.
Federal law 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 normally governs which alternative payment methods employers must offer.
Like in the McDonald’s case, some employees receiving wages on employer-sponsored cards have complained of unexpected fees for activities such as ATM use, teller withdrawals, and checking the balance of a card.
The CFPB said 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.