For Employees, Clarity on Payroll Cards


Employees who want to receive wages through a payroll card may benefit from a final federal payroll card rule, issued Oct. 5, 2016, that integrates into card transparency requirements input from payroll professionals, who sought to limit the paperwork such disclosures might impose. 

Direct deposit is the most popular form of wage payment, but an estimated 12.2 million workers are expected to receive their wages on payroll cards by 2019, according to the Consumer Financial Protection Bureau, which cited data from Aite Group LLC in the final rule. 

In 2016, Connecticut and New York joined the ranks of nearly half of the states that have approved payroll card use through opinions, legislation or regulations.

Effective Oct. 1, 2016, Connecticut employers may under certain conditions compensate employees using payroll cards, under S.B. 211, signed June 7 by Gov. Dan Malloy (D). The conditions include voluntary and written permission by employees, three free withdrawals per pay period and prohibition on passing on employers’ payroll costs to employees.

New York payroll card regulations (LAB-21-15-00009-A), published Sept. 7 in the New York Register and effective March 7, 2017, allows  employers to use payroll cards with requirements such as voluntary written consent from employees at least seven business days before wage payment is made, the provision of a plain-language description of all payment options, a statement that no fee may be charged to access wages and a list of places near home or work to access and withdraw wages for free.

States that have payroll-related requirements include Arizona, California, Colorado, Delaware, Florida, Georgia, Hawaii, Illinois, Kansas, Maine, Maryland, Michigan, Minnesota, Nebraska, New Hampshire, North Dakota, Oklahoma, Oregon, Tennessee, Texas, Vermont, Virginia, Washington and West Virginia.

State requirements differ, however, regarding whether payroll card use is mandatory or voluntary and for which employees, whether access to full wages is free and fees and disclosures. Employees also may be unaware of their wage-payment options and overwhelmed by the information and paperwork.

The CFPB’s final rule requires that detailed payroll card disclosure and account information be made available and creates new account requirements. Among them, employees must be provided three disclosures, including a long and short form disclosure, before an account is set up. 

The federal rule also requires that change-in-terms notices be provided in more situations, account histories cover a longer time period and periodic statements and account histories include more fee information.

The rule provides needed information about payroll cards, but raised concern about the amount of federal and state paperwork that workers would have to wade through.

The American Payroll Association suggested in comments on the rule that state-law payroll-card requirements be included with the federal disclosures. 

Often, the state’s disclosure requirements may easily accompany the CFPB final rule’s short form, said Cathy Beyda of counsel for the law firm Paul Hastings and chairman of the American Payroll Association's government affairs task force on payroll cards and the association's payroll card user group.

The CFPB’s federal short-form disclosure could fit on a standard piece of paper, so you could put the state disclosure on the bottom, which reduces the pieces of paper and number of forms, she said.

The CFPB accepted the suggestion, and the final rule allows references on the federal short-form disclosure to state-required information and other fee discounts and waivers, striking a balance that means workers gain a lot more information and a little less paperwork.

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