Federal Final Rules Expand Disclosure, Reflect Comments

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Disclosure and account information is to be available to employees who choose to receive wages through payroll cards under a final rule issued Oct. 5, 2016, by the Consumer Financial Protection Bureau.

The rule ( RIN 3170-AA22 ) expands the federal consumer protections available to users of prepaid products, such as payroll cards.

Employees who choose to participate in a payroll card program are given a prepaid card issued by the employer’s bank. Each payday, employers transfer wages to a card account instead of issuing a check or making a direct deposit into an employee's bank account.

Direct deposit remains the most popular form of wage payment, but in 2015 more workers received wages on payroll cards than by paper check, said Aite Group LLC, an independent information and research company. About 12.2 million workers were expected to receive wages through payroll cards by 2019, compared with 2.2 million workers expected to receive paper checks, Aite said.

The total funds transferred to payroll cards is expected to grow an average of 6 percent each year until 2019, when it would reach $44.6 billion, Mercator Advisory Group said.

However, concern has arisen over the past 10 years about “potentially harmful fees and practices” associated with such cards, the Consumer Financial Protection Bureau said. “For example, employees may not always be aware of the ways in which they may receive their wages because states may have differing and evolving requirements.”

Employers may offer a payroll card account to an employee at the start of employment when a worker may not have the time or opportunity to inquire about such accounts or review payroll card information. The information new hires receive also may not include all the card’s terms, conditions and fees.

The final rule amended existing rules and created new ones for payroll card accounts. Most of the rule's changes are to take effect Oct. 1, 2017; a provision requiring account agreements to be submitted to the bureau is to take effect Oct. 1, 2018.

Under the rule, banks are to provide three disclosures before a card is established, including short-form and long-form disclosures.

Among other requirements: more information is to be included with initial disclosures, change-in-terms notices are to be provided in more situations, account histories are to cover a longer period and periodic statements and account histories are to include more fee-related information.

Employers generally coordinate with a bank to set up a card program. The bank that issues the cards and holds the funds that are loaded into the card accounts is responsible for many of the disclosure requirements imposed under the final rule.

Some state wage and hour laws require employers to provide disclosures, so although banks are to provide disclosures, employers should ensure that the disclosures are adequate for state and federal laws, said Cathy Beyda, a lawyer at the firm Paul Hastings who focuses on banking and payment systems.

When selecting a payroll card program, employers should ensure that providers comply with other state and federal requirements as well, said Beyda, chairman of the American Payroll Association's government affairs task force on payroll cards and its user group. Multistate employers should confer with legal counsel and payroll card providers when selecting a vendor and rolling out a program, she said.

The bureau listened to several APA suggestions about what should be provided, including the addition of state-law requirements to disclosures, she said.

Reference to state-required information, fee discounts and waivers is allowed with the short-form disclosure, the rule said. Long-form disclosures also may be included, it said.

“You don’t mess with the short form,” which could fit on a standard sheet of paper, but you could put the state disclosure on the bottom, which reduces the pieces of paper and number of forms provided to employees, Beyda said.

In many cases, the state’s disclosure requirements are such that they may easily accompany the final rule’s short form, Beyda said.

However, that is not always the case. For example, New York recently issued payroll-card regulations that address payroll card-related disclosures.

The requirements are prescriptive and the state plans to issue templates, Beyda said.

To contact the reporter on this story: Christine Pulfrey in Washington at cpulfrey@bna.com . To contact the editor responsible for this story: Michael Trimarchi at mtrimarchi@bna.com

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