Federal, State Proposed Rules Affect Payroll Card Notices, Fees

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By Christine Pulfrey

Federal and state regulation of payroll cards and enforcement by courts are areas of increased activity and significant developments that employers should monitor to ensure compliance and avoid liabilities.

Proposed Regulations

The Consumer Financial Protection Bureau, which enforces consumer financial laws including the Electronic Fund Transfer Act and its implementing Regulation E, issued a proposed rule that was published Dec. 24, 2014, in the Federal Register (79 Fed. Reg. 77101). The proposed rule received 6,128 comments.

Federal regulations do not govern employers' wage-payment methods. State law determines the acceptable payment methods. If federal and state payroll card requirements conflict, the provision giving employees the most protection takes precedence.

Under Regulation E, direct deposit is allowed if employees can choose the financial institution to receive the deposit, but with payroll cards, employers are choosing the financial institution, not the employees, Cathy S. Beyda, a lawyer with Paul, Hastings, Janofsky & Walker, said in a June 4 interview with Bloomberg BNA.

“Concerns persist as to whether and how employers and financial institutions are complying” with Regulation E's provisions and with the state laws that apply to wage distribution,” the Consumer Financial Protection Bureau said in the proposed rule, noting that employees may not be aware of how they may receive wages because of different, evolving state requirements.

The proposed rule to Regulation E requires short- and long-form explanations of associated fees to be provided to payroll card users as well as language indicating that receiving wages with payroll cards is voluntary.

Attorneys general of Illinois, Lisa Madigan, and New York, Eric T. Schneiderman, submitted comments supporting the proposed rule.

Requiring two disclosures—a short-form disclosure of the most important fees and a long-form disclosure of all associated fees and conditions—might be somewhat confusing to employees who receive them, said Beyda, who also is chairwoman of the American Payroll Association's payroll card subcommittee, and co-authored the letter with the APA's government relations director, William Dunn, CPP.

The notices should be framed in a positive light and there should be clarification on when the disclosures must be provided, Beyda said.

Fast Food and a Class Action

Typically, three or four states introduce payroll card bills each year, but in 2014 there was “a significant spike over previous years,” with 22 bills introduced in 17 states, Beyda said, attributing the increase to a 2013 lawsuit that gained national attention.

Natalie Gunshannon, a worker at a Pennsylvania McDonalds, claimed that the franchise owners violated state wage laws by paying workers using payroll debit cards that charged fees that brought their pay to less than the state's minimum wage (Gunshannon v. Mueller, Pa. Comm. Pleas Ct., No. 2013-7010, filed 6/13/13).

Gunshannon removed herself from the claim, which under a May 14 order was certified as a class action of 2,380 members and on May 29 was allowed to proceed.

The court ruled that the payroll card was not the functional equivalent of lawful money or a check and denied the franchise owners' motion for a favorable judgment (Siciliano v. Mueller, Pa. Comm. Pleas Ct., No. 2013-7010, 5/29/15).

David S. Senoff, an attorney at Coreselli Beachler McTiernan & Coleman LLC and lead council for the class action, said the May 29 ruling against the franchise owners was “the last hurdle before trial.”

The case awaits a decision by the franchise owners, to be made by late June, on whether to appeal to a state superior court, Senoff said.

Otherwise, the next step in the case is for the court to issue an order requiring notice of certification to be sent to class members and a determination to be made regarding damages owed to the employees, Senoff said.

If liability can be established, “it appears likely that each member of the class would be entitled to at least $500 in liquidated damages” under state law, the May 14 order said.

State Developments

The Gunshannon lawsuit influenced the 2014 legislative and regulatory payroll card landscape, but bills and rules being considered in New York may influence what comes next, Beyda said.

A payroll card bill (S. 2590) proposed by Schneiderman and sponsored by Sen. Patrick Gallivan (R) is under consideration by the New York Assembly, which is to close its legislative session in mid-June.

New York's labor department published proposed regulations in the May 27 State Register that are to take effect after a 45-day notice and comment period to end in mid-July.

The proposed rules include requiring worker consent before payroll card payments, keeping a record of consent for six years, notifying workers of nearby locations where they may use the cards to access wages for free and prohibiting fees.

The New York labor department “wants to impose restrictions on payroll cards, offered on a voluntary basis, that are not imposed on any other method of wage payment,” Beyda said.

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