On September 12, 2013, the Consumer Financial Protection Bureau (CFPB) issued Bulletin 2013-10 clarifying its position that a federal consumer protection law that most employers likely have not heard of prevents them from requiring employees to receive wages through a pay card. The CFPB issued the bulletin in response to reports it received of employers distributing wages solely through pay cards.
The Electronic Fund Transfers Act (EFTA) generally covers electronic funds transfers to and from consumer accounts. EFTA was modified in 2006 by “Regulation E,” which broadened EFTA’s coverage to include payroll card accounts. EFTA protects consumers by requiring certain fee disclosures, access to account history, limited liability for unauthorized transfers, and error resolution rights.
Regulation E permits employers to require electronic direct deposit of wages, but only if employees are allowed to choose the institution receiving the deposit. Here lies the problem with pay cards. Pay card accounts are set up by employers for their employees at financial institutions of their choosing. As a result, the CFPB bulletin says that employers can offer pay cards as one option for receiving payments, but cannot require them.
The CFPB says that it may enforce EFTA and Regulation E against financial institutions and employers and that it intends to be “proactive about identifying violations, stopping violations before they grow into systemic problems, maximizing remediation to consumers, and deterring future violations.”
The CFPB bulletin reminds employers that they must also follow any additional state restrictions on the manner in which employers may pay their employees. For example, Arizona, Colorado, and Wyoming laws say that direct deposit must be voluntary and set additional requirements on the use of pay cards.