Payroll Cards – The Inquiry Broadens

Payroll Cards – The Inquiry Broadens

 by Patricia A. Smith, Jeremy T. Rosenblum, and Scott M. Himes

As we reported in our July 11 legal alert, New York Attorney General Eric Schneiderman has commenced an investigation into the widening practice of employers paying hourly employees through the use of prepaid payroll cards. The Attorney General is reportedly looking into whether card usage fees are excessive, insufficiently disclosed, or violate New York wage and hour and wage payment laws. The use of payroll cards raises a host of legal issues in addition to those being investigated by Mr. Schneiderman.

Now, a group of 16 Democratic U.S. senators have written a letter to the Consumer Financial Protection Bureau (CFPB) and U.S. Department of Labor (DOL), terming it “shocking” that low-wage workers incur so many fees using their payroll cards that “their net income ends up below the minimum wage.” 

The senators are seeking clarification from the CFPB on whether particular fees violate Regulation E, which implements the Electronic Funds Transfer Act, and whether Regulation E requires employers to offer employees a payroll payment option other than through a particular payroll card. These senators expressed the view that “mandating the use of a particular payroll card, with no available alternative, seems clearly to violate federal law.”

Similarly, the letter asks the DOL to clarify its role in overseeing these types of payroll payment programs and requests that the agency advise on what disclosures employers must currently provide employees regarding fees associated with the cards. The senators urge the DOL to consider additional rulemaking in this area, including requiring employers to post workplace notices to provide employees information necessary “to make sound decisions about their paychecks.” 

We can expect further attention to this area, which is currently marked by a patchwork quilt of state and federal laws governing payroll payment systems and practices.

Ballard Spahr’s Labor and Employment Group and Employee Benefits and Executive Compensation Group routinely assist employers with payroll matters. The firm’s Consumer Financial Services Group frequently assists issuers and distributors of prepaid cards, including payroll cards. The firm’s New York office, opened in July 2013, provides an expanded platform from which the firm’s lawyers work with new and existing clients. Operating as Ballard Spahr Stillman & Friedman, the office is home to 14 litigators whose substantial experience includes defending clients under investigation by the New York AG.

Copyright © 2013 by Ballard Spahr LLP  (No claim to original U.S. government material.)

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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

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