The Consumer Financial Protection Bureau has issued a bulletin to reiterate the application of the Electronic Fund Transfer Act (EFTA) and Regulation E, which implements the EFTA, to payroll card accounts. Payroll card accounts are accounts that are established directly or indirectly through an employer, and to which transfers of the consumer’s salary, wages, or other employee compensation are made on a recurring basis.
The EFTA generally covers the electronic transfer of funds to and from consumers’ accounts. Since 2006, Regulation E has defined the term “account” to include a “payroll card account” and covers such accounts “whether … operated or managed by the employer, a third party payroll processor, a depository institution or any other person.” Thus, employees whose wages are deposited onto a payroll card are entitled to the protections of the EFTA generally, and Regulation E’s provisions applicable to payroll cards specifically.
The protections in Regulation E for consumers who receive wages on a payroll card mirror those available to consumers who make electronic fund transfers (EFTs) generally with some exceptions. These protections include the following:
Regulation E requires that these disclosures be made at account opening or before the first transfer occurs. Regulation E also provides that the disclosures be “clear and readily understandable, in writing, and in a form the consumer may keep.”
In addition to these protections for holders of payroll cards, Regulation E states clearly that no “financial institution or other person” can mandate that an employee receive direct deposit into an account at a particular institution. Accordingly, Regulation E prohibits employers from mandating that employees receive wages only on a payroll card of the employer’s choosing.
Regulation E permits an employer to require direct deposit of wages by electronic means if the employee is allowed to choose the institution that will receive the direct deposit. Alternatively, an employer may give employees the choice of having their wages deposited at a particular institution (designated by the employer) or receiving their wages by another means, such as by check or cash. Thus, an employer may not require that its employees receive their wages by electronic transfer to a payroll card account at a particular institution. An employer may, however, offer employees the choice of receiving their wages on a payroll card or receiving it by some other means. Permissible alternative wage payment method(s) are governed by state law, but may include direct deposit to an account of the employee’s choosing, a paper check, cash, or other evidence of indebtedness.
The EFTA and Regulation E preempt state laws “relating to” EFTs, among other things, only to the extent of any inconsistency between the state laws and the EFTA/Regulation E. A state law is not considered inconsistent with the EFTA and Regulation E if the state law affords consumers greater protections than afforded by the EFTA and Regulation E.