The fees imposed by payroll debit card issuers have prompted numerous lawsuits against these cards. In a recent case, Jessie Chavez v. PVH Corporation, plaintiffs argued that the cards imposed unnecessarily high fees on withdrawals, transfers, balance inquiries, and inactivity. This case is pending in the Northern District of California federal court. Here, we examine the underlying issues and possible solutions to this problem.
Fees imposed by payroll card issuers
Despite the lack of regulation in the payroll card market, fees imposed by payroll card issuers are often higher than for other forms of debit and credit cards. Many major retailers charge customers more than $7 for inactivity fees. These fees are essentially designed to penalize infrequent users. Other fees are balance protection, overdraft protection, and inactivity fees. These fees are not allowed by the Dodd-Frank financial overhaul law.
Payroll card programs may charge fees for point-of-sale transactions, initiation, and inactivity. They must offer free declined transactions twice a month. However, in some cases, employees may be assessed commercially reasonable fees for subsequent declined transactions, such as if they use their card for overdrafts or other transactions. Further, these cards cannot be linked to other forms of credit, overdraft service fees, or cash advances.
Efficacy of payroll card as a payment method
Employers are particularly interested in the payroll card because it can cut down on costs. Paper checks can cost $2 each, which adds up over the lifetime of a network of 100,000 workers. For example, Darden Restaurants estimates that using payroll cards saves them $5 million a year in paper costs. The restaurant chains have partnered with a large bank to issue the cards and assess fees. Payroll cards are convenient for employers and employees alike, but they can also create problems for workers who do not have access to banking services.
In 2015, 7.4 million U.S. employees were paid through payroll cards. The cards resemble traditional debit cards and can be loaded with employee paychecks by companies. Using payroll cards eliminates the expense of printing and distributing paper checks. However, it is important to remember that these cards can cost a substantial portion of a low-wage worker’s income. Often, payroll cards can result in fees equal to half or more of their monthly income.
The legality of payroll card payments
To make payroll card payments legal in every state, employers must follow federal laws regulating minimum wage and other employment-related issues. As of 2013, employers loaded more than $30.6 billion on payroll cards, and more than half of the states have some sort of law regulating payroll cards. The other 12 are preparing to introduce legislation to address payroll card issues in 2015.
Federal law protects employees with payroll cards by requiring employers to offer an alternative method of payment and provide adequate disclosures. Under the Electronic Funds Transfer Act, payroll card wages are covered under federal minimum wage regulations. Thus, payroll card fees cannot reduce the pay of employees below minimum wage. Moreover, most states have passed legislation governing payroll card payments. To make payroll card payments legal, employers must have the employees’ voluntary authorization.
Impact of New York Labor Department’s regulations on payroll cards
If you’re an employer who issues payroll cards in New York, you should take a closer look at the New York Labor Department’s regulations on payroll cards. Two of these provisions are problematic by the State Department of Financial Services, which regulates banks and other financial institutions. This ruling has implications for both employers and employees. This decision has significant implications for employers with payroll card programs in New York State.
While New York’s proposed regulations are not yet final, they do provide a roadmap for employers who wish to make payroll cards available to their employees. The new regulations require that employers disclose all information about the payroll card to their employees and obtain written consent to use it to pay employees. They also eliminate certain restrictions and clarify that electronic consent is permissible. While these changes are still in the works, they will greatly benefit employers and employees.