New York Cracking Down on Payroll Debit Cards

The New York State Department of Labor (NYSDOL) recently proposed regulations that would restrict an employer’s use of payroll debit cards for the payment of wages.

The proposed employment regulations would impact approximately 13,000 New York businesses that pay wages to approximately 200,000 workers via payroll debit cards. Across the country, an estimated 5.8 million workers received their wages via payroll debit cards in 2013, and that number is expected to double by 2017. Payroll debit cards, which serve as an alternative to direct deposit and traditional paper checks, provide benefits for employers and workers. For businesses, they generally cost significantly less. According to Visa, a payroll card deposit costs an employer $0.35 compared to $2.00 to issue a paper check. Many workers prefer pre-paid debit cards because their wages are available electronically on the same day that they are paid and can be used like a traditional debit card to make purchases, secure hotel and car rentals, pay bills, etc. However, as highlighted in a 2014 report by the New York State Attorney General, payroll cards can also have downsides. According to New York Attorney General Eric Schneiderman, “Virtually all payroll card programs charge fees for card-related activities, and these fees can add up, reducing the meager take-home pay received by the lowest paid workers in the state.”

Proposed Regulations

The NYSDOL’s proposed regulations address many of the concerns discussed in the Attorney General’s report. Below are several key provisions of the proposed payroll card rules:

• Informed Consent: Employers must obtain the employee’s informed consent without intimidation, coercion, or fear of adverse action by the employer for refusal to accept the payroll debit card or payroll debit card account. In addition, employers may not make participation in the payroll debit card program a condition of hire or of continued employment.
• Written Disclosures: At least seven business days prior to seeking consent to issue wages by payroll debit card, employers must provide the following information in writing: (i) a plain language description of all of the employee’s options for receiving wages; (ii) a statement that the employer may not require the employee to accept wages by payroll debit card or by direct deposit; (iii) a statement that the employee may not be charged any fees for services that are necessary for the employee to access his or her wages in full; and (iv) a list of locations where employees can access and withdraw wages at no charge to the employees within reasonable proximity to their place of residence and place of work.
• Fee Restrictions: Employers must provide at least one method of withdrawal up to the total amount of wages for each pay period or balance remaining on the payroll debit card without the employee incurring a fee. In addition, fees may not be imposed for point of sale transactions, overdraft, shortage, low balance status, account inactivity, maintenance, and customer service.
• Miscellaneous provisions: Employers cannot pass along its costs to the employee for receiving wages via payroll debit card, nor can the employer receive any kickback or other remuneration from a card issuer for using a payroll card.

The proposed payroll card regulations are slated to take effect following a notice and comment period, which ends on July 31, 2015.