WASHINGTON The Consumer Financial Protection Bureau warned banks and other companies that it will pursue action against any employer that forces employees to deposit wages into a payroll card account.
The agency said employers can offer direct deposit on a payroll card as an option, but cannot require it. The CFPB also cautioned that banks and others that use such programs must comply with federal consumer protection laws specifically when it comes to disclosing fees, giving access to account history, unauthorized use and resolving errors.
"Today's release warns employers that they cannot mandate that their employees receive wages on a payroll card," said CFPB Director Richard Cordray in a press release. "And for those employees who choose to receive wages on a payroll card, they are entitled to certain federal protections."
The agency said it has heard reports that employers, particularly in the retail and food service areas, have been paying wages solely through payroll cards, which is against federal law. The CFPB has jurisdiction over payroll cards through the Electronic Fund Transfer Act and Regulation E.
The CFPB said it has also received complaints from employees about unexpected fees when using a payroll card to withdraw funds at ATMs or teller windows as well as when checking the account balance.
The bulletin is similar to one issued earlier this year warning auto lenders that they would be held responsible for partnering with auto dealers who discriminate or up-charge customers on the interest rate. Lawmakers, lenders and auto dealers have raised numerous concerns about the bulletin and CFPB officials have said they will continue to study the market. The most recent bulletin on payroll cards similarly said it would hold banks responsible for improper use of the product.
"The bureau intends to use its enforcement authority to stop violations before they grow into systemic problems, maximize remediation to consumers, and deter future violations," the CFPB said in the announcement. "The bureau also has supervisory authority over larger depository institutions engaged in, among other things, providing payroll cards. The bureau will be looking to ensure that entities comply with federal consumer financial laws."