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Mandatory Payroll Card Use Prompts U.S. Consumer Bureau Warning

By November 7, 2016Growth, Local

Mandatory Payroll Card Use Prompts U.S. Consumer Bureau Warning

The U.S. Consumer Financial Protection Bureau today said it will police employer usage of payroll cards to ensure workers don’t face hidden fees or other abuses.

“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 agency said in an e-mailed statement.

The CFPB said it has received reports of employers, particularly in retail and food-service industries, requiring employees to receive wages only on payroll cards, a practice prohibited by law. The agency also said it has received complaints about unexpected fees for cash withdrawals, balance inquiries and other uses of the cards.

Payroll cards resemble prepaid debit cards, but are funded by wages paid by an employer. About 4.8 million of the payroll cards were issued in 2011, a number that is expected to grow to 8.4 million in 2015, according to a Mercator Advisory Group report from October 2012. The cards had $26.5 billion loaded onto them in 2011, and could have $46.3 billion in 2015, the Maynard, Massachusetts-based consultancy said.

Madeline Aufseeser, a senior analyst with the Boston-based Aite Group, a financial services consultancy, called the CFPB move “good for the industry and good for consumers” because it serves as a reminder to employers while relying on existing consumer-protection law instead of new regulations.

Bureau Jurisdiction

The consumer bureau, created by the 2010 Dodd-Frank law, has jurisdiction over payroll cards, and the ability to enforce the law against both employers and financial institutions that issue the cards, according to the statement. State law typically regulates what payment methods employers must offer, according to CFPB.

First Data Corp., which is owned by private equity firm Kohlberg Kravis Roberts & Co. (KKR), is the leader in the payroll card business, according to Aufseeser, with 49 percent of the market. JPMorgan Chase & Co. (JPM) and Brentwood, Tennessee-based Comdata Network Inc. each have about 5 percent of the market.

Employers “cannot mandate that their employees receive wages on a payroll card,” CFPB Director Richard Cordray said in an e-mailed statement. “And for those employees who choose to receive wages on a payroll card, they are entitled to certain federal protections.”

The law requires payroll card holders to receive disclosures outlining all fees associated with the card, access to the card account’s history, liability limits for unauthorized use and error-resolution procedures.

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