The Consumer Financial Protection Bureau (CFPB), which is responsible for enforcing the Electronic Fund Transfer Act (EFTA) and related Regulation E, recently issued Bulletin 2013-10 explicitly prohibiting the mandatory use of payroll card accounts at an employer-selected financial institution and otherwise discussing the requirements for such use. Of note is the fact that the EFTA and Regulation E specifically preempt any state laws relating to EFTs, unless the state law affords more protection to the consumer. Further, the CFPB has clarified that these regulations apply to both employers and large depository institutions engaged in providing or utilizing payroll card accounts.
Significant guidance within the bulletin includes the CFPB’s ban against employer mandates that employees receive wages only on a payroll card of the employer’s choosing, and the agency’s position that employers must offer wage payments by some other means. Subject to state law requirements, the CFPB approves mandatory direct deposit at a financial institution of the employee’s choosing, or, alternatively, allowing the employee to choose among wage deposits at an institution designated by the employer, or a check or cash payment. In the event of a payroll card use, the bulletin also outlines some important consumer protections with which employers and financial institutions must comply, including: