According to a recent national survey, more than 96 percent of American workers prefer to receive their pay by direct deposit or by prepaid, reloadable payroll cards. The use of prepaid cards is on the rise and gaining the attention of state legislatures.
On January 1, 2015, Illinois and Nebraska will become the latest states to authorize prepaid payroll cards, making cards an approved form of wage payment in nearly half the states. States that already permit the use of payroll cards include: Arizona, Colorado, Delaware, Florida, Kansas, Maine, Maryland, Michigan, Minnesota, Nevada, New Hampshire, New Jersey, North Dakota, Oregon, Tennessee, Utah, Vermont, Virginia, and West Virginia.
Payroll cards are subject to federal requirements under the Electronic Funds Transfer Act (EFTA) and Regulation E. At a minimum, the federal rules require:
- Alternative methods of payment: Regulation E prohibits employers from mandating that employees receive wages only on a payroll card of the employer’s choosing. If an employee elects not to use a payroll card, the employer must pay the employee’s wages using a different method.
- Disclosure of fees: Regulation E requires that payroll card holders must receive disclosures concerning any fees that may be imposed or any limitations on the types of transactions that can be made with the card. The disclosures must be “clear and readily understandable, in writing, and in a form the consumer may keep.”
- Account history: A payroll card issuer must provide periodic statements to the card holder or must make the card holder’s account history accessible in some other form.
- Limited Liability for Unauthorized Use: The liability of a payroll card holder for unauthorized use of the card must be limited, provided that the unauthorized use is timely reported.
- Error Resolution Rights: If a payroll card holder makes a timely report of an error relating to the payroll card account, the financial institution must respond to the reported error.
In addition to federal regulations, state laws generally place additional restrictions on the use of payroll cards. Employers in every state should have clear disclosure that employees’ participation in the payroll card program is voluntary and that they have the right to withdraw their consent upon notice to the employer.