Compliance & Regulations

Regulation E and the Prepaid Rule

Federal Regulation E implements the Electronic Fund Transfer Act (“EFTA”), which establishes the basic rights, liabilities, and responsibilities of consumers who use electronic fund transfer services and of financial institutions that offer these services. The primary objective of the EFTA and Regulation E is the protection of individual consumers engaging in electronic fund transfers.

Effective July 1, 2007, the Board of Governors of the Federal Reserve System ("Board") amended Regulation E to expressly cover payroll card accounts. The amendment also defines "payroll card account" and revises certain provisions of Regulation E and the official staff commentary to the regulation as they apply to payroll card accounts.

In July of 2011, enforcement authority over Regulation E was transferred from the Board to the Consumer Financial Protection Bureau ("CFPB"). The CFPB issued a final rule ("Prepaid Rule") extending Regulation E to a broad range of prepaid accounts on October 5, 2016. The Prepaid Rule was scheduled to become effective April 1, 2018, however, the effective date has been delayed until April 1, 2019. The prepaid rule creates additional consumer protections for prepaid accounts including payroll card accounts already subject to Regulation E. Information about the Prepaid Rule, including its text and a summary of the provisions impacting payroll card accounts, can be found on the CFPB website.

CFPB Bulletin 2013-10 (Payroll Cards)

On September 12, 2013, the Consumer Financial Protection Bureau (CFPB) issued a bulletin reiterating that the Electronic Fund Transfer Act and Regulation E apply to payroll card accounts. The Bulletin emphasizes that Regulation E prohibits employers from mandating that employees receive their wages using a payroll card. The CFPB explained that an employer may offer its employees a choice between a payroll card and another payment method, and that permissible alternative method(s) of wage payment are governed by state law. The Bulletin also describes other Regulation E protections that apply to consumers who receive wages using a payroll card account, as well as the scope of the CFPB's supervisory authority.

General Counsel Opinion No. 8, Insurability of Funds Underlying Stored Value Cards

Federal Register / Vol. 73, No. 220 / Thursday, November 13, 2008

In this Opinion, the Federal Deposit Insurance Corporation ("FDIC") affirms that the funds underlying stored value products (including payroll cards) are considered insurable deposits if they have been placed at an insured depository institution. The Opinion further states that when the funds underlying a stored value card are held in a pooled account, the cardholder (e.g., the employee) will be treated as the owner of the funds if the FDIC's standard requirements for pass through insurance are satisfied.

The Alabama statutes and regulations do not expressly address the payment of wages using paycards.

The Alaska statutes and regulations do not expressly address the payment of wages using paycards.

Arizona Revised Statutes, §§ 23-350 and 23-351
Paycard provisions added by HB 2151 (Chapter 193)
Effective July 20, 2011
Arizona Revised Statutes sections 23-350 and 23-351permit the deposit of wages to a payroll card account if an employee has been offered direct deposit but does not provide consent or designate a financial institution for the deposit. In addition, they provide that whenever an employee's wages are deposited to a payroll card account, the employee must be provided with a statement of earnings and deductions, one free withdrawal for each deposit of wages per pay period, and a list of fees associated with the use of the payroll card account.

The Arkansas statutes and regulations do not expressly address the payment of wages using paycards.

Opinion Letter No. 2008.07.07

Colorado Revised Statutes, § 8-4-102
Paycard provisions added by SB 120 (2008 Chapter 56)
Effective August 2008
Section 8-4-102 of the Colorado Revised Statutes authorizes an employer to deposit wages on a paycard so long as the employee (1) is provided a free means of access to the entire amount of net pay at least once per pay period, or (2) may choose to be paid using another authorized method of wage payment (e.g., cash, checks or direct deposit).

Connecticut General Statutes, § 31-71k
Added by SB 211 (Public Act 16-125)
Effective October 1, 2016
This statute authorizes the payment of wages using payroll cards with the employee's voluntary and express authorization provided certain conditions are met. Among other things, the statute sets forth specific requirements for providing employees with access to cash wages and account information without cost. It also requires disclosures and alternative payment options, includes a number of fee restrictions, and prohibits linking payroll cards to any form of credit. Please consult the statute for complete and specific information.