Consumer Financial Protection Bureau scolds employers forcing payroll debit cards

Despite 2006 rule, a growing number of firms use them

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Following a spate of negative press reports and complaints from Congress about fees associated with payroll debit cards, federal regulators have issued a warning to employers that they cannot force workers to receive their pay on the cards.

The bulletin was issued this month by the Consumer Financial Protection Bureau, the consumer watchdog agency created in the wake of the nation's recent financial crisis. The agency took the action as an increasing number of companies have been depositing employee wages onto payroll debit cards as a paperless alternative to checks.

Locally, market leader PNC Bank offers a payroll debit card program that's being used by Allegheny County and Pittsburgh Public Schools.

Banks tout the cards as a way for employers to cut payroll costs and to give workers immediate access to their funds. The cards also offer employees the convenience of making purchases as they would with a regular debit card instead of carrying cash. And they allow people who don't have bank accounts to avoid high fees charged by check-cashing stores.

But payroll cards typically have fees of their own. Terms vary, but costs can include monthly maintenance fees and fees for cash withdrawals, balance inquiries and lost cards.

Using the card to make purchases typically is free.

Payroll card usage is expected to grow, possibly fueled by the commissions that some employers receive from banks for each employee they sign up to a particular card.

In July, a group of U.S. senators wrote to the financial protection bureau urging it to investigate fees and practices associated with payroll cards. The senators expressed particular concern that some employers may be "coercing" employees into accepting the cards by giving them no other option for receiving their pay.

"Every employee should have the right not to use such a card and instead receive their pay via a paper check or direct deposit," the senators wrote.

In June, a Luzerne County, Pa., woman sued a McDonald's franchisee in Shavertown near Wilkes-Barre, claiming her boss forced her to sign up for a JPMorgan Chase payroll card that would have charged her $1.50 every time she went to an ATM.

Her attorney, Michael Cefalo of Cefalo and Associates in West Pittston, said this week that the pronouncement by the Consumer Financial Protection Bureau bolstered the class-action suit, filed against Albert and Carol Mueller, owners of more than a dozen McDonald's restaurants in eastern Pennsylvania.

"Now you have a government agency saying what we said" in trying to stop employers from force-feeding employees payroll cards, Mr. Cefalo said.

In its bulletin, the financial protection bureau said it was reiterating a 2006 ruling that specifically included payroll card accounts under Regulation E of the Electronic Fund Transfer Act. The regulation prohibits mandating that employees receive direct deposit into an account at a particular institution chosen by the employer.

"Thus, an employer may not require that its employees receive their wages by electronic transfer to a payroll card account at a particular institution," the bulletin said. "An employer may, however, offer employees the choice of receiving their wages on a payroll card or receiving it by some other means," such as direct deposit to an account of the employee's choosing, paper check or cash, the consumer agency wrote.

The agency also noted that it has the authority to enforce electronic fund transfer rules and that it intends to stop violations "before they grow into systemic problems."

Allegheny County recently began distributing all payments to foster parents via PNC payroll debit cards. For now, the program is mandatory for the approximately 2,000 foster parents in the program, but the county could reconsider and offer an alternative if enough people complained, said Brad Korinski, chief counsel in the county controller's office. So far, he said, he was not aware of any complaints.

Mr. Korinski said he was unaware of the financial protection bureau's bulletin, but assumed that it did not apply to the foster care program because foster parents are not employees of the county.

A spokeswoman for Pittsburgh Public Schools said the school district's payroll card program was optional.

Mr. Korinski said Allegheny County launched the debit card program because foster parents frequently complained about not getting their checks on time. Rather than waiting for a check to arrive in the mail, recipients now have funds available on the morning of the scheduled payment day.

"In the foster care population, people move, checks are issued and not forwarded. People were waiting months without money," he said. "The second problem was a lot of folks did not have traditional bank accounts and used check cashing places charging exorbitant fees."

The county's debit card program for foster parents carries relatively few fees.

Signature and PIN-based purchases with the cards, including cash back at the register, are free and there's no charge for cash withdrawals at PNC ATMs. There also are no monthly maintenance fees and no fees for balance inquires at an ATM, online or by telephone. Card holders are allowed one withdrawal at non-PNC machines for free each pay period, although the owner of that ATM could impose a charge.

Some fees that can be incurred on the Allegheny County debit cards include $10 to replace a card, $5 for a paper statement and a $3 monthly charge if the account is inactive for six months.

Under the Pittsburgh Public School's payroll card program, the district picks up the $2.50 monthly maintenance fee, but employees get just one free withdrawal at a PNC teller or ATM each pay period, spokeswoman Ebony Pugh said. After that, withdrawals cost $2.

Fees and other terms of PNC's payroll cards vary depending on the arrangement with the client, spokeswoman Marcey Zwiebel said in an email. Some companies decide to absorb some of the fees instead of passing them along to card holders, she said.

She declined to disclose how many payroll card accounts PNC handles.

The financial protection bureau also reiterated in its bulletin that people who get paid via payroll cards are entitled to certain consumer protections, such as disclosure of fees.

Disclosures must be "clear and readily understandable, in writing, and in a form the consumer may keep," the bureau said.

For the Consumer Financial Protection Bureau's bulletin on payroll cards, visit


Patricia Sabatini: or 412-263-3066.


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