CFPB Final Regulations Impact Employer Paycard Programs
Author: Rena Pirsos, XpertHR Legal Editor
Update: The CFPB issued a final rule delaying the October 1, 2017 effective date of the rule governing prepaid accounts under Regulations E and Z by six months, to April 1, 2018. 82 F.R. 18975, April 25, 2017.
November 30, 2016
Under final regulations issued by the Consumer Financial Protection Bureau (CFPB) pertaining to prepaid debit and credit cards, employers that pay wages using paycards will be required to provide employees with additional disclosures as of October 1, 2017.
The final regulations amend federal Regulations E and Z. Employers that pay wages by direct deposit or paycard are subject to Regulation E, which pertains to electronic payment transactions. Regulation E generally requires employers to ensure that employees who are paid via paycard are apprised of all applicable fees. However, the law of the state in which an employer pays wages may prohibit such fees.
Regulation Z requires banks to make certain disclosures to cardholders who are advanced credit. Under the CFPB's final regulations, Regulation Z will apply to paycards for which employees are advanced credit, such as overdraft protection.
The overriding problem the final regulations aim to remedy is the lack of transparency or full disclosure that often occurs when an employee is given the option to enroll in an employer's paycard program. For example, new employees who are provided with an overwhelming stack of onboarding forms to complete, including a paycard enrollment form, do not always review all the forms carefully. In addition, some employers do not provide full and clear disclosure of all available wage payment options. As a result, many employees may not realize that receiving their wages by paycard is only one of a few ways (e.g., direct deposit, paper paycheck) in which they may choose to be paid.
The final regulations require banks to provide employees with two disclosures - a short-form disclosure and a long-form disclosure - which will include comprehensive fee information as well as certain other key information about the paycard account offered. The disclosures must be provided before pay is loaded onto a paycard for the first time. Employers should ensure that their employees receive and understand these disclosures.
Many state laws also require employees to be provided with certain disclosures, and short-form disclosures may include such information. If a bank's short-form disclosure does not do so, the employer must nevertheless ensure its employees receive the disclosures.
The final regulations also require banks to disclose, in close proximity to the short-form disclosure, the name of the bank and paycard program, and any purchase price and paycard activation fees. Banks must provide disclosures electronically if the paycards are acquired online or through a mobile device. Banks will also be required to notify employees when any paycard terms or conditions change.
The final regulations also enhance existing employee protections by:
- Increasing account transaction histories to 12 months;
- Requiring periodic statements and account transaction histories to:
- Disclose the total fees assessed against the account; and
- Display a summary total of the amount of fees assessed against the account for the prior calendar month and the calendar year to date.
Paycards that have credit features, such as overdraft protection, must also contain additional explanatory material required by Regulation Z.