Direct deposit of paychecks has become ubiquitious in the workplace, with many employees not giving the practice much thought after they sign off on it.
But how many employees know that there are consumer protections enforced by the federal government and the state to make sure employers don’t abuse the practice of direct deposit?
That’s where a recent bulletin issued by the Consumer Financial Protection Bureau comes in. The bulletin, issued on September 12, reaffirms that although employers can require employees to receive their paychecks by direct deposition, they cannot require the employees to deposit their paychecks at a bank of the employer’s choosing.
CFPB issued Bulletin 2013-10 to reiterate the application of the Electronic Fund Transfer Act (EFTA) and Regulation E, which implements the EFTA, to payroll card accounts. Payroll card accounts are accounts that are established directly or indirectly through an employer, and to which transfers of the consumer’s salary, wages, or other employee compensation are made on a recurring basis.
Employees whose wages are deposited onto a payroll card are entitled to the protections of the EFTA generally, and Regulation E’s provisions applicable to payroll cards specifically, the bulletin said.
In addition to these protections for holders of payroll cards, Regulation E states clearly that no
“financial institution or other person” can mandate that an employee receive direct deposit into
an account at a particular institution.
In other words, Regulation E prohibits employers from mandating that employees receive wages only on a payroll card of the employer’s choosing.
An employer may,however, offer employees the choice of receiving their wages on a payroll card or receiving it by some other means. Permissible alternative wage payment method(s) are governed by state law, but may include direct deposit to an account of the employee’s choosing, a paper check, cash, or other evidence of indebtedness.
The CFPB was established under the Dodd-Frank Wall Street Reform Act to bolster protections for consumers vis-a-vis banks and other financial institutions.