Alert September 17, 2013

CFPB Issues Guidance Bulletin on Employer Payroll Cards

The CFPB issuedguidance bulletin warning employers of the prohibition on requiring employees to use payroll cards. Payroll cards are regulated by the Electronic Fund Transfer Act and its implementing regulation, Regulation E. Regulation E generally prohibits a financial institution or other person from requiring that an employee receive direct deposit into an account at a particular institution. The bulletin was issued after the CFPB heard reports of employers distributing wages solely through payroll cards. Of import, the CFPB noted that it will assess supervised entities’ and third-party service providers’ compliance with federal consumer financial laws including the EFTA and Regulation E. The CFPB noted that it plans to use its enforcement authority to "stop violations before they grow into systematic problems, maximize remediation to consumers, and deter future violations." The CFPB has used its guidance bulletins to direct and warn entities of potential violations and resulting enforcement actions for violations of federal consumer financial laws. For example, in December 2012, the CFPB issued warning letters to nationwide specialty consumer reporting agencies in complying with the Fair Credit Reporting Act (see December 11, 2012 Alert). The FTC later took enforcement action against a nationwide specialty consumer reporting agency for violations of FCRA (see August 20, 2013 Alert).