A.G. Schneiderman, Assembly Member Morelle, And Senator Gallivan Propose Payroll Card Act To Create Clear Rules And Protect Workers From Unfair Fees And Coercion

A.G. Report On Payroll Cards Finds That Confusing Terms And Numerous Fees Reduce Take-Home Pay

Schneiderman: Workers Deserve Free And Clear Access To Their Wages, Without Burdensome Fees And Conditions

ALBANY – Attorney General Eric T. Schneiderman today joined with Assembly Majority Leader Joseph D. Morelle and Senator Patrick Gallivan in proposing legislation regulating the use of payroll cards to increase protections for workers, clarify ambiguities in the law, and ensure that payroll cards offer a convenient and beneficial method for workers to access their pay. The Attorney General’s Payroll Card Act, introduced in the Assembly by Majority Leader Morelle, safeguards employees' ability to select an alternative method of payment,  requires clear disclosure of payroll card fees, and restricts certain fees. The legislation is based on recommendations made in a report by the Attorney General’s Labor Bureau that was also released today.

“Workers should not have to pay in order to get their pay," Attorney General Schneiderman said. “While payroll cards can be helpful for employees without bank accounts, programs often impose fees that chip away at people's hard-earned wages.  The Payroll Card Act will ensure that workers have free and clear access to their wages, while providing clarity to employers about how to offer payroll cards in compliance with the law.”

“As public officials we have an obligation to protect the interests of New York State’s hard working men and women and ensure that employers are doing the same,” said Assembly Majority Leader Joseph D. Morelle. “The Payroll Card Act delivers meaningful protections for workers by eliminating unreasonable fees, ensuring that they receive every dollar they have rightfully earned, and establishes clear guidelines for employers to follow when distributing payroll cards. I thank Attorney General Schneiderman for his leadership on this issue and I look forward to working with my colleagues in the legislature toward the passage of this bill.”

“Our goal is to clarify the rules regarding the use of payroll cards, both for employers and employees.  We want to make sure workers have options when it comes to the form of compensation they receive and are protected from excessive fees or coercion.  We also want to provide businesses the guidance they need regarding employee payroll, without being overly burdensome,” Senator Patrick Gallivan said.

“Throughout New York and the country, workers are increasingly being paid by payroll cards, but our state laws have not kept pace to ensure that their rights and hard earned wages are protected,” said Mario Cilento, President of the New York State AFL-CIO. “We commend Attorney General Schneiderman for developing legislation with comprehensive safeguards to ensure that workers can make an informed decision, have easy access to their pay, and are not subject to abusive fees.”

"We applaud the NYS Attorney General for taking strong action to crack down on the payroll card industry," said Deyanira Del Rio, co-director of New Economy Project. "We've seen growing numbers of retail and restaurant chains, among other large employers, using payroll cards as another way to shift costs onto their low wage workers.  Not surprisingly, it's the big banks that issue and profit from payroll cards -- another example of Wall Street's extraction of wealth from low income people and communities."

Suzanne Martindale, staff attorney for Consumers Union, the public policy and advocacy division of Consumer Reports,said, "This bill would go a long way toward ensuring that workers have a choice in how to be paid, and that they won't be nickel-and-dimed out of their wages.  These reforms would help promote fair, safe, and effective methods for workers to access their pay."

Melvin Jefferson, a member of the Retail Action Project, said, "Increasingly, major retailers use payroll cards as their default payment option. The hidden fees in these cards force workers to pay to be paid. Many retail workers sign up for the cards without knowing they can incur fees for taking out money at the wrong ATM or requesting a paper statement. Workers should have an informed choice in how they receive the wages they have worked hard to earn. The Retail Action Project supports this new legislation as means of building a fair and transparent payroll card system in New York."

A payroll card is a prepaid debit card used by employers to pay wages to employees, typically as an alternative to direct deposit or a paper check. Each payday, a cardholder employee’s wages are deposited electronically into an account at a bank selected by the employer or by the payroll card vendor. The employee can obtain access to the funds in the account by using the payroll card. Similar to a bank-issued debit card, the payroll card can be used to withdraw funds from an ATM, make point-of-sale purchases, and electronically transfer funds, among other functions. Use of payroll cards has increased significantly in recent years. Nationally, an estimated 5.8 million workers received their wages via payroll cards in 2013, and that number is expected to increase to 10.8 million by 2017, according to research reported in Forbes.  Often cited benefits of payroll cards include cost savings for employers; payroll cards' usefulness in weather-related disasters when paper checks are hard to deliver to employees; payroll cards' limited environmental impact, compared with paper checks, and the lower transactional cost to employees of payroll cards, when compared with check-cashing outlets. 

The Attorney General's office began looking into payroll card programs utilized in New York State after receiving complaints from employees and other information indicating that certain payroll card programs were potentially in violation of state labor law, or did not provide adequate disclosures regarding the terms and conditions of the card.  In response to requests from the Attorney General's Office, 38 national and regional employers submitted information on their use of payroll cards. Today, the Attorney General released a report detailing the findings of his office's review of the information provided. Among the key findings of the report:

  • Cardholder employees are often given insufficient information about how to obtain their wages without incurring a fee.  
     
  • In a subset of employers who provided detailed fee information, approximately 75% of cardholder employees incurred some kind of fee.  In some programs, fees reached as high as $20 per employee per month, on average.
     
  • 95% of the employers reported that employees were charged an inactivity fee, a closing fee, a card replacement fee, or some combination of these fees.
     
  • One employer’s payroll card vendor brought in almost $70,000 in fees for fewer than 5,000 cardholder employees from July 2012 through June 2013, of which over $60,000 were for ATM transactions alone, the majority of them to access wages or check account balances. For minimum-wage workers, $70,000 in fees is the equivalent of more than 9,000 hours of work at the then-applicable New York State minimum wage of $7.25 per hour.
     
  • More than one-third of employers used payroll card programs that included overdraft or negative balance fees. One  payroll card vendor received over $200,000 in overdraft fees from August 2012 to July 2013, with an average of 2,570 accounts open each month. This is an average of approximately $77.82 per worker, or more than 10 hours of work per person at the then-applicable New York State minimum wage of $7.25 per hour.  
     
  • Access to account information can be costly for workers without computer or smartphone access. 74% of vendors charged a fee for paper account statements ranging from 50 cents to $5 per statement per month. 
     
  • Workers are sometimes steered or required to be paid by payroll card: 40% of employers surveyed did not provide employees with the option of receiving their wages by a traditional paper check, and an additional 31% discouraged the selection of a paper check. 

The report recommends a range of reforms, which are included in the Payroll Card Act, to address these problems and ensure that payroll cards can be a convenient and beneficial method of payment for workers to access their pay. Its provisions would protect the rights of workers and prevent the unfair reduction of their wages through fees, including:

  • Requiring employers to allow employees  to elect whether to be paid through a payroll card, direct deposit, or to receive a paper check; 
     
  • Mandating that employees receive clear and appropriate notice of payroll card program terms and conditions, including potential fees and how to avoid them; and
     
  • Prohibiting employers from using payroll card programs that charge certain types of fees, and requiring employers to use payroll card programs with at least one network of ATMs where employees can obtain access to their wages without paying a fee. 
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