Agency: Firms can't use only debit cards to pay

[September 14, 2013]  WASHINGTON (AP) -- Federal regulators say companies cannot require employees to receive their pay on debit cards, citing complaints from workers of high and unexpected fees on the cards.

The Consumer Financial Protection Bureau issued a bulletin warning employers against using only so-called payroll cards to pay workers. The agency said that by law workers must be able to choose how they receive their wages. If they choose to be paid with payroll cards, they are entitled to protections such as disclosure of fees, it said.

Complaints received included fees for withdrawing cash and checking card balances. Critics say payroll cards with high fees mean that some workers are essentially making less than minimum wage.

A woman who worked at a McDonald's in northeastern Pennsylvania filed a class-action lawsuit in June against the owners of 16 McDonald's Corp. restaurants in the area, challenging their use of payroll cards and protesting fees.

Attorneys for the restaurant owners have said the debit cards are "the functional equivalent" of cash or checks and that the employees consented to the payment method.

Nearly 4 million U.S. households, or 3.2 percent, have someone who receives wages on a payroll card, according to a 2011 survey by the Federal Deposit Insurance Corp. The cards are often used by people without a bank account.

The consumer agency, in its bulletin issued Thursday, said it has received reports of companies, especially in the retail and food-service industries, paying wages only through debit cards. The agency said it has the authority to enforce the law against anyone who violates it, including employers and the banks that issue payroll cards.

"The bureau intends to use its enforcement authority to stop violations before they grow into systemic problems," it said.

In New York state, the attorney general's office has been looking at about 20 companies for their use of debit cards to pay some employees.

The office of Attorney General Eric Schneiderman said in July it sent letters to companies including Wendy's Co., Costco Wholesale Corp., Dollar Tree Inc., Chipotle Mexican Grill Inc., Home Depot, Inc., Darden Restaurants Inc. and Wal-Mart Stores Inc.

The letters request documents related to the payroll card systems used by each company, to ensure that the companies comply with the consumer-protection laws for the employees.

Schneiderman's office requested information including fee schedules and documents showing that employees being paid through the cards gave advance written consent.

[Associated Press]

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