So far, employers have not had much interaction with the new Consumer Financial Protection Bureau (CFPB). The CFPB was formed as part of the federal government's response to the mortgage crisis and perceived abuses by lending and other financial institutions.

Last week, however, the CFPB issued warnings to employers regarding its intent to investigate and seek enforcement action against employers that mandate use of payroll cards in certain circumstances. Payroll cards are an alternative to checks or direct deposit, and usually take the form of a debit card provided to employees on payday. Most states, including North Carolina and South Carolina allow employers to require use of payroll cards under certain circumstances. For example, the North Carolina Department of Labor says that the cards must permit withdrawal of all wages as of payday, and that at least one use of the card without fees must be allowed.

In its statement, CFPB contradicts NCDOL, stating that employers cannot mandate use of payroll cards instead of bank checks or direct deposit. The agency also stated that employers must provide employees with clear explanations of any fees associated with the cards, provide access to an account history, establish a process for resolving errors and limit exposure for unauthorized use.

CFPB cited the Electronic Fund Transfer Act as the statutory basis for these requirements, and claimed that regulations issued under this law prohibit mandatory use of payroll cards. These restrictions would substantially deter employers from offering payroll debit cards, even on a voluntary basis. Some consumer advocates favor the cards for low wage positions where employees are unlikely to have checking accounts, and are subject to check cashing fees. Other take the position that the debit cards encourage employees to spend all of their wages at once, instead of budgeting expenses over the payroll period.

The growing payroll card industry may legally challenge the CFPB's interpretation of the EFTA and its regulations as a valid basis to regulate their business. Employers using or contemplating use of payroll cards should carefully monitor developments in this area.