Network Branded Prepaid Card Association 110 Chestnut Ridge Road, Suite 111 Montvale, NJ 07645-1706 201-746-0725 November 5, 2010 Maria L. Colavito, Counsel Michael Paglialonga, Asst. Attorney I New York Department of Labor W. Averell Harriman State Office Campus Bldg. 12, Room 509 Albany, NY 12240 RE: Questions Regarding Payroll Cards Dear. Ms. Colavito and Mr. Paglialonga: Thank you for your letter dated October 29, 2010 and for your interest in payroll cards. As the association representing the prepaid industry, including payroll, we welcome the opportunity to serve as a source of information or provide introductions to suppliers of cards in the industry. As part of our role in the industry, we have also worked with government groups as they consider new or revised legislation around prepaid cards and would offer this same information and interaction with your group if it would be helpful to you. Outlined below is background on payroll cards and the answers to your questions. Please let us know if there is more we can do to be of service on this topic. Warmest regards, Kirsten Trusko NBPCA President & Executive Director ktrusko@nbpca.org www.nbpca.org
Payroll Card Background Information Payroll cards offer significant advantages to employees and employers, which is driving their growth in adoption. Below is an excerpt from the American Payroll Association at http://www.americanpayroll.org/visa-paycard-portal/benefits/ Employer Paycard Advantages Aside from the initial start-up costs associated with rolling out a paycard program, employers will immediately eliminate the reoccurring costs associated with buying traditional paper paycheck stock with security features. Employers will also enjoy cost savings from decreased toner cartridge usage for their paycheck printers as well as significant decreases in postage and overnight delivery charges for sending paychecks to employees at multiple work sites. Other advantages of paycard deployment and use for employers include: the reduction or elimination of bank service fees and account reconciliation costs, as well as stop payment fees for lost/stolen paychecks; initiating final wage payments to terminating workers via a paycard in lieu of having to physically provide a final paper paycheck to them in person or via overnight delivery; the elimination of escheatment liability for the employer in many cases, as it will be passed on to the financial institution that actually holds the employee's funds; and by decreasing the total number of paper paychecks having to be produced and sent out by the organization to pay employees their wages, employers can significantly minimize their exposure to paycheck fraud Employee Paycard Advantages From an employee's perspective, there are also intrinsic advantages and benefits when using a paycard offered to them by their employer instead of being paid each and every pay period via a traditional paper paycheck. With a paycard: employees immediately eliminate check-cashing fees that they may have historically paid to access their wages each payday; trips to wait in line to cash paper paychecks at banks or check cashing establishments become unnecessary; wages can be accessed via 24-hour ATM networks; employees no longer are required to go to their worksite to pick up paychecks on days off or during vacations; no more waiting for paychecks to arrive in the mail; employees experience increased safety and security associated with not having www.nbpca.org Page 2
to physically carry their entire pay on their person, in cash, after cashing their paycheck; employees can now purchase goods and services at point-of-sale terminals within stores; exposure to identity theft decreases as the likelihood of personal information on paychecks ending up in the wrong hands is eliminated when paychecks and pay statements are no longer issued to employees on paper; employees can sometimes opt to have their employer issue a secondary card to allow family members access to wages; and employees help decrease the remote chance of not being paid timely due to unforeseen circumstances, such as natural disasters, that can impact the delivery of paper paychecks via air and/or ground transportation. In addition to specific employer sponsored payroll cards, some employees open their own reloadable prepaid cards onto which they can have their employer direct deposit their pay. This enables them to choose a prepaid program that best fits their needs, much like the fact that employees select their own bank for checking and savings, into which their pay is deposited. You had some questions regarding costs of payroll cards. Below is an excerpt from a 2009 study by Bretton Woods, in which they compared an underbanked consumer s options in transaction accounts, including a prepaid card with direct deposit vs a low balance checking account vs dealing in cash. Prepaid Card $214.68 $320.15 Prepaid Card with Direct Deposit Basic Bank Checking Account $108.35 $207.35 $204.00 $353.40 High Low Cash $167.00 $312.60 www.nbpca.org Page 3
BPCA RESPO SE TO Y DEPARTME T OF LABOR Questions Involving the Payment of Wages Via Payroll/Debit Card 1. Q: Do employees typically earn interest on their wages prior to being withdrawn from the account? Is float purely a source of profit for the payroll card provider or are the interest/profits from employees wages typically distributed to the employee or employer A: No. Just as an employee does not earn interest on a payroll check before it is cashed. A payroll card is not a bank account. It is a convenient and safe alternative to a payroll check. If an employee has their payroll direct deposited into their checking account, that checking account rarely pay interest to the accountholder unless minimum balance requirements are satisfied. Moreover, there is scarcely any float to speak of on such accounts. Note that the typical payroll card account has $331 deposited per pay period, and a bulk of the funds are quickly spent by the cardholder to pay bills, so the balances which are maintained in the account are very low. And funds are required to be held in FDIC insured accounts that have very low yields. Further, consider the difference to an employee between a payroll check and a payroll card when that employee has neither a bank account nor credit card. Employees who receive payroll checks must physically stop by to collect the check each week (which can be burdensome for employees who work late shifts) and if unbanked, must then pay the costs of going to a check-casher to use the check, which averages around 2.5% of the amount of the check. When a payroll check is cashed, it is converted to the highest risk payment product there is: cash. There is no security for cash that is lost or stolen; there is no customer service that provides a list of transactions made with cash; cash cannot be used on the internet or for telephone transactions. The security and functionality provided by payroll cards is far superior than cash - and most users will also tell you that there is more dignity to a payroll card product, which does not have to be carried around like a wad of cash, signaling to friends, family and colleagues that you are unbanked or not credit-worthy. 2. What restrictions, if any, apply to the payroll card company s sharing of the employee s financial information? For example, If a debit/payroll card permits an employee to make point of sale purchases, is the employee s purchasing information shared with anyone, including the employer? A: Payroll cards are issued by banks as customer-identified, long-term relationship products that offer the same GLBA privacy protections as other bank products linked to customers non-public personally-identifiable data. Subpoenas are required before such data is shared. With that said, some employer contracts with employees allow employers limited access to payroll card records to provide reloads to traveling employees, to replace lost/stolen cards and for other customer-service related www.nbpca.org Page 4
issues. Information about when and where prepaid transactions occur are, to our knowledge, never shared without employee consent, unless there is evidence of fraud or other limited grounds permitted under the GLBA for sharing of such data. 3. Are employees typically able to make deposits, in addition to withdrawals, on their debit/payroll card account in the same or similar fashion to typical/normal bank accounts? Are there any limitations on the banking activities an employee may take part in as a result of the payroll card company electing to place the employee s wages into a pooled account (as described in FDIC Opinion Letter FDIC--02 03)? A. Employers negotiate features of the payroll card program to be offered to their employee base. Some programs may enable consumers to load their own funds to the account. The pooling of funds does not affect the employees access to features/benefits the employer may have selected for their employee base. As for other functions - payroll cards are not bank accounts and do not have the same range of services as are typically offered by banks. For example, most payroll cards do not offer checking services, loans, savings features, etc. The referenced FDIC opinion letter predates the most recent FDIC opinion letter on deposit insurance for stored value cards, FDIC General Counsel Opinion No. 8. In compliance with the General Counsel s opinion, the pooled accounts are set up as custodial accounts for the benefit of the cardholders. The restrictions on an employee s use of a payroll card are similar to those applicable to debit cards. 4. Where discrepancies, fraudulent transactions, identity theft and other similar actions occur, what guarantees are employees provided so that they are ensured access to their wages? Are there procedures or laws currently in place which guarantee employees immediate access to wages while such circumstances are resolved? Unlike with cash or checks, payroll cards are governed by the Electronic Fund Transfer Act and Regulation E. Employees are protected against unauthorized transactions, including identity theft and similar problems. Regulation E has specific procedures for the timing and handling of claims for unauthorized transactions and for provisional recrediting of payroll card accounts. Further, cardholders are entitled to the protections of the zero liability policies of the payment network through which the payroll card is issued, as well as extensive chargeback rights afforded to debit cardholders. Program managers offering payroll card programs design the programs to comply with state wage payment and full pay acts. All payroll cards offer ATM withdrawals and signature and/or PIN point of sale transactions. Payroll cards also provide for a cash back feature as part of the POS transaction. In addition to ATM withdrawals and POS use, payroll card programs may offer one or more of a variety of other withdrawal features, including: The ability to transfer money from the payroll card to a standard bank account www.nbpca.org Page 5
Convenience checks that can be used for bill payment or to cash out all funds The ability to cash out the card balance at any bank issuing the same brand of cards Funds access through third-party self-service kiosks The purchase of money orders The ability to pay bills on-line. Again, keep in mind that if the same employee had lost a payroll checks, there is always a time lag before the new check is issued. And even worse, if the employee had received and cashed a payroll check, and was subject to fraud or theft, the employee would have no protection whatsoever for his or her hard-earned wages. 5. If employees are typically charged for lost cards, and for overdrafts, what is the average amount charged to the employee/account holder? What is the average cost to the financial institution in such circumstances? A. We do not have that data, and it is dependent on matters such as the ability to charge back the transaction which caused the overdraft, as well as the ability to recover the negative balances from cardholders, as opposed to charging off the negative balance. The NBPCA is happy to facilitate a meeting with our Members to provide additional detailed information. 6. Do debit/payroll cards have any impact (positive or negative) on an employee s credit? Not at the present time. 7. In what ways can employees obtain information about their specific payroll/debit card, including customer service, in a primary language other than English? A. There are many options for a consumer to review account information: packaging/letters that come with the card itself online at the card issuer s or program manager s website through the phone number printed on the back of the card by requesting email or text messaging of account transaction information Languages in which the information is presented may vary by card program and would be set as part of the program design with the employer. www.nbpca.org Page 6
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