Network Branded Prepaid Card Association

Transcription

1 May 30, 2014 The Honorable Richard Cordray Director Consumer Financial Protection Bureau 1700 G Street, NW Washington, DC The Honorable Thomas E. Perez Secretary U.S. Department of Labor 200 Constitution Ave NW Washington, DC Re: Prepaid Payroll Cards Dear Director Cordray and Secretary Perez: This letter is submitted on behalf of the Network Branded Prepaid Card Association ( NBPCA ) 1, in response to a letter submitted by various labor, consumer, and civil rights organizations on May 9, 2014 (the "Interest Group Letter"). The Interest Group Letter reflects and perpetuates many misconceptions regarding prepaid payroll cards ("Payroll Cards"). Contrary to the inaccurate statements contained in the Interest Group Letter, Payroll Cards are highly regulated, cannot be issued to employees without their explicit acceptance from among a group of choices, and provide a low-cost alternative for many employees to receive their wages. Moreover, to help ensure that employees receive the significant benefits of electronic payments in a safe, secure and reliable manner, the industry continues to undertake a number of initiatives to educate financial institutions and employers on existing legal requirements and best practices for issuing and using Payroll Cards. 1 The NBPCA is a nonprofit, inter-industry trade association that supports the growth and success of network branded prepaid cards and represents the common interests of the many participants in this new and rapidly growing payments category. The NBPCA s members include banks and financial institutions, the major card networks, processors, program managers, marketing and incentive companies, card distributors, payment industry consultants and law firms. The comments made in this letter do not necessarily represent the position of all members of the NBPCA.

2 The Interest Group Letter ignores the significant benefits Payroll Cards afford to employees. Payroll Cards serve as a tool of inclusion for the estimated 68 million Americans who are unbanked and underbanked (collectively referred to as underserved workers ). 2 Without Payroll Cards, many underserved workers would be forced to operate outside of the financial mainstream and would be unable to enjoy the benefits of electronic wage payment. Although noticeably absent from the Interest Group Letter, many organizations and consumer advocates recognize these benefits. In a recent OpEd, Javier Palomarez, President and CEO of the United States Hispanic Chamber of Commerce, emphasized the fact that: [p]ayroll cards offer those with no banking access a dependable option for protecting their finances. Empowering our citizens with this much needed access, security, and convenience of Payroll Cards allows the unbanked to save more of what they earn and helps them build a solid financial foundation. 3 Similarly, in July 2013, the National Consumer Law Center partnered with the American Payroll Association to develop sensible guidelines for offering Payroll Card programs that are mutually beneficial for both workers and employers. In a joint press release, the organizations announced: We agree that payroll cards can offer unbanked workers an economical, safe and convenient way to receive their wages. For those workers, payroll cards can mean no check cashing fees, greater security without the risks of cash, access to pay despite natural disasters and the ability to make purchases over the internet and by telephone. 4 More recently, the NBPCA partnered with Consumer Action to develop guides to help employers and employees understand how Payroll Cards work and how to determine if a Payroll Card is right for them. The NBPCA has shared the guides with groups representing employers and companies likely to use Payroll Cards as a wage payment option for their employees. In a press release, Consumer Action explained that Payroll cards offer the opportunity for workers who would otherwise receive a paper paycheck to avoid potential check cashing fees, money orders and the risk of losing cash FDIC National Survey of Unbanked and Underbanked Households, Section III. 3 For another excellent discussion of payroll cards from an organization committed to protecting low wage earners, see Benjamin Mangan, Stop Blacklisting Payroll Cards for Workers, Consumer Action and NBPCA partner to offer payroll card best practices for employees and employers (February 20, 2014 Press Release) available at

3 Payroll Cards are already subject to numerous state and federal protections making the "basic minimum standards" and rules urged by the Interest Group Letter unnecessary. Many of the concerns raised in the Interest Group Letter are already addressed under current law. Such concerns include (i) the freedom of employees to choose the manner in which they receive their wages; (ii) employee access to account statements and transaction histories; and (iii) clear and conspicuous disclosure of the terms and conditions of the Payroll Card account. Mandatory Payroll Card Programs. The Interest Group Letter asserts that several employees are coerced or outright forced into receiving their wages through a Payroll Card. The NBPCA supports the freedom of employees to choose an alternative wage payment method but believes that further regulation is unnecessary. As the Consumer Financial Protection Bureau (the CFPB ) emphasized in its September 2013 Bulletin number (the Bulletin ), current legal protections already prohibit mandatory Payroll Card programs. 6 In the Bulletin, the CFPB specifically noted that Regulation E prohibits employers from mandating the use of Payroll Cards, and that employers seeking to use Payroll Cards must afford employees with an alternative payment method as determined by state law. The state wage payment laws regulate methods of wage payment and determine whether a paper paycheck (or cash) must be offered as one of the alternatives to Payroll Cards. Further, the Interest Group Letter proposes that the CFPB should amend Regulation E to make clear that a payroll card provider may not issue a payroll card unless the employee has been offered the choices required by law and further states that It is not difficult to determine whether the employer has a system in place to offer and implement direct deposit and, if offered, the choice of a check. In actuality, the Payroll Card provider has no control or oversight over how an employer implements its wage payment system. Rather, the Payroll Card provider merely gives the employer another wage payment option for paying its employees. Thus, due to the limited ability of Payroll Card providers to control and supervise the wage payment systems of its employer clients, the NBPCA believes that, as with all other forms of wage payment, the compliance obligations should remain with the employers. Access to Statements and Transaction Histories and Disclosures. Current law also provides employees substantial access to statements and transaction histories, notwithstanding the Interest 6 CFPB Bulleting , Payroll Card Accounts (Regulation E), September 12, 2013, available at:

4 Group Letter s assertion that better access is needed. Although Regulation E does exempt Payroll Cards from the EFTA requirement to provide consumers with periodic paper statements, this exemption only applies if the Payroll Card program meets the following requirements: (i) the employee must be able to obtain their account balance through a readily available telephone number; (ii) an electronic version of the employee's account transactions for the previous 60 day period must be made available to the employee; and (iii) a written history of the employee's account transactions for the preceding 60 day period must be promptly provided to the employee upon oral or written request. These additional requirements ensure that employees have access to longer transaction histories for Payroll Card accounts than they would receive through monthly paper statements. The Interest Group Letter further claims that fee summaries and other information typically provided on periodic statements are not required for Payroll Cards. This is incorrect. Regulation E makes clear that that the electronic and written transaction summaries detailed above, must include all the information required for periodic statements. 7 Thus, employees are entitled to have readily available access to both their account balance and electronic transaction histories containing all of the information required of periodic account statements. Further, if an employee wants a written account of their transaction history for any reason, he or she may obtain one by simply making an oral or written request. Finally, as noted in the CFPB Bulletin, financial institutions that issue Payroll Cards must provide clear and readily understandable disclosures of the terms and conditions of the Payroll Card account and comply with all other Regulation E disclosure requirements. Payroll Cards are one of the least expensive ways for employees to receive their wages. The Interest Group Letter cites cardholder fees as the primary drawback of the use of Payroll Cards. What the Interest Group Letter fails to mention, however, is that many employees use their Payroll Cards without ever incurring a fee. In fact, the state wage and hour laws require that employees have full and free access to their wages, meaning that employees must be provided with a means of accessing their full net pay in cash each pay period without cost. 8 The 7 12 CFR (b)(2). 8 The full and free access requirements typically apply regardless of method of wage payment. In addition, twenty states have updated their wage payment statutes and/or regulations to expressly address payroll cards. The wage and

5 wage and hour laws prohibit fees that must be incurred to participate and, therefore, deny free and full access to wages (e.g., fees for the initial card, activation of the card or loading of wages onto the card by the employer). A recent study by the Payment Cards Center of the Federal Reserve Bank of Philadelphia confirmed that many employees who use Payroll Cards do so without ever incurring a fee, and those who do incur fees could have avoided them. 9 Of course, employees can incur fees using Payroll Cards if they choose not to take advantage of the free methods of cash access provided by their program or if they elect to use a discretionary service or feature offered to employees for a fee. This is no different than an employee who is paid by direct deposit and incurs fees to access his or her wages from an out of network ATM or an employee who incurs fees at a check cashing service rather than going to the employer s bank or other location provided for cashing the check without cost. Studies have shown that even when employees incur fees for using a Payroll Card, the fees are generally lower than the fees incurred by underserved workers who receive a paper paycheck. A 2012 study by the Massachusetts Division of Banks revealed that an unbanked employee earning $30,000 a year who was paid with a paper check would spend approximately $650 annually in check cashing fees and fees to purchase money orders to pay the employee's bills, or about 2.2% of their annual earnings. 10 Thus, although all methods of wage payment involve potential fees, Payroll Cards often offer the best financial value to underserved employees. Additionally, the NBPCA notes that the Interest Group Letter specifically references the NetSpend Skylight card s overdraft program, equating it with predatory lending practices. The NBPCA believes this characterization is unfair and the NBPCA would like to provide some additional details regarding the program. Specifically, any employee who wants to use the NetSpend Skylight card s overdraft program must affirmatively opt-in to do so and may opt-out of the program at any time. Moreover, the NetSpend Skylight card's overdraft program is hour enforcement agencies in almost all of the remaining states take the position that their current wage payment statutes are broad enough to encompass Payroll Cards. 9 S. Wilshusen, R. Hunt, J. van Opstal, and R. Schneider, Consumers Use of Prepaid Cards: A Transaction-Based Analysis (FRB of Philadelphia Payment Cards Center, August 2012). Further assisting employees to avoid costs when using a Payroll Card are the Visa and MasterCard payment network rules. Rather than just allowing employees to access their wages at the financial institution that issued the Payroll Card, these rules allow employees to obtain their full net wages in cash and at no cost at least once per pay period at any financial institution that is a member of either the Visa or MasterCard payment brand network. Employees receiving their wages through a Visa or MasterCard branded Payroll Card thus have thousands of locations at which they can access their full wages at no cost. By contrast, employees who receive wages through a paper check typically may cash the check for free only at the issuing financial institution. This is yet one more example of how Payroll Cards offer a better wage payment option to employees when compared with a paper check. 10 Massachusetts Division of Banks, 2012 Report on Check Cashers and Basic Banking Fees.

6 compliant with Regulation E and contains all of the provisions and safeguards provided by the FDIC s supervisory guidance, 11 the goal of which is to mitigat[e] risks associated with overdraft payment programs, including risks that could result in serious financial harm to certain consumers With regard to this issue and others, the NBPCA members strongly support the CFPB's efforts to ensure markets are fair for American consumers. The NBPCA knows that the CFPB's study of consumer focus group data, financial services provider products and practices, and consumer complaints allow for an analytical approach that puts the voice, needs, and actual experience of consumers first. In particular, the NBPCA is encouraged by the CFPB's research around complex issues like overdraft on prepaid cards, since the NBPCA knows the CFPB has gathered extensive data on this topic to make informed rules that provide responsible access to consumers. The industry has developed best practices both individually and jointly with the assistance of consumer groups such as Consumer Action. Finally, the industry has taken substantial steps, both through individual participant action, such as MasterCard's Payroll Card standards, 13 and collectively through the NBPCA, 14 to further enhance Payroll Card programs by developing industry-wide best practices and materials to improve employer and employee understanding of how Payroll Cards work and how they can be used effectively and efficiently by employees. The NBPCA's Payroll Card best practices underscore the critical importance of consumer education to its mission and it is in recognition of the importance of consumer education that the NBPCA has partnered with Consumer Action to develop the guides for employers and employees described above. 11 FDIC Financial Institution Letter FIL , Overdraft Payment Programs and Consumer Protection, Final Overdraft Payment Supervisory Guidance, November 24, Id. 13 MasterCard promulgated its Payroll Card standards in early The standards are designed to help employees take full advantage of the benefits of having their paycheck electronically deposited onto Payroll Cards and cover employee choice, full pay, free access to balance information, protection from fraudulent use, cardholder education and disclosures including the provision of a standardized MasterCard Fee Disclosure Table. All issuers of MasterCard Payroll Cards are required to comply with the standards. 14 A copy of the NBPCA Payroll Leading Practices is available at, (last visited May 27, 2014). Similarly, a copy of the NBPCA's Employee's Guide to Payroll Cards is available at, (last visited May 27, 2014).

7 Conclusion The NBPCA appreciates the opportunity to respond to the Interest Group Letter. Payroll Cards offer numerous and substantial benefits to employees including increased security, convenience, and cost savings. Several state and federal laws, including the EFTA, implemented through Regulation E, and many state wage and hour laws, already contain extensive provisions applicable to Payroll Cards and numerous employee protections. Consequently, the NBPCA believes that further regulation and limitation in this area is unnecessary. Indeed, the NBPCA is concerned that the increased regulation advanced in the Interest Group Letter would be so burdensome and unsustainable that issuers and employers could stop offering this beneficial payment method, harming the very workers it seeks to protect. We hope this letter has been helpful. If you have any questions or require further information, please do not hesitate to contact us at (201) Sincerely, Kirsten Trusko, Executive Director, NBPCA