By Stacy Cowley
Workers in New York State who receive their wages on prepaid cards will gain consumer protections next year that advocates say are among the strongest in the nation. The new rules are intended to guarantee that employees do not have to pay any fees to gain access to their paychecks.
An estimated 200,000 workers in the state are paid through debit cards, and activists have for years complained about high fees, concealed costs and other abuses.
Under the new rules, to be released on Thursday by the New York State Department of Labor, employees who are paid on debit cards must be allowed to make unlimited, free withdrawals from their cards from at least one A.T.M. located “a reasonable travel distance” from their home or work.
What qualifies as “reasonable” will be left to employers and the Labor Department to interpret, according to an official in the administration of Gov. Andrew M. Cuomo, who will be announcing the rules on Thursday in New York City.
The rules also prohibit a host of incremental fees, including charges for monthly maintenance, account inactivity, overdrafts, checking a card’s balance or contacting customer service.
Companies will have to offer their workers the option of being paid either by cash or check, if they prefer — employers will not be allowed to require that employees accept a payroll card. Federal regulations already prohibit such requirements, but worker advocates say the rule is routinely flouted.
“We’re extremely excited; we think these rules will go a long way in addressing the issues we’ve been hearing about from low-wage workers,” said Deyanira Del Río, co-director of the New Economy Project, a group that has pressed for stricter protections on payroll cards.
The cards are prevalent in the retail and service industries — Walmart and McDonald’s are among the large companies that use them — and card issuers say they can be beneficial for employees who lack bank accounts by giving them a safer, more secure way to store their accrued wages and spend them.
But critics say that the cards are too often forced on low-wage workers, who then see their scant paychecks devoured by hidden or unavoidable fees. A 2014 report by the New York attorney general found that workers at some companies paid fees averaging as much as $20 a month.
At Mr. Cuomo’s direction, the State Labor Department began drafting the new regulations last year after a proposed bill with similar protections died in the State Legislature. The rules are to take effect in early 2017.
“These tough new standards protect some of our most vulnerable New Yorkers from predatory practices that seek to deny them a fair day’s pay for a fair day’s work,” Mr. Cuomo said in a statement.
Business groups say the new rules will increase compliance costs for employers and prompt companies to shy away from using payroll cards. In a comment filed on an earlier draft of the rules, the Business Council of New York State said that most employers viewed the new requirements as “unworkable.”
“It’s a more restrictive rule than we think is necessary,” said Kenneth J. Pokalsky, the group’s vice president. “We’re expecting that this will not be a widely used product in New York after these rules come out.”
Nationally, payroll card use has grown quickly. Around $12 billion in wages flowed through them last year, according to an estimate from the Aite Group.
The cards are cheaper for employers to issue than paper checks, and they are more popular with millennials, who prefer electronic payment methods, said Nancy Atkinson, a senior analyst for Aite.
Direct deposit is by far the most common employee payment method in the United States, and checks have long been on the wane. By 2017, Aite predicts, more employees will be paid through payroll cards than paper checks.