New York Times: Payroll Card Regulations in New York Are Struck Down

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By Stacy Cowley

A New York State effort to more tightly regulate the prepaid cards on which many employees receive their wages was struck down by a review board, which ruled that the state’s Labor Department exceeded its authority in imposing fee limits and other restrictions on the cards.

The new rules, which had been slated to take effect next week, aimed to ensure that workers who receive their wages on a payroll card would not have to pay any fees to gain access to their pay. Employers using payroll cards would have been required to guarantee that their workers could make free, unlimited wage withdrawals from at least one A.T.M. located “a reasonable travel distance” from their work or home.

The rules also would have prohibited many fees, including charges for monthly maintenance, account inactivity and overdrafts, and for checking a card’s balance and contacting customer service.

Consumer advocates have long pressed for such restrictions, saying that the wages of workers paid by card are too often eroded by fees. After the State Legislature stalled in considering several measures, Gov. Andrew M. Cuomo’s administration went for a workaround: The Labor Department used its rule-making power to issue new restrictions.

But the department improperly strayed into the regulation of banking services, an area beyond its purview, according to a unanimous ruling by the New York State Industrial Board of Appeals, an independent review agency with the power to overturn labor rules.

The board did not deny that payroll cards can be problematic. The Labor Department has a “well-founded concern” that employees receiving their wages through such cards “may be subject to excessive or hidden fees,” the appeals board wrote. Still, only a body with authority over financial services — like the State Legislature — has the power to lay down new guidelines, it said.

The appeals board weighed in after Global Cash Card, a payroll card merchant based in Irvine, Calif., filed a petition challenging the rules. Around 50,000 workers in New York receive their wages on Global Cash cards, according to Joseph M. Purcell, the company’s co-founder and chief operating officer.

“We’re all in favor of regulation and oversight and consumer protection, but this overreached,” Mr. Purcell said.

The Labor Department’s rules contained vague language and provisions that posed technical challenges, he said. For example, the regulation required that employees be able to access their wages “in full” without fees, but cash machines are not designed to dispense pennies and nickels, Mr. Purcell pointed out.

The Labor Department may appeal the industrial board’s decision, shifting the dispute over to the courts.

“All legal options are being reviewed so that these critical protections can be restored quickly and completely,” said Cullen Burnell, an agency spokesman.

Worker advocates called the ruling a significant setback. Federal regulations prohibit businesses from requiring that their workers accept payment through a payroll card, but many companies strongly push the option, which can be cheaper for them than direct deposits or paper checks.

“This is a huge issue for our members,” said Stuart Appelbaum, president of the Retail, Wholesale and Department Store Union. “If you earn very little money to begin with, you don’t want even a penny of it taken out.”

Nationwide, consumer advocacy groups are watching anxiously to see what protections will survive President Trump’s push to knock down his predecessor’s wave of financial regulations.

The Consumer Financial Protection Bureau recently completed a roster of new restrictions on prepaid debit cards, including those used to distribute workers’ wages. The cards will soon be required to carry clearer fee disclosures and stronger liability protection for loss or theft.

But some Republican lawmakers have sought to strike down the new prepaid card rules, using a law called the Congressional Review Act that lets Congress team up with a willing president to repeal new federal regulations.

Susan Shin, the legal director of the New Economy Project, which has long lobbied for stricter rules to rein in payroll card fees, said the New York State Labor Department’s regulations would have helped thousands of low-wage workers.

“One of the things we think is really unfortunate is that as the president and members of Congress are rolling back consumer protections, New York’s workers are going to be at further risk of exploitation and financial abuse,” Ms. Shin said.