Pay Cards and State Laws

Pay cards are becoming increasingly popular with both employers and employees. For employers, they allow a path to doing away with paper checks and the hassle and expense of having to distribute them. For unbanked employees (who number in the tens of millions in this country) they can provide a convenient low cost way to gain quick access to their pay. For banked employees, they offer convenience as well. The ability to transfer funds among cards is popular with workers with family members abroad.

But with emerging scrutiny of the banking and financial services industries, some concerns have emerged among regulators about the cost of some pay card programs to the employee. The basic notion that an employee should be able to access their pay at no transaction cost is foremost in the minds of many state regulators. Most of these concerns are misplaced as many paycard programs do offer zero or very low cost withdrawal fees. Nevertheless, many states are getting into the act and trying to regulate how employees get paid. Most of the rules revolve around whether an employer can mandate electronic pay (direct deposit or pay cards) and what options are available to the employee. It has caused some confusion and employers should be aware of state restrictions. In the large majority of states in the US pay cards are definitely an allowable option (and, as said earlier, an increasingly popular one).