July 31, Proposed Rule Making on Addition of Part 192 to Title 12 NYCRR Methods of Wage Payment, I.D. No. LAB P

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1 Via Michael Paglialonga NYS Department of Labor, Building 12 State Office Campus, Room 509 Albany, New York Re: Proposed Rule Making on Addition of Part 192 to Title 12 NYCRR Methods of Wage Payment, I.D. No. LAB P Dear Mr. Paglialonga: The Electronic Transactions Association ("ETA") hereby submits its comments in response to the Department of Labor s proposal to adopt regulations governing the use of payroll debit cards. 1 ETA is the leading trade association for the payments industry, representing over 500 companies that offer electronic transaction processing products and services. ETA s members include financial institutions, transaction processors, payments networks and others that may be impacted by any rules or regulations the Department may adopt relating to payroll debit cards. Payroll debit cards are a popular wage payment alternative to paper checks, especially for those without bank accounts. 2 Payroll debit cards can deliver wages to employees faster and in a more secure and convenient fashion than paper checks. In a recent report, the State Attorney General noted that 5.8 million workers nationwide were paid via payroll debit cards in NY Reg, May 27, 2015 at According to a recent FDIC survey, 8.5% of New York households are unbanked FDIC Survey, National Survey of Unbanked and Underbanked Households, Appendix G (October 2014).

2 Page 2 That number is expected to rise to 10.8 million in The Attorney General s Office has acknowledged that employees who elect to receive their wages via payroll debit cards enjoy several advantages over employees who elect to be paid by paper check and then use check cashing services to convert the check to cash. Because the payment to the debit card is made electronically, employees are able to avoid check cashing service fees 4 and enjoy access to their wages on pay day even if they are not scheduled to report to work that day or are unable to make it to work due to illness or inclement weather. In addition, payroll debit cards can be used to make purchases and pay bills, 5 a safer and more secure alternative to carrying large sums of cash and a less expensive alternative to using money orders. The Attorney General has also recognized that payroll debit card technology is more cost efficient for employers, reduces payroll processing costs and is better for the environment than the use of paper checks to compensate employees. 6 The convenience and utility of payroll debit cards for employees, especially New York s unbanked population, cannot be overstated. As the Department is well aware, the New York legislature worked on a bill this past session designed to implement consumer protections for the use of payroll debit cards. 7 The legislation addressed many of the same topics covered by the Department s proposed rule, including the employer s obligation to disclose all methods by which an employee may elect to receive wages; the employer s obligation to disclose all pertinent terms and conditions relating to the payroll debit card program to ensure that an employee s decision to be compensated by payroll debit card is fully informed; a guarantee that 3 Office of the New York State Attorney General, Pinched by Plastic: The Impact of Payroll Cards on Low Wage Workers at 3 (June 12, 2014). 4 Despite the fact that the proposed rule also attempts to help employees avoid check cashing service fees, employees may nonetheless choose to use such services to cash their pay checks. See Section (b) (An employer who pays by check must ensure that [t]here is at least one means of no-cost local access to the full amount of wages through check cashing or deposit of check at a financial institution or other establishment reasonably accessible to the employee s place of employment. ) 5 Id. 6 Electronic payment technology is increasingly being used to provide benefits under both Federal and State law. Supplemental Nutrition Assistance Program ( SNAP ) benefits are now delivered via Electronic Benefit Transfer cards that also function similar to debit cards. The New York Department of Labor no longer issues paper checks for unemployment benefits and instead requires recipients to receive their benefits either by direct deposit or on Direct Benefit Cards. See NY Senate-Assembly Bill S2590A, A3109A.

3 Page 3 employees will have at least two ways to access their wages each pay period without charge; a guarantee that employees will have at least two ways to check their account balances without charge; and a guarantee that, upon request, employees will be entitled to receive one replacement payroll debit card per year at no cost. The legislature worked with industry stakeholders to craft language that would both enhance consumer protections and preserve payroll debit cards as a wage payment option. In contrast, the Department s proposed rule imposes undue economic and administrative burdens on issuers and employers that are likely to substantially lessen, if not outright eliminate, any incentive to offer or continue to make payroll debit cards available in New York. Such an outcome would disadvantage both employees, particularly those that are unbanked, and employers, particularly small businesses for which the use of payroll debit cards can result in significant savings that can be reinvested in operations. Rather than rush to adopt overly restrictive requirements, ETA urges the Department to work with stakeholders to modify the language of the proposed rule with a goal of reducing the costs that employers and issuers will be forced to bear, easing the administrative burdens of compliance and removing the barriers that the proposed rule creates for those wanting to enter or remain in the payroll debit card market while protecting and preserving the rights of workers to full and free access to their wages. It is certainly appropriate for the Department to prohibit an employer or its agent from charging an employee fees for application, initiation, participation, maintenance or other actions necessary to receive wages or to hold a payroll debit card. 8 The proposed rule, however, also prohibits a broad range of fees for services unrelated to the employee s access to wages. Where issuers or employers will incur costs for providing such services and the rule prohibits their recovery from the employee, issuers and employers will lose the incentive to offer payroll debit cards in New York. Some examples of such costs are outlined below: In-Network ATM Withdrawals and Balance Inquiries: The proposed rule appears to prohibit the use of payroll debit cards that do not allow unlimited free in-network ATM withdrawals and unlimited free in-network ATM balance inquiries. 9 The Department s statement in the Regulatory Impact Statement that there will be no costs to the regulated community to implement this rulemaking and its statement in the Regulatory Flexibility Analysis that small businesses will not incur costs to comply with this rulemaking fail to take into account the costs incurred by issuers for transactions done on the ATM network. If payroll debit card issuers have to absorb these costs, they will be discouraged from doing business in New York. If the issuer is able to pass the costs on to employers, any savings the employer may potentially realize from using payroll debit cards will 8 See Section (c)(1), (5). 9 See Section (b)(1) and (c)(7).

4 Page 4 be reduced and they may be discouraged from offering payroll debit cards to their employees as a compensation option. Such a result would be unfortunate for those workers who would otherwise choose to be compensated by payroll debit cards. The payroll debit card is only one of several options available to employees to receive their wages and may be freely chosen or declined. An employee s election to be paid by payroll debit card may also be revoked at any time. In weighing the negative impact the cost of unlimited ATM use may have on the availability of payroll debit cards in New York, the Department must bear in mind that ATMs are only one means of accessing cash and balance information and that no-fee alternatives are available to employees. As long as employees are given adequate advance notice of the terms and conditions of use of the payroll debit card, including fees associated with ATM use, and as long as employees opting for the payroll debit card are able to access the entirety of their wages in cash and to access their account balance information at no cost by means other than an ATM, it would be extremely difficult to justify adopting a regulation that will require issuers and/or employers to absorb costs caused by the employee s unlimited use of the card at ATMs. The additional costs the rule would impose on employers and issuers may also impose costs on employees by eliminating the choice of a payroll debit card as a means of compensation for many New York employees. The rule should be modified to eliminate the requirement for unlimited no-fee ATM transactions. Prohibition on Fees for Declined Transactions and Account Inactivity: The Department s proposal to ban fees for declined transactions and account inactivity will impose costs on the issuer and/or employer that are unrelated to the employee s right to have full and free access to his/her wages. Issuers are charged fees by payment networks and processors when purchases by debit card are declined and by ATM networks when transactions are declined. These costs will have to be absorbed by the issuer or passed on to the employer, either of which will reduce the cost-efficiency of using payroll debit cards as an alternative to checks. Transactions that are declined due to insufficient funds or the entry of an incorrect PIN do not deny an employee full and free access to his/her wages and any fees incurred for such transactions should be borne by the employee. Because employees always have a no-cost way to check the balance on their card before purchases or ATM withdrawals are attempted, there is no basis for the Department to prohibit charges for declined transactions.

5 Page 5 Issuers also incur costs for maintaining inactive accounts, but the proposed rule prohibits the assessment of fees for account inactivity. 10 The rule should be modified to eliminate the prohibition on fees for account inactivity. There are other provisions of the proposed rule that should be modified because they place undue administrative burdens on issuers and employers. Effective Date: The Regulatory Impact Statement provides that the rulemaking shall become effective upon publication of its adoption in the State Register. ETA submits that it is unrealistic and inequitable to expect employers to be in compliance with the new rule on day one. Where employers are currently using payroll debit cards to compensate employees, their contracts with issuers may have to be amended to reflect any new requirements. Employers will also need time to develop any written disclosure statements that the new rule requires. In order to ensure that parties have time to come into compliance with any new requirements, ETA urges the Department to modify the effective date to allow an adequate period of time for issuers and employers to come into compliance with any new requirements. Waiting Period Before Seeking Consent To Receive Wages By Payroll Card: Section (a)(2) of the proposed rule requires not only that an employer obtain an employee s written consent to be paid by payroll debit card, but also wait at least seven business days before seeking consent 11 after providing the employee written notice of all of the options for receiving wages, a written statement that the employer may not require the employee to accept wages by payroll debit card, a written statement that the employee may not be charged any fees for services that are necessary to access his/her wages in full and a list of locations where employees can access and withdraw wages at no charge within reasonable proximity to their place of work and place of residence. The purpose of this seven business day waiting period before asking for employee consent to be paid by payroll debit card is not apparent. The waiting period is likely to 10 See Section (c). 11 In contrast, the proposed rule imposes no waiting period before seeking an employee s consent to be paid by direct deposit. See Section

6 Page 6 discourage employees from opting to use payroll debit cards because it is the only method of compensation which employees cannot choose during the initial onboarding process. What this means is that even employees who have prior experience with and would like to be paid by payroll debit card will have to choose another method of compensation for their first and perhaps second payroll period. The Department should eliminate the seven business day waiting period before employers may seek consent from employees to receive wages via payroll debit card and allow employers to seek consent at the same time the other payroll options are presented to the employee for selection. The Department should also allow employers to obtain employee consent to be compensated by payroll debit card electronically where the employer offers an on-line option of signing up for benefits and selecting a payment method. Written List of Locations Where Employees Can Access Wages at No Charge: The Department should eliminate the requirement that employers provide employees a written list of locations where they can access and withdraw wages at no charge within reasonable proximity to their place of residence and place of work. It would be unreasonably burdensome to require employers to provide a written list of locations tailored to each individual employee s place of residence and such a list would likely be of limited value to an employee. It would be far more consumer friendly for the Department to require employers to provide a written explanation of the means by which the employee may access his/her wages (e.g., any branch of the bank maintaining the account or any bank displaying the logo of the payroll debit card payment network) or check his/her account balance (e.g., on line or through IVR or other automated system). Error Resolution Procedures: The Proposed Rule requires that agreements between employers and issuers must provide that if the employee reports the payroll debit card as lost or stolen or reports fraudulent activity, the issuer must stop all card activity and conduct a reasonable investigation within 10 days. 12 Depending upon the circumstances of the report, it will not always be possible to complete an investigation into fraudulent or unauthorized activity within 10 days and both issuers and consumers will be harmed by such an inflexible requirement. Federal Regulation E already addresses error resolution procedures for payroll debit cards. That regulation allows an extension of the 10 day investigation period for up to 45 days upon providing employees provisional credit for the 12 See Section (g).

7 Page 7 disputed amount. 13 Rather than try to reinvent the wheel, the Department should defer to the federal regulation on error resolution procedures. The federal regulation ensures that the employee is protected during the extended investigation period by having access to the disputed funds while also ensuring that the issuer is afforded sufficient time to conduct a thorough investigation. For the foregoing reasons, ETA respectfully requests that the Department work with industry stakeholders to amend the proposed rule to lessen the undue economic and administrative burdens the rule creates for employers and issuers while still protecting the rights of workers to full and free access to their wages. To the extent the rule as proposed would have the unintended consequence of eliminating or limiting the availability of payroll debit cards as a compensation option in the State of New York, it would not serve the public interest and should be modified consistent with these recommendations. Respectfully submitted, /s/ Scott Talbott Senior Vice President, Government Affairs Electronic Transactions Associations th Street N.W., Suite 402 Washington, D.C (202) See 12 C.F.R ,