July 31, Re: Notice of Proposed Rulemaking: Methods of Payment of Wages LAB P

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1 Mr. Michael Paglialonga NYS Department of Labor, Building 12 State Office Campus, Room 509 Albany, New York Re: Notice of Proposed Rulemaking: Methods of Payment of Wages LAB P Dear Mr. Paglialonga, These comments are submitted on behalf of the U.S. Chamber of Commerce Center for Capital Markets Competitiveness ( CCMC ). The U.S. Chamber of Commerce (the Chamber ) is the world s largest business federation, representing the interests of more than three million companies of every size, sector, and region. The Chamber created CCMC to promote a modern and effective regulatory structure for capital markets to fully function in a 21 st century economy. CCMC appreciates the opportunity to comment on the Notice of Proposed Rulemaking: Methods of Payment of Wages issued by the New York State Department of Labor (the Department ). 1 Payroll cards provide an extremely valuable financial management tool for all employees, and particularly for those who lack access to traditional banking services. Countless New York employees have chosen to use them because of the convenience, security, and financial opportunity they provide. We are concerned, therefore, by the Department s proposal of a rule that would significantly deter New York employers from offering payroll cards to their employees. This proposal will deprive employees of the benefits of the payroll cards they want and thus will cause the result we all seek to avoid: pushing New Yorkers 1 See Proposed Rule Making, NYS Department of Labor, Methods of Payment of Wages, N.Y. St. Reg. 16 (May 27, 2015).

2 Page 2 back to expensive check cashing services and thereby depriving them of any means of free and clear access to their wages. We accordingly urge the Department to withdraw its proposal. Even if the Department remains convinced of the need to regulate these popular and safe products, it should not issue a new proposal before early 2016, when the U.S. Consumer Financial Protection Bureau ( CFPB ) finalizes national standards on payroll cards and other prepaid accounts. (1) Payroll cards have been a success story for employees and employers. a. Payroll Cards Benefit Employees The last decade has seen a surge in the popularity of payroll cards, particularly among unbanked and underbanked employees. 2 This is no surprise payroll cards benefit employers by replacing inefficient payments by paper check. They also provide significant benefits for employees. These include: Availability: Unlike opening a bank account, employees are not barred from receiving wages on a payroll card because of an unfavorable financial history. Cost savings: Payroll cards have a far-lower cost structure than alternative financial services. Check cashing charges, for example, can range from 2% to 5% of the value of a paycheck. 3 Convenience: Wages are added directly to a card on payday, allowing the cardholder to withdraw his or her wages from an ATM or to make purchases 2 See, e.g., Aite Group, Report Summary, The Contenders: Prepaid Debit and Payroll Cards Reach Ubiquity (Nov. 14, 2012) (predicting 20% annual growth rate for payroll cards until 2017), available at Center for Financial Services Innovation, 2012 Financially Underserved Market Size Study 3 (Dec. 1, 2013) (describing payroll cards as the fastest growing product category in financially underserved market), available at financially-underserved-market-sizing-study. 3 See, e.g., Use of Financial Services by the Unbanked and Underbanked and the Potential for Mobile Financial Services Adoption, 98 Fed. Res. Bulletin 3 (Sept. 2012).

3 Page 3 immediately. Direct payment also ensures that a worker receives his or her pay even after leaving the employer or changing a mailing address. Safety: It is far safer to store funds on a payroll card than for workers to cash, carry, and store the full value of their paychecks. The elimination of paper checks likewise reduces the threat of identity theft. Card replacement: Unlike cash, payroll cards can be replaced without loss of funds. Economic inclusion: Payroll cards allow cardholders to perform financial transactions paying a gas or phone bill, ordering medicine over the phone, applying for a passport quickly and easily. Such transactions are enormously time consuming for a person relying on cash payment, particularly if it proves necessary to get a money order or if payment must be made in person. In all, payroll cards offer many employees the opportunity to participate more fully in our nation s economy and to develop wealth for themselves and their families. Unsurprisingly, countless New Yorkers have chosen this option. b. Payroll Cards Already Are Well-Regulated. Payroll cards also are well-regulated. Since 2007, payroll cards have been subject to Regulation E, which sets federal standards for electronic transfers. 4 Payroll cards, accordingly, must meet various standards requiring disclosure of fees, access to account history, limited liability protections, and error resolution rights. Perhaps most significantly, Regulation E requires employee choice: no employer may require an employee to receive his or her wages on a payroll card. An employer who purports to require its 4 See generally 12 C.F.R. pt (implementing the Electronic Funds Transfer Act (EFTA), 15 U.S.C et seq.). The 2007 rules were promulgated by the Federal Reserve. See 71 Fed. Reg (Aug. 30, 2006) (rules effective Jan. 1, 2007). Authority over EFTA now has transferred to the CFPB. See Pub. L. No , 124 Stat (July 21, 2010).

4 Page 4 employees to use a payroll card of its choosing violates federal law and is subject to the enforcement authority of the CFPB, as well as civil suit by affected employees. 5 The Federal Deposit Insurance Corporation ( FDIC ) also has acted on payroll cards. In 2008, it concluded that payroll card accounts were eligible for insurance on a pass-through basis if the issuer held the funds in custodial bank accounts, did not own those funds, and maintained accurate records indicating ownership of the funds. 6 Almost all of the leading payroll card providers now protect payroll card owners with FDIC insurance up to $250,000. And of course, adding to this federal regime, the Department itself has interpreted existing New York law to prohibit the imposition of fees for services that are essential for an employee to access his or her wages since such fees prevent the free and clear receipt of wages. 7 Thus, New York employees already cannot be charged account maintenance fees, account closing fees, card replacement fees, or ATM fees that would prevent payment in full of an employee s agreed upon wages without encumbrances. 8 c. The CFPB Intends To Further Regulate Payroll Cards Through A Rule Issued Early In See CFPB Bulletin , Payroll Card Accounts (Regulation E) (Sept. 12, 2013), available at See also 15 U.S.C. 1693m (providing private right of action); id. 1693o (providing for administrative enforcement). 6 The FDIC concluded that the underlying funds were deposits within the meaning of the Federal Deposit Insurance Act, and thus insurable, to the extent that they were held at an insured institution and the standards for pass-through insurance were met. See General Counsel s Letter No. 8, Insurability of Funds Underlying Stored Value Cards and Other Nontraditional Access Mechanisms, 73 Fed. Reg , (Nov. 13, 2008). The National Credit Union Administration similarly insures accounts associated with payroll cards issued by federal credit unions. 7 N.Y. Lab. Law 191; see also N.Y. State Dep t of Labor, Opinion Letter RO (Oct. 29, 2009), available at N.Y. State Dep t of Labor, Opinion Letter RO (Jan. 15, 2010), available at 8 Id.

5 Page 5 What is more, the CFPB has made clear that it will regulate payroll cards even further. 9 Its December 2014 proposal would impose new disclosure requirements on payroll cards, effectively prohibit payroll cards from having overdraft protections or being connected to credit features, and make sundry other revisions to the governing regulatory regime. Thus, as proposed, the CFPB s rule would accomplish many, if not all, of the goals that motivate the Department s current proposal. The CFPB expects to issue a final rule governing payroll cards in early Duplicating the CFPB s efforts merely to add a layer of complexity and burden for New York employers will not help anyone. The Department, moreover, should not issue a regulation that would conflict with the forthcoming new national standards. Even the smallest conflict could cause significant disruption and expense for employers as they work to comply with the law. Unfortunately, even a cursory review of the existing proposals makes clear that substantial conflicts are likely to arise. The CFPB, for example, would define a payroll card account as an account that is directly or indirectly established through an employer and to which electronic fund transfers of the consumer s wages, salary, or other employee compensation (such as commissions) are made on a recurring basis. 11 In contrast, the Department s proposed regulation would define Payroll Debit Card as a card that provides access to an account with a financial institution established directly or indirectly by the employer, and to which transfers of the employee s wages are made on an isolated or recurring basis. 12 What exactly the Department means by accounts established by an employer is unclear, but it apparently is something different than accounts established through an employer. Likewise, the Department s rule would apply to a broader set of employees because of its coverage of any isolated payment of wages, meaning that it would potentially cover bonus payments or other irregular payments that the CFPB decided should not be covered. 9 See Prepaid Accounts Under the Electronic Fund Transfer Act (Regulation E) and the Truth in Lending Act (Regulation Z), 79 Fed. Reg , (Dec. 23, 2014). 10 See 11 See 79 Fed. Reg. at N.Y. Reg. 16 (May 27, 2015).

6 Page 6 With differences in the very definitions of the cards they cover and other distinctions reaching across the proposals, any New York rule is sure to conflict with and duplicate the CFPB s rule in various respects. The more prudent course even if the Department persists in its drive to regulate would be to wait for the CFPB to issue its final rule and then consider whether further regulation is necessary and appropriate. 13 (2) If adopted, the Department s proposed rule would harm employers and employees. All New York employees deserve free and clear access to their wages. Historically, however, too many unbanked or underbanked New Yorkers have paid substantial fees to check-cashers or providers of other alternative financial service. As discussed above, payroll cards solve that problem. They provide an important and valuable alternative for countless New Yorkers who otherwise would receive paper checks that they would immediately see reduced by check cashers substantial fees. 14 The proposed rule ignores these benefits. It would reduce payroll cards to disfavored status, imposing undue and unique burdens on their use and making it far less likely that employers will make these valuable products available to employees. 15 In short, it would force employers either to abandon payroll cards or to undertake regulatory compliance obligations that are neither reasonable nor clearly defined. 16 The outcome 13 This approach also is likely to have the benefit of eliminating the need to use New York labor law to attempt to regulate financial institutions, many of which are themselves outside the authority of New York regulators. 14 The Department s proposal would require an employer to ensure that its employees are able to cash or deposit their checks, without charge, in at least one location near their place of employment. Id. Notably, unlike payroll cards, the proposal would not require employers to ensure that employees can access such free financial services near their place of residence (nor should it). Thus, while some employees may be able to cash their checks at the designated location near their place of employment, employees who cannot go to that location during business hours or who have to leave work promptly whether because of child care obligations, or other reasons will find themselves paying substantial check cashing fees, whether near their homes or elsewhere. 15 The contrasting treatment of general purpose reloadable (GPR) cards provides a good example of the disfavored status of payroll cards under the proposed regulation. GPR cards would not meet the definition of payroll debit cards because the account would not be established directly or indirectly by the employer. See id. Direct deposit to GPR cards thus would not be subject to the same regime applicable to payroll cards. 16 In a particularly significant example of the proposed rule s lack of clarity, it would prohibit employers or agent[s] from charging employees various fees for using a payroll card. Id. at 17. This prohibition makes no reference to issuers or financial institutions, the terms used elsewhere in the proposal to refer to payroll card providers, making clear that the fee prohibitions do not apply to those entities. But we are not aware of instances of employers charging fees for point of sale transactions or other items listed by the proposal. Indeed, the proposal s prohibition against any

7 Page 7 is as inevitable as it is unfortunate: substantially reduced use of payroll cards by New York employees and increased use of check-cashing services. Three problems with the proposal exemplify its deficiencies. First, the proposed rule will deter the use of payroll cards by requiring an employer to wait seven business days between providing the employee various information about payroll options and seeking that employee s consent for payment of wages via payroll card. The practical effect of this requirement will be to ensure that an employee cannot receive his or her first paycheck on a payroll card. Companies, instead, would have to return to the administrative onboarding process for a new employee at a later pay period, substantially increasing administrative costs, raising the risk of consumer confusion, and making it highly unlikely that an employee will want to shift away from an alternative payment method (e.g., paper check) that he or she will have just selected the prior pay period. Second, this deterrent effect will be increased by the content of the required notices, most notably the delivery of a list of locations where employees can access and withdraw wages at no charge to the employees within reasonable proximity to their place of residence and place of work. 17 This provision effectively would require an employer to have encyclopedic knowledge of the ATMs and branches of the issuer within New York and in other states for employees who choose to live outside the state s borders (even including in Canada). Third, the proposal would require that the employee s consent be a written authorization. 18 This requirement seemingly would call into question employer s use of well-established electronic procedures. Any such change would be a mistake. It would increase physical paperwork requirements, reducing the security of the employee s information and making it harder and more expensive to retain relevant records. kickback or other financial remuneration for employers would seem to prevent employers charging any fees. Id. This element of the proposal thus is confusing and provides another reason for its withdrawal. At minimum, the Department should restate its proposal in clear fashion and then solicit comments on that amended proposal if it intends for this provision to impose any significant new responsibilities or limitations on employers. 17 Id. 18 Id.

8 Page 8 Despite these and other issues and concerns with the proposal, the Department plans to make any final rule effective upon publication. This is a significant mistake. The Department should not impose an immediate effective date that would put the vast majority if not all of New York employers that use a payroll card into immediate violation of the Labor Law. Such a result would be profoundly unfair and could cause enormous disruption to payroll systems and to new hiring. Should the Department move forward with a final rule, it should provide a reasonable period in which employers could bring their systems into compliance with any new regulatory regime. * * * * * If adopted, the Department s proposal would substantially reduce employees access to payroll cards that bring them substantial benefits, pushing them instead to use expensive check cashing services. The proposal is a step in the wrong direction and should be withdrawn. The Department should wait until the CFPB promulgates new national standards governing payroll cards before deciding whether further regulation is necessary and productive. We thank you for your consideration of these comments. Sincerely, Jess Sharp Managing Director