November 25, Notice of Proposed Rulemaking: Methods of Payment of Wages, LAB RP (Oct. 28, 2015).

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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 RP (Oct. 28, 2015). Dear Mr. Paglialonga, 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 the Center for Capital Markets Competitiveness ( CCMC ) to promote a modern and effective regulatory structure for capital markets to fully function in a 21 st century economy. Strong and appropriate consumer protections are an important and necessary component of efficient capital markets. CCMC appreciates the opportunity to comment on the revised proposal regarding payroll cards issued by the New York State Department of Labor (the Department ). 1 The CCMC believes that the revised proposal is an improvement over the original proposal and appreciates the Department adopting some of the suggestions included in the Chamber s initial comment letter. However, we still have a number of concerns about provisions that may discourage both employers from offering, and payroll card companies from providing, payroll cards to New York workers. Additionally, we believe there is the potential of regulatory overlap and confusion that may harm the advancement of consumer protection. 1 See Revised Rule Making, NYS Department of Labor, Methods of Payment of Wages, N.Y. St. Reg. 6 (Oct. 28, 2015).

2 Page 2 Specifically the CCMC would recommend that the Department: 1. Extend the effective date of any rule and also wait to act until the Consumer Financial Protection Bureau ( CFPB ) issues its broader prepaid rule, in order to avoid imposing conflicting regulatory requirements on New York employers; 2. Eliminate fee prohibitions that are unrelated to the purpose of the rule, as well as the de facto ban on overdraft features; 3. Address concerns related to the cooling off period, which continues to be administratively burdensome for employers and unnecessary, given that employees always have the ability to change their method of wage payment; and 4. Clarify that written notice and consent requirements apply only to new employees, not to existing employees. Our concerns are addressed in detail below. Discussion As we explained in our comment regarding the original proposal, 2 payroll cards are an extremely valuable financial management tool for all employees who use them, and particularly for those who lack access to traditional banking services. Countless New York employees have chosen to receive their wages on payroll cards because of the convenience, security, and financial opportunity they provide. Indeed, for many New Yorkers, payroll cards offer huge advantages to the alternative: taking a paper check to a check casher at great expense and personal inconvenience. 2 See Letter from Jess Sharp to Michael Paglialonga, Re. Notice of Proposed Rulemaking: Methods of Payment of Wages, LAB P (July 31, 2015), available at For the original proposal, see Proposed Rule Making, NYS Department of Labor, Methods of Payment of Wages, N.Y. St. Reg. 16 (May 27, 2015).

3 Page 3 We accordingly appreciate that the Department has revised its proposal to remove some of the most obvious deterrents to broad use of payroll cards in New York, including an unjustified 7-day waiting period before a new employee can sign up for a card, a requirement to provide a list of fee-free ATM machines near an employee s place of residence and place of work, and an apparent prohibition on using electronic means to gather employee consent. These changes are consistent with the important goal of allowing employees to choose the best (and free) means by which to receive their wages. Various provisions within the revised proposal remain problematic, however, and would discourage both employers from offering, and payroll card companies from providing, payroll cards to New York workers. The Department should amend or remove such provisions. For example, it should eliminate fee prohibitions that are unrelated to the purpose of the rule, as well as the de facto ban on overdraft features. The amended 7-day cooling off period is administratively burdensome for employers and unnecessary given that employees always have the ability to change their method of wage payment. The Department also should be clear that written notice and consent requirements apply only to new employees, not to existing employees. Moreover, the Department not only should extend the effective date of any rule, but should wait to act until the CFPB issues its broader prepaid rule, in order to avoid imposing conflicting regulatory requirements on New York employers. I. Payroll Cards Have Been a Success Story for Employees and Employers The Department reports that it received informative comments on the benefits of payroll cards, leading it to conclude that the payment of wages via Payroll Debit Cards can help ensure employees [have] access to wages in a free and effective way. 3 While true, this is a significant understatement New York businesses have benefitted enormously from payroll cards efficient and effective delivery of wages. Payroll cards, likewise, have substantial benefits for employees. Moreover, payroll cards are safe they are already well-regulated at the state and N.Y. St. Reg. at 8.

4 Page 4 federal level and soon will be subject to yet further regulation by the CFPB. Absent undue discouragement by the Department, employees, consequently, can be expected to continue to choose to use payroll cards to save time and money, and to participate more fully in today s economy. a. Payroll Cards Benefit Employees As we explained in our prior letter, unbanked and underbanked employees have benefited substantially from the emergence of payroll cards in the past decade. These benefits 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, reach up to 2% of the value of a paycheck in New York, and up to 5% nationally. 4 Convenience: Wages are added directly to the card account on payday, allowing the cardholder to access his or her wages in their entirety for free, to get cash from an ATM, or to make purchases immediately. Direct payment also ensures that a worker receives his or her pay even after leaving the employer or changing 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. Card replacement: Unlike cash, payroll cards can be replaced without loss of funds. 4 See, e.g., Use of Financial Services by the Unbanked and Underbanked and the Potential for Mobile Financial Services Adoption, 98 Fed. Res. Bull. 3 (Sept. 2012).

5 Page 5 Economic inclusion: Payroll cards allow cardholders to perform financial transactions paying a gas or phone bill, ordering medicine over the phone, purchasing tickets online, making a reservation quickly and easily. Such transactions are enormously time consuming for a person relying on cash payment. 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 are safe for employees they are well-regulated and soon will be subject to even more extensive regulation by the CFPB. To summarize: Since 2007, payroll cards have been subject to Regulation E, which sets federal standards for electronic transfers. 5 In addition to providing various consumer protections such as error resolution rights and limited liability protections, Regulation E requires employee choice for methods of payment. Consequently, no employer may require an employee to receive his or her wages on a payroll card. 6 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 5 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). 6 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 Page 6 accurate records indicating ownership of the funds. 7 Almost all of the leading payroll card providers now protect payroll card owners with FDIC insurance up to $250,000. The Department has interpreted 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 full and timely receipt of wages. 8 Thus, New York employees already cannot be charged account maintenance fees, account closing fees, card replacement fees, or ATM fees that would prevent full payment of wages. 9 The CFPB s 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. The CFPB expects to issue a final rule governing payroll cards in early c. Absent Undue Discouragement by the Department, More Employers are Likely to Offer Payroll Cards and More Employees are Likely to Choose to Use Them The Department should encourage adoption of this efficient and safe method of delivering New Yorkers wages. At a minimum, the Department should not steer underbanked and unbanked employees away from payroll cards and towards other, far 7 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. 8 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 9 Id. 10 See Kelly Cochran, Fall 2015 Rulemaking Agenda, CFPB Blog (Nov. 20, 2015),

7 Page 7 riskier methods of payment. The Department, instead, should enable the future success of payroll cards and thereby support both New York businesses and employees. II. The Revised Proposal Correctly Amends Provisions that Would Have Significantly Discouraged Employers from Offering Payroll Cards to New York Employees The Department s original proposal contained numerous provisions that would have substantially discouraged employers from offering payroll cards to their employees. We welcome the Department s changes to those provisions. To that end, we highlight below four areas where the Department has made progress in this revised proposal. Each change reduces the regulatory burden on employers and thereby enhances employees ability to choose to receive wages in the manner best calculated to save them time and money. a. Clarification of Sufficiency of Electronic Signatures The Department s original proposal contained ambiguous language that could have prevented employees from using electronic means to choose to receive wages on a payroll card. 11 The Department now has clarified that a consumer may use electronic means to choose to receive his or her wages on a payroll card. 12 This change properly will allow consumers to choose their method of payment in a modern manner. b. Elimination of Seven Day Waiting Period Before Sign-Up for a Payroll Card The Department s original proposal would have prohibited employers from offering a payroll card to an employee within seven days of that employee s start date. 13 That provision would have substantially deterred adoption of payroll cards by preventing employees from choosing to use a payroll card upon joining the company N.Y. St. Reg. at N.Y. St. Reg. at N.Y. St. Reg. at 17.

8 Page 8 We accordingly welcome the Department s decision to eliminate that seven-day waiting period. 14 Unfortunately, the Department has replaced that waiting period with another harmful delay: this time a seven-day waiting period between the employee s decision to use a payroll card and the first payment of wages on that payroll card. 15 But employees who choose to receive their wages on a payroll card should be able to receive their wages on their chosen method of wage payment. Insisting that, depending on their start date, some employees must receive their first check on paper will only sow confusion and create counter-productive administrative complexity for employers that would have to track when the employee is eligible to receive pay on the payroll card he or she had requested nor would there be any clear benefit. The employee still would be signed up to receive wages on a payroll card and the employee still would be able to opt out of using that payroll card at any time. Absent any benefit for employees, or even an explanation from the Department, this arbitrary provision should be eliminated. c. Removing Requirement that Employers Notify Employees About ATM Locations Near Their Residences The Department s original proposal would have required employers to provide employees with a list of locations where they could withdraw their wages without fees, both near their place of work and their place of residence. 16 This requirement effectively would have required employers to have a working knowledge of ATM networks wherever in New York and neighboring states (or even Canada) that employees happened to live. The Department wisely has rephrased this requirement in the alternative so that an employer may notify an employee of ATMs near his or her place of work or place of residence. 17 While we remain unconvinced that employees will benefit from this particular notification and believe that any N.Y. St. Reg. at Id N.Y. St. Reg. at N.Y. St. Reg. at 7.

9 Page 9 requirement to provide a static list could be unduly burdensome, the Department s decision at least has made this requirement more workable for employers. d. Ending Subsidy of Unnecessary Declined Transactions at ATMs The Department s original proposal would have prohibited the imposition of fees for declined transactions at ATMs, even when the employee could review balance information on the ATM free of charge. 18 This provision did not advance the stated purpose of the proposal: the employee remained entirely able to withdraw his or her wages without incurring any such fee. The provision instead effectively would have required employers or payroll card issuers to subsidize the cost of any declined transactions that resulted from the employee s own failure to track the amount of funds in his or her account. By shifting responsibilities and costs, the provision sounded in banking regulation rather than in New York s Labor Law. The Department consequently was correct to strike this provision. 19 (As discussed below, any final rule also should remove other prohibitions on fees for declined transactions.) III. The Department Should Further Amend its Proposal, Which Continues to Pose Significant Challenges for Payroll Card Programs in New York, to Encourage Employers to Offer Payroll Cards The Department has moved its proposal in the right direction, but further improvement is necessary. Here, we discuss four ways in which the Department should strengthen its proposal so that it does not unduly discourage employers from offering safe products that foster economic inclusion and that save employees time and money. a. The Department Should Not Finalize its Rule Before the CFPB Issues its Comprehensive Regulation of Payroll Cards and Other Prepaid Products. At Minimum, the Department Should Extend the Effective Date of the Proposed Rule N.Y. St. Reg. at N.Y. St. Reg. at 7.

10 Page 10 As we explained in our prior letter, the CFPB intends to impose a broad set of additional regulatory requirements on payroll cards and other prepaid products. 20 As proposed, the CFPB s rule would render unnecessary large portions, if not all, of the Department s current proposal. The Department should not create an overlapping rule that adds a layer of regulatory complexity and burden for New York employers without any corresponding benefit for employees. 21 Even assuming that the Department continues to believe that regulation is necessary, it should wait to finalize any rule until the CFPB has issued its broader prepaid rule in spring This would not amount to a significant delay. Indeed, the current proposal would not go into effect for six months, by which time a CFPB final rule is expected to have been issued. Thus, unless the Department briefly pauses its process, companies will be forced to prepare to comply with a New York rule, knowing full well that a CFPB rule might displace those requirements at any time. The Department should not waste New York companies time and resources so needlessly. Instead, before acting, it should first ensure that any proposal it settles upon complements rather than duplicates or conflicts with the final CFPB rule. The Department s original proposal called for the rule to go into effect upon publication, which immediately would have put a large number of New York employers into violation of the Labor Law. The Department has recognized the obvious flaw in this approach and now proposes that its rule go into effect six months after adoption. This implementation period is still too short: six months will not be enough time for many employers especially small businesses to bring their payroll card programs into compliance with the numerous new requirements anticipated in this proposal. To provide employers (and payroll card issuers) with sufficient time to 20 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). 21 As we noted in our earlier letter, the two proposals conflict. Such conflicts will create substantial confusion for employers and discourage them from offering the payroll cards that their employees want. 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. See 79 Fed. Reg. at (emphases added). 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 N.Y. St. Reg. at 6 (emphases added).

11 Page 11 develop compliant payroll card programs, the Department should allow at least an 18- month implementation period before any rule becomes effective. b. The Department Should Eliminate Fee Prohibitions that are Unrelated to the Purpose of the Rule As noted above, the Department s revised proposal takes a step forward by ending the required subsidy of unnecessary declined transactions at ATMs. However, the revised proposal continues to include fee prohibitions that are unrelated to the proposal s stated purpose of ensuring that New York employees have free access to their wages. These fee prohibitions effectively require employers or card issuers to subsidize the costs of optional transactions. Rather than ensuring that employees can access their wages without paying unavoidable fees, these fee prohibitions would define the features of these products while making their cost structure challenging at best and unsustainable at worst. The Department should eliminate such fee prohibitions that are unrelated to the purpose of the rule. For example, it should amend the revised proposal so that employers and issuers are not required to subsidize: (1) unlimited free in-network ATM withdrawals; (2) declined transactions; or (3) the costs of maintaining accounts that have been inactive for more than a year. c. The Department Should Eliminate the De Facto Ban on Overdraft Protection The revised rule continues to prohibit issuers from charging a fee for overdraft protection or delivering wages to a payroll card account that is linked to any form of credit. Though the Department maintains that [t]he rule does not prohibit overdraft services, only fees that are associated with such services, 22 this distinction is illusory. For all practical purposes, the proposal would ban overdraft protection. The Department should lift this de facto ban for at least two reasons N.Y. St. Reg. at 8.

12 Page 12 First, the CFPB has indicated that it intends to strictly regulate the offering of overdraft protections on prepaid cards (including payroll cards) by treating a prepaid card connected to overdraft protections as a credit card subject to Regulation Z (implementing the federal Truth in Lending Act). 23 The Department should not create a competing regulatory regime for payroll cards and certainly should not do so before it has reviewed the CFPB s final rule and decided that its protections for New Yorkers are deficient in some manner. Second, as demonstrated by the CFPB s authority over this topic, the availability of overdraft protection for payroll cards ultimately is a question of financial policy not properly within the Department s authority. In the Assessment of Public Comment on this rule, the Department emphasizes that [t]he proposed rule deals only with the method of payment of wages. 24 If that is truly the case, the Department should not address product features that an employee need never use. The availability of overdraft protections does not affect an employee s ability to access his or her wages and should not be addressed in this rulemaking. d. The Department Should Require Notice and Consent Only as to New Employees The Department s revised proposal would require employers who offer payroll cards or direct deposit to provide employees with certain written notices and to secure written consent from their employees. 25 The revised proposal seemingly would apply this requirement even to existing employees who previously consented to (or, more likely, requested) the delivery of their wages by direct deposit. Forcing an employer to provide notice to its existing employees will create substantial confusion. Moreover, requiring an employer to secure new consents from such employees would create an unmanageable burden for many businesses. The Department instead should apply the notice and consent requirements only to new employees or to employees who are switching their method of receiving wage payments not to existing employees. * * * * * 23 See 79 Fed. Reg. at N.Y. St. Reg. at N.Y. St. Reg. at 7.

13 Page 13 The Department s proposal, if adopted, would unnecessarily discourage the use of payroll cards that benefit New York employees and employers. While the Department has improved upon its initial proposal, further amendment is necessary. The Department should not limit employees access to payroll cards in a manner that forces many employees to use expensive and risky alternative financial services. Rather, it should ensure that New Yorkers can choose safe and responsible payroll cards that serve their financial needs while saving them time and money. Thank you for your consideration of these comments. Sincerely, Tom Quaadman