Consumer safeguards lacking
Another matter that should be a big concern for employees who carry
payroll cards is that the cards aren't currently covered under federal
Regulation E which protects consumers in the event of fraudulent
electronic fund transfers connected with a bank account.
Reg. E, as it's called, limits a consumer's financial
liability and requires banks to recredit the account within a specified
amount of time. The Federal Reserve is proposing that payroll-card
accounts be covered under Reg. E. But, if the change is made, it
could be summer 2005 before it takes effect.
The American Payroll Association has set up a government
task force and is exploring the issue of Reg. E coverage for payroll
"At first glance we think it's a great idea,"
says Andrew McDevitt, manager of government relations. "Most
employers are establishing their programs as if Reg. E applies to
them. That doesn't mean that every program is Reg. E compliant.
But we recommend, as an association, that members who explore pay
cards and roll out a program have that discussion with their vendor
Hillebrand says payroll cards have a lot of potential,
but only if the issues of fees and consumer protections are addressed.
"They're good in that it's harder to steal someone's
money and, generally, the fees will be cheaper than a check casher.
But that's not the right test -- being better than a bad thing isn't
a good thing."
Consumers Union recommends that employers give employees
the paper-or-plastic choice -- paper checks or payroll cards.
"That way the employer has an incentive to make
the new system work," Hillebrand says. "If they can force
it on employees, any system will do. The right to go back to paper
checks is the ultimate safety valve."
If your employer is instituting payroll cards, ask
about fees and if the card has the federal protections guaranteed
under Reg. E. Cards that have Visa or MasterCard logos have "zero
liability" policies, but that protection falls far short
of Reg. E. For example, Visa's policy doesn't protect you if someone
fraudulently uses your personal identification number and withdraws
money from your account at an ATM.
Consumers Union also warns that even if payroll cards
are given Reg. E protection, individual debit cards, such as the
Rush Visa card, may not be covered. The Rush card encourages consumers
to have their pay directly deposited to the card. The proposal by
the Federal Reserve would cover "accounts that are established
either directly or indirectly by an employer on behalf of a consumer."
Even if such cards were to be covered, the fees
associated with them would take a big bite out of a paycheck. According
to the Rush card's Web
site, the company charges $19.95 to receive the card, $1.50
per withdrawal at domestic ATMs, $1 to check your balance at an
ATM, and $1 convenience fee on purchases.