BILL ANALYSIS Ó
AB 51
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Date of Hearing: May 27, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 51 (Yamada) - As Amended: May 9, 2011
Policy Committee: Banking and
Finance Vote: 7-4
Labor and Employment 5-1
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill authorizes employers to pay employee wages by means of
payroll cards that meet certain specified conditions.
Specifically, this bill:
1) States that nothing in current law prohibits an employer
from paying an employee's wages through a payroll card
program, provided that all of the following requirements
are satisfied:
a) The employer has obtained the employee's voluntary
written consent and the employer has offered the employee,
and the employee has declined, the option of receiving
wages by direct deposit or paper check.
b) The contract the employer has entered into with the
issuer requires that the issuer provide the employee, at no
cost to the employee, all of the following:
i) The right to make at least two withdrawals per pay
period from an automated teller machine (ATM).
ii) At least one method to withdraw the entire
amount of wages for each pay period.
iii) Specified records and notifications.
c) The issuer or employer does not charge the employee
specified fees or charges.
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d) The payroll card account is insured by the Federal
Deposit Insurance Corporation or the National Credit Union
Administration on a pass-through basis to the employee.
2)Prohibits an employer or issuer from engaging in unfair,
deceptive, or abusive practices in connection with offering or
administering a payroll card program.
FISCAL EFFECT
Administrative costs for enforcing the provisions of the bill
are estimated to be $150,000 range. The Department of
Industrial Relations would be charged with administering the
provisions. The bill requires increased scrutiny of the
practice of using payroll cards, allowing the department to
study use and the industry practices. Their regulatory costs
would depend on their findings about frequency of misuse.
COMMENTS
1)Purpose . According to the author, payroll cards - cards
issued by an employer in lieu of wages that functions similar
to an ATM or debit card - have grown in use among employers
seeking to find an alternative to paper checks when paying
employees that cannot or do not want to receive their wages
through direct deposit. This method of payment has many
advantages to employers as it is cheaper than issuing paper
checks and simpler for the employer to ensure wages are
delivered.
The author states that, despite the advantages payroll cards
provide to employers, employees often encounter problems
receiving their full wages using these cards. Fees on ATM
withdrawals, statements of account activity, point of purchase
sales, and even the simple act of checking on the balance of
the card can substantially reduce the final amount of wages
received through this program.
The author states that current California Law is silent on the
use of payroll cards. Therefore, it is unclear what
protections, if any, exist for employees receiving their wages
by payroll card; what standards, if any, exist for the use of
a payroll card program for an employer; or if the payroll card
method is a legal method for paying employee wages in
California. This uncertainty has resulted in the numerous fee
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problems for employees and many issues for employers as well.
2)Background . Payroll cards or "pay cards" (also referred to as
"stored-value cards") were introduced in the last decade, but
have seen an increase in recent years as companies such as
Visa and MasterCard began offering their own versions of the
service. These cards give the cardholder the ability to
purchase items wherever merchants participate in the brand of
card, whether it is Visa or MasterCard. Once a purchase has
been made, the funds stored within the card are automatically
deducted. The cards may also be used at ATMs to withdraw cash
or get cash back from retailers.
Pay cards are being marketed by third party vendors and
financial institutions to employers as a means of reducing the
cost of processing paper payroll checks. In general, an
employer establishes an account with a selected program and
the program issues the pay cards, although some pay card
companies have business partners that actually issue the
physical card.
To establish an account with a pay card program, an employer
pays an initial fee. The continuing monthly costs of pay cards
are largely dependent on the volume of employees using the
cards and the fees imposed by the program and bank. The
employer deposits funds into a bank account that is managed by
the pay card company, which issues individual pay cards along
with a personal identification number (PIN) to use with the
card. An employee has the choice to withdraw the funds all at
once as cash or to use the card as a debit card, without
needing to establish a personal banking account.
3)State regulation . The Labor Code doesn't specifically list
payroll cards as a legally authorized payment method for
employees. However, in 2008 the Division of Labor Standards
Enforcement (DLSE) issued two related opinion letters in
response to an inquiry from two payroll companies concerning
whether the use of "payroll debit cards" and "pay cards"
complies with California law.
DLSE stated that the payroll cards at issue in that case
involved both the direct deposit of wages and a means of
accessing those wages using an electronic card. Accordingly,
they stated that the program must satisfy the requirements set
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for in Labor Code section 213(d) for direct deposit, including
that the employee participation be voluntary. Many employers
have issued payroll cards using the DLSE letter as
interpretative authorization to do so.
4)Previous Legislation . AB 1591 (Yamada) of 2010 contained some
of the same provisions that are in AB 51. AB 1591 was not
heard in Assembly Labor Committee. AB 822 (Benoit) of 2005
would have allowed an employer to deposit employee wages on a
payroll card. This bill was held in Assembly Labor Committee.
5)Opposition . The California Chamber of Commerce and a
coalition of organizations oppose AB 51, because they argue it
places overly burdensome restrictions on employers and
financial institutions regarding the use of payroll cards that
renders this method of payment of wages essentially obsolete.
They point out that, despite the fact that receipt of wages on
a payroll card by an employee would still be voluntary, AB 51
would impose direct and indirect responsibilities on the
employer. Failure by an employer to ensure that a financial
institution complies with each of these requirements, will
subject the employer to penalties and litigation as AB 51
characterizes any violation as "unpaid wages." These
burdensome restrictions on employers to regulate the actions
of third parties with regard to the use of payroll cards will
absolutely discourage employers from even contemplating the
use of this method of payment, thereby denying employees a
beneficial and useful method upon which to receive their
wages.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081