BILL ANALYSIS �
SENATE BANKING & FINANCIAL INSTITUTIONS COMMITTEE
Senator Juan Vargas, Chair
SB 931 (Evans) Hearing Date: September 9,
2011
As Amended: August 31, 2011
Fiscal: Yes
Urgency: No
VOTES: 9/08/11 Assembly Floor49-28
Assembly policy committee and Senate votes not
relevant
SUMMARY Would authorize employers to pay wages to their
employees using payroll cards, subject to certain conditions, as
specified.
DESCRIPTION
1. Would define several terms, including "cardholder
agreement," "employer," "issuer," "payroll card," "payroll
card account," payroll card contract," and "payroll card fee
schedule," and would provide that, notwithstanding Labor
Code Section 212, an employer may pay wages to an employee
using a payroll card, if all of the following requirements
are satisfied:
a. The employer gives the employee the option of
receiving his or her wages by direct deposit to a
depository account of the employee's choosing, by paper
check, or by payroll card, before the employee selects
one of these three options.
b. The employer obtains the employee's written consent
to receive wages by payroll card.
c. The employer does not make participation in the
payroll card program a condition of hire or continued
employment.
d. The employer selects a payroll card issuer that
offers employees a process for disputing payroll card
account fees that have been assessed in a manner
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inconsistent with the payroll card fee schedule, and
which treats a fee dispute as if it were an error under
specified sections of Federal Reserve Board Regulation E
(12 CFR Section 205).
The Regulation E error dispute rules generally require
consumers to report suspected errors within 60 days of
receiving a periodic account statement for their account
or, if no statement is sent, within 60 days of
electronically or telephonically accessing their account
balance, provided the balance reflects the error.
Regulation E requires a financial institution to
determine whether an error occurred within 10 business
days of receiving a notice of error from a consumer,
correct the error within one business day after
determining that an error occurred, and report the
results to the consumer within three business days after
completing its investigation. Alternately, if the
financial institution is unable to complete its
investigation within 10 business days, it may take 45
days in which to investigate and determine whether an
error occurred, as long as it provisionally credits the
consumer's account in the amount of the alleged error,
within 10 business days of receiving the error notice
from the consumer].
e. The employer agrees to honor a written request by an
employee to change the method of receiving wages from a
payroll card to another method offered by the employer,
within two pay periods from the time of the request.
f. The payroll card contract provides for the provision
of specified services (listed in more detail below under
the title "Fee Provisions") at no cost to the employee.
g. The payroll card agreement prevents withdrawals in
excess of the account balance and, to the extent
possible, protects against the account being overdrawn.
h. The payroll card agreement does not impose fees
based on an employee's account balance or fees that are
triggered by declined transactions or overdrafts.
i. The funds in the payroll card account do not expire.
Payroll card accounts may be closed after 24 continuous
months of inactivity, with reasonable notice to the
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employee, provided that the remaining funds in the
payroll card account are refunded to the employee, at no
cost to the employee.
j. The payroll card account is not linked to any form
of credit, including a loan against future wages or a
cash advance on future wages.
aa. The payroll card account is insured by the Federal
Deposit Insurance Corporation or the National Credit
Union Administration on a passthrough basis to the
employee.
FEE PROVISIONS
2. Would require each payroll card contract to provide for all
of the following, at no cost to the employee:
a. A payroll card on which the employee may receive
wages, with no charges for application, initiation,
loading, or participation.
b. One replacement payroll card per year.
c. The ability to make up to one withdrawal per pay
period from an automated teller machine (ATM) outside the
network of the issuer, without incurring a fee charged by
the issuer. The issuer would not be held responsible for
any fees imposed on an employee by the financial
institution whose ATM was accessed by the employee.
d. A minimum of four withdrawals per pay period from an
ATM within the network of the issuer.
e. The ability to withdraw the entire amount of wages
stored on the card a minimum of once per pay period.
f. The ability to use the payroll card for a minimum of
two point-of-sale (POS) transactions per pay period,
without incurring a fee charged by the issuer. The
issuer would not be held responsible for any fees imposed
on an employee by a retailer in connection with a POS
transaction.
g. The means to access balance or account information
online, through an interactive voice response system, or
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another automated system, in a manner that allows access
to account information 24 hours a day, 7 days a week.
h. At least three telephone calls per month to a live
customer service representative.
i. The option of receiving ongoing, periodic
statements, in either written or electronic form, once
every two months, if there has been activity on the card
during either month, or once every three months, if there
is a balance on the card, but there has been no activity
on the card during that three-month period.
j. The ability to close a payroll card account and
obtain payment of the balance remaining on the card.
LIABILITY PROVISIONS
3. Would provide that an employer that executes a payroll card
contract in compliance with the provisions listed above
shall not be liable for any fee charged to an employee under
a payroll card fee schedule, provided that the employer does
not receive any portion of the fee, as specified.
4. Would require an employer that pays wages to employees
without a payroll card contract that complies with the
provisions listed above to reimburse its employees for all
fees charged to its employees by the issuer, which are
inconsistent with the fee restrictions in the bill.
5. Would provide that any dispute between an issuer and an
employee that is not resolved to the satisfaction of both
parties using the error dispute resolution process
referenced in 1d above shall be resolved pursuant to the
terms of the cardholder agreement.
6. Would require an employer to deposit all wages owed to an
employee who has elected to be paid via a payroll card into
the employee's payroll card account on or before the
employee's designated payday. The employee would be deemed
to have been paid wages owed at the time the wages are
deposited into the employee's payroll card account, and the
employee has access to those wages. If there is any delay
of an employee's access to wages due to an error by the
issuer, the employer would not be held liable for this
delay, as long as the employer deposited the proper amount
SB 931 (Evans), Page 5
of wages into the employee's account on or before the
designated payday.
7. An employer would be liable for any wages due and not
timely paid onto a payroll card.
OPERATIVE DATE
8. Would become operative on January 1, 2012, but would
provide that a payroll card contract entered into before the
operative date of the bill need not be renegotiated to
reflect the requirements of the bill until the contract's
expiration or renewal date, but in no event later than
January 1, 2013.
EXISTING LAW
9. Prohibits the payment of wages via any order, check, draft,
note, memorandum, or other acknowledgement of indebtedness,
unless it is negotiable and payable in cash, on demand,
without discount, at some established place of business in
the state, the name and address of which must appear on the
instrument. Further requires the payer to have sufficient
funds available to ensure payment of any order, check,
draft, note, memorandum, or other acknowledgement of
indebtedness for at least 30 days from its issuance (Labor
Code Section 212).
10. Provides that nothing in Section 212 prohibits an employer
from depositing wages due or to become due or an advance on
wages to be earned via direct deposit into a depository
institution with a place of business located in this state,
provided that the employee has voluntarily authorized that
deposit (Labor Code Section 213).
11. Is silent on the ability of an employer to pay wages via a
payroll card. However, the California Division of Labor
Standards Enforcement issued an opinion letter in July 2008,
in which it stated that the use of payroll debit cards to
pay wages was in compliance with California law, under
certain circumstances. Among the findings in that letter
(from Chief Counsel Robert Roginson to Carl Morris of
American EPay, Inc. and Daniel Schwallie of Hewitt
Associates, dated 7 July 2008): "Wages must be payable in
cash without discount... By providing one transaction per
pay period without fee, the payroll card programs
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effectively provide for immediate and free access to an
employer's wages in full. The fact that there are other
options for employees to choose such as to withdraw a lesser
amount does not render the use of a payroll card violative
of the employee's right to full and prompt payment of
wages."
12. Provides for the Labor Code Private Attorneys General Act
of 2004 (PAGA; Labor Code Section 2698 et seq.), which
states that, notwithstanding any other provision of law, any
provision of the Labor Code that provides for a civil
penalty to be assessed and collected by the Labor and
Workforce Development Agency or any of its departments,
divisions, commissions, boards, agencies, or employees, for
a violation of the Labor Code, may, as an alternative, be
recovered through a civil action brought by an aggrieved
employee on behalf of himself or herself and other current
or former employees, as specified.
COMMENTS
1. Background and Discussion: In background information
provided to this Committee, the author states the following:
"Payroll cards, a card issued by an employer in lieu of
wages that functions similar to an ATM or debit card, have
grown in use among employers seeking 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 is less expensive than issuing paper checks and
simpler for the employer to deliver wages. In 2005, it was
estimated that the cost to employers of issuing a paper
check was between $1 and $2, while electronic funds
transfers cost employers only about 20 cents per employee.
"Despite the advantages payroll cards provide to employers,
employees can often encounter problems receiving their full
wages when using these cards. Fees on services associated
with the card can quickly add up to cost the employee a
substantial portion of their earnings. Fees on ATM
withdrawals and point-of-sale transactions can exceed $2 per
transaction; balance inquiries can be up to and over $1,
depending on the method of inquiry; and contacting a live
customer service representative can run up to $3 per call.
In addition, the employees that most commonly receive
payroll cards are those that are unbanked or underbanked.
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"A recent survey by the Federal Deposit Insurance Corporation
(FDIC) found that 71% of unbanked households in the United
States earned less than $30,000 per year. These people are
the least able to afford the fees that banks assess on
normal checking accounts, let alone the fees associated with
a payroll card.
"Current California Law is silent on the use of payroll cards.
In 2008, the counsel for the Department of Industrial
Relations' Division of Labor Standards Enforcement issued
two letters at the request of payroll card companies stating
that it interpreted Section 213 of the Labor Code as
authorizing payroll cards, since they were based on an
account into which wages were directly deposited. These two
letters have been the basis for payroll card use in
California today. This authorization is questionable for a
number of reasons.
"Section 213 also clearly states that the financial institution
used for direct deposit of wages must be of the employee's
choice. It is unclear the level of choice that is being
afforded an employee without a current bank when he or she
is offered a payroll card or direct deposit as the only
options of payment.
"As a result of this lack of clarity, it is uncertain 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
employees seeking protection from exorbitant fees through
the judicial process. Disputes over payroll cards and their
use often only see resolution through civil suits. This
makes restitution for aggrieved employees and defense for
employers against spurious claims, a costly recourse for
both parties."
2. Why do employers like using payroll cards to pay their
employees? As noted above, payroll cards are typically less
expensive for employers to issue than paper checks. Exactly
how much less expensive is unclear, and most likely varies
by employer.
According to the 2005 Federal Reserve Board of New York study
cited by the author's office, the process of issuing paper
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checks costs employers between $1 and $2 per pay period,
compared to costs of 20 cents per employee to electronically
transfer funds into a payroll card, checking, or savings
account. Unfortunately, the study fails to state how much
more, on average, it costs each employer to administer a
payroll card program (i.e., the study fails to acknowledge
that transferring wages into a payroll card account is only
part of the equation; loading those wages onto cards,
issuing the cards to employees, and administering a payroll
card program also cost money - costs that were not included
in the FRB's report). Staff was unable to find any studies
that compare the total costs to issue payroll checks to the
total costs to pay wages via payroll cards.
3. How prevalent is payroll card usage in California?
Committee staff was also unable to obtain a definitive
answer to that question. The best answer appears to be,
"Not very prevalent at present, but payroll card usage is
likely to grow over time, particularly in industries with
large numbers of unbanked employees among their workforces."
According to one study provided to staff by the American Payroll
Association, payroll cards were expected to grow from $19
billion nationwide in 2009 to $60 billion nationwide in
2014. The number of payroll card users nationwide was
expected to grow from 1.7 million in 2009 to 5.4 million by
2014.
According to the Federal Reserve Board, there were 1.2 billion
transactions involving general-use prepaid debit cards in
2009, totaling $38 billion (3% of the total). It is not
known what portion of these general-use prepaid debit cards
were payroll cards.
4. Remaining Outstanding Issues: This bill is the product of
extensive discussions, which were conducted following
Assemblymember Yamada's decision in early July 2011 to allow
the policy committee deadline to pass, without bringing up
AB 51 for a vote in the Senate Banking and Financial
Institutions Committee. Although considerable progress
toward a compromise was made during July and August 2011, a
handful of outstanding issues remain. Many of the
outstanding issues separating the two sides are discussed in
detail in the opposition section below. The following brief
list is provided to help provide context for the debate that
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is likely to occur in Committee.
Fee issues: This bill's author and sponsor believe that the fee
provisions of SB 931 are reasonable, and represent the bare
minimum necessary to ensure that employees who are issued
payroll cards are not subject to predatory usage fees, which
erode their wages. Financial institutions argue that the
bill requires too many banking services to be provided to
payroll card users free of charge, and that, as a result,
payroll card issuers will be unable to make a profit as the
bill is currently drafted. Because payroll card issuance
will be unprofitable for financial institutions, they will
not offer payroll cards in California; thus, this bill
represents a de facto ban on payroll card issuance in
California - a ban to which financial institutions are
opposed.
Employers and the American Payroll Association (APA) would like
to see payroll cards issued in California, and are also
opposed to what they view as a de facto ban. Significantly,
employers and the APA are no longer opposed to the
provisions of the bill regarding employer and payroll card
issuer liability. Liability issues were among the issues on
which the two sides successfully negotiated a compromise
during July and August of this year.
Operative date: As drafted, the bill's provisions will apply to
new payroll card contracts entered into on or after 1/1/12.
The bill provides for a one-year transition period to allow
payroll card contracts entered into prior to the operative
date of the bill to be renegotiated. Any pre-existing
contract that is not renegotiated to comply with the
provisions of the bill by 1/1/13 will be deemed in violation
of the bill's provisions on and after 1/1/13. The
opposition would prefer to have three years for the
transition (i.e., a 1/1/15 operative date by which
pre-existing contracts would have to be renegotiated).
Nature of communications between employers and employees
regarding payment of wages: This bill requires that all
communications between employers and employees regarding
payment of wages via payroll cards be conducted in writing.
Electronic communication would not be allowed. Employers
would prefer to give employees the choice of communicating
electronically or in writing, in part as a convenience for
employees, and in part as a cost-saving measure for
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employers. This bill's proponents strongly resist
electronic communication, even if voluntary on the part of
employees, because they fear that employees will be
intimidated into agreeing to electronic communication, which
is not in their best interest.
Whether payroll card issuance is legal at present: This bill's
author and sponsor assert that existing law is unclear
regarding whether payment of wages via payroll card is
currently legal in California, and argue that employers will
benefit from the certainty that this bill will provide
regarding the legality of payroll card issuance. Employers
assert that payroll card issuance is legal in California,
and point to two letters issued by the Department of Labor
Standards Enforcement in support of their point (staff has
quoted from one of these letters in the Existing Law section
above).
5. The Durbin Amendment: Much of the rhetoric surrounding this
bill includes references to the Durbin amendment. Because
the amendment is so poorly understood by many, this section
of the analysis provides a primer on the amendment, and a
discussion of what it means for payroll card issuance in
California.
a. What is the Durbin amendment? The Durbin
amendment, named after its author U.S. Senator Richard
Durbin (D - Illinois) was a last-minute addition to the
Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010. The amendment was introduced at the
request of merchants who believed that they were being
charged unfairly high fees by financial institutions to
process debit card transactions. The Durbin amendment
required the Federal Reserve Board to establish
standards for assessing whether debit card interchange
fees paid by merchants to debit card issuers are
reasonable and proportional to the costs incurred by
those issuers to process electronic debit card
transactions. The Federal Reserve Board issued final
rules implementing the Durbin amendment on June 29,
2011. These final rules are operative October 1, 2011,
and apply to issuers who, together with their
affiliates, have assets of $10 billion or more.
Debit card interchange fees are paid by merchants who
accept debit cards to financial institutions that issue
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debit cards to the merchants' customers. Although
interchange fees are one of several fees paid by
merchants to financial institutions and other payment
processing entities to enable debit card transactions
to be processed, the interchange fee has attracted the
most attention, because it is the largest in size. A
complete discussion of the fees paid by merchants to
financial institutions and other entities to process
debit card transactions is quite complex and is beyond
the scope of this analysis. Together, all of these
fees, when summed together, are called the "merchant
discount." Different components of the merchant
discount are ultimately paid to different entities,
including the financial institution that issued the
debit card used in the transaction, the financial
institution of the merchant, the network (such as VISA
or MasterCard) across which the transaction is routed,
and other electronic processing entities that help
validate and facilitate the transaction, such as First
Data Corporation. Significantly for purposes of this
bill, debit card interchange fees are only triggered
when someone uses their debit card to initiate a point
of sale transaction. Debit card interchange fees are
not triggered by ATM transactions or other debit card
usage.
Prior to enactment of the Durbin amendment, debit card
interchange fees were set by payment card networks at
market-driven rates, which differed based on several
factors, including the size of the merchant, the type
of debit card (signature, PIN debit, or prepaid), type
of transaction (in-person or online), and other
factors. Post-Durbin, as of October 1, 2011, the
maximum permissible interchange fee that a debit card
issuer may receive for an electronic debit transaction
will equal 21 cents per transaction, plus 5 basis
points (five tenths of one percent) multiplied by the
value of each transaction. Under the final Durbin
rules, debit card issuers are also eligible to receive
one extra cent per transaction (up to 22 cents plus 5
basis points), if they develop and implement policies
and procedures reasonably designed to achieve fraud
prevention standards set out in the Fed's final rule.
Thus, under Durbin, debit card issuers will be eligible
to receive up to 24 cents to process an average-sized
$38 debit card transaction.
SB 931 (Evans), Page 12
b. Why is the Durbin amendment important to payroll
card issuance? It is generally believed that the
payroll cards which are the subject of this bill are
covered by the final Durbin amendment rules. This is
important, because financial institutions have argued
that the final Durbin rules will result in a
significant loss of revenue, and will fail to fully
cover their costs to process debit card transactions.
According to a study released by the Federal Reserve
Board in June 2011, the average interchange fee paid to
financial institutions was 44 cents per debit card
transaction, prior to enactment of the Durbin
amendment. Signature debit transactions provided
issuing banks with the greatest revenue (56 cents per
transaction); while PIN debit transactions generated 23
cents per transaction in interchange fees, and prepaid
card interchange fees generated 40 cents per
transaction, on average.
As noted above, the Durbin amendment caps interchange
fees at approximately 24 cents per the average
transaction. Thus, on average, debit card issuers will
see their interchange fee revenue cut almost in half
(from 44 cents to 24 cents per transaction, on
average), once the Durbin amendment rules are operative
on October 1, 2009. Overall debit card interchange fee
revenue totaled $16.2 billion in 2009. Thus, the
revenue hit to financial institutions will be
significant.
c. Will debit card issuers subject to the Durbin
amendment be able to fully cover their costs to issue
debit cards and process debit card transactions,
post-Durbin? The answer to that question remains
unclear and appears to be dependent on several factors,
including the type of debit card used. In a report
that accompanied its final rule, the Federal Reserve
Board published the results of a survey, which polled
debit card issuers on their fixed and transactional
costs to process debit card transactions. According to
the Board's survey, the median per-transaction
processing cost across all of its surveyed issuers for
all types of debit card transactions was 11 cents per
transaction. On top of those processing costs, the
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median cost to produce and deliver debit cards was 2
cents per transaction; median cost of cardholder
inquiries was 3 cents per transaction; costs to provide
rewards and other card user incentives was 2 cents per
transaction; research and development costs were 1 cent
per transaction; nonsufficient funds handling was 1
cent per transaction; and regulatory compliance costs
were less than one half a cent per transaction (i.e., a
total of 20 cents per transaction, on average).
However, these averages fail to reflect the considerable
variability in processing and other costs among
different types of debit cards. Prepaid debit card
transactions (which include the payroll cards that are
the subject of this bill) cost issuers 61 cents per
transaction to process, and result in costs of 26 cents
to produce and deliver and 12 cents to respond to
cardholder inquiries (a total of 98 cents per
transaction, on average). Signature debit and PIN
debit transactions are considerably less costly to
process and produce. The median issuer per transaction
processing cost is 8 cents per PIN debit transaction,
plus 1 cent per transaction to produce and deliver the
card, plus 3 cents to respond to cardholder inquiries
(12 cents total per transaction). For signature debit
transactions, processing costs are 13 cents per
transaction, plus 1 cent per transaction to produce and
deliver the card, plus 3 cents to respond to cardholder
inquiries (17 cents total per transaction). If one
assumes that the costs published by the Federal Reserve
Board are representative, it appears that debit card
issuers subject to the Durbin amendment will be losing
money on every prepaid debit card swipe, and making
money on every signature and PIN debit swipe. These
impacts are independent of those that would be imposed
pursuant to SB 931.
Regardless of the variability in processing and other
costs, and their impact on the profitability of
different types of debit cards to their issuers, one
thing is clear about the Durbin amendment -- prior to
the Durbin amendment, financial institutions realized
profits from debit card interchange fees, and used
those profits to help fund certain types of banking
services, which these institutions offered free of
charge, or at discounted rates, to certain customers.
SB 931 (Evans), Page 14
Post-Durbin, a significant source of revenue previously
realized by these financial institutions will
disappear. Some financial institutions will be forced
to take a loss every time an individual swipes a debit
card issued by that institution in a point of sale
transaction; other financial institutions may break
even; still others may continue to make a profit,
although the size of that profit will be considerably
smaller than it used to be.
Financial institutions subject to Durbin are still
evaluating the changes they will be making to their
product offerings, and the changes they will be making
to the costs of those offerings, to reflect the new
economics of debit card issuance and debit card usage.
Financial institutions that are not subject to Durbin
(those who, together with their affiliates, have assets
below $10 billion) may realize a significant
competitive advantage over their larger rivals in the
debit card issuance space.
6. Summary of Arguments in Support:
a. SB 931 is sponsored by the California Labor
Federation and supported by myriad labor organizations.
These groups describe SB 931 as a measure that provides a
reasonable standard which codifies employers' access to
paycards, while protecting workers. They note that
approximately 8% of the California workforce remains
unbanked, representing roughly 1.5 million workers. In
recent years, unbanked workers have increasingly found
themselves entered into payroll debit card contracts, in
order to receive compensation. At present, payroll
card-compensated employees must pay all fees and accept
all account terms of the cardholder agreement drafted by
a bank or card issuer of the employer's choice. "Worse
yet, both the bank and employer have every incentive to
cut their own costs through higher fees on workers,
producing a market distortion with a predictable result:
sky-high fees for workers and account terms few retail
banking consumers would ever accept. SB 931 simply
requires payroll cardholder agreements to offer workers
basic protections and the means to avoid unreasonable
fees to access wages."
SB 931 would authorize paycards, but only when banks
SB 931 (Evans), Page 15
disclose the details of their paycard programs, including
upfront disclosure of all fees, terms, and conditions.
The bill would also reign in the most egregious fee
practices found in current paycard programs. "Most
importantly, current statute is silent on the legality of
existing payroll card contracts, so this bill authorizes
payroll cards for employers signatory to legal card
contracts."
b. The Center for Responsible Lending (CRL) believes
that SB 931 provides many important and necessary
protections for workers in connection with payroll cards.
SB 931 would establish a defined legal framework for the
use of payroll cards and add needed protections for
employees. To protect employees from excessive fees that
unfairly reduce their wages, SB 931 would require that
payroll cards offer employees reasonable access to their
wages through ATM networks without incurring fees and
would prohibit card issuers from charging overdraft fees.
Despite its support, CRL has concerns about the
provision of the bill that would guarantee only two free
point-of-sale transactions without a fee. CRL believes
that employees should not have to pay added fees simply
to purchase goods and services with their wages.
c. The California Employment Lawyers Association states
that, "without any regulation, the payroll card market
has become a clandestine business fraught with abuse and
all at the expense of workers, particularly low wage
workers who need quick and easy access to their full
wages the most. SB 931 simply requires payroll
cardholder agreements to offer workers basic protections
and the means to avoid unreasonable fees to access
wages."
7. Summary of Arguments in Opposition:
a. A coalition of business groups, employers, and
financial institutions opposes the bill, because its
members believe that the bill's fee restrictions will
impose a de facto bank on payroll cards, by making it
cost prohibitive for financial institutions or employers
to offer these programs in California. "The list of
prohibited fees included in this bill by its proponents
all but ensures that payroll cards will no longer be a
viable method of payment that employees, in both the
SB 931 (Evans), Page 16
public and private sectors, enjoy today."
The coalition asserts that payroll cards are already a
lawful method of wage payment in California. The bill's
de facto ban on payroll card issuance will punish
employees by denying them access to the financial
mainstream and force unbanked employees to rely on
expensive check cashing services. They assert that
Federal Reserve Board Regulation E already offers robust
consumer protections for users of payroll cards, and cite
a recent study authored by M. Flores, titled, "Analysis
of Network Branded Pay Cards: Comparative Analysis of
Pay Cards to other Payment Options (Bretton Woods, Inc.,
August 2011), which shows that employees using check
cashing establishments and purchasing money orders pay
over three times more in fees than payroll cardholders
pay on an annual basis.
b. The California Restaurant Association is a member of
the coalition whose concerns are listed above. It also
sent a separate letter expressing concern with the bill's
prohibition on employees' ability to elect to
electronically notify their employers of their desire to
receive wages via payroll card. More and more businesses
are turning to internal electronic systems, or intranets,
to provide employees with options to share information
and manage aspects of their own human resource functions.
This bill would prohibit the use of these systems to
elect use of payroll cards.
c. The California Grocers Association observes that
some workers are unbanked, not out of choice, but because
significant credit issues prevent them from opening a
traditional checking or savings account. This bill will
disadvantage these employees, by eliminating their
ability to elect to receive their wages via payroll card.
The Grocers Association also states that "for the
employers we represent, moving to payroll cards allows
them to potentially reap significant savings in
administrative costs associated with printing and
distribution of paper checks." SB 931 creates barriers
that will mean some companies with existing payroll card
programs will be forced to eliminate them and others
working to establish the programs will simply abandon
those efforts.
SB 931 (Evans), Page 17
d. The American Payroll Association (APA) states, "SB
931 goes far beyond ensuring that employees have full
access to their wages each pay period and would require
that employers also provide a number of free banking
services to their employees. Similar restrictions are
not imposed on any other method of wage payment and are
so cost prohibitive that issuers and employers are likely
to stop offering this beneficial wage payment method to
employees in California. Moreover, the sponsors of SB
931 have failed to show a need for increased regulation
of payroll cards. To the contrary, studies have
repeatedly shown that payroll cards are one of the least
expensive and safest ways for employees to receive their
wages. If some employees have been denied full access to
their wages, as the sponsors suggest, the problem lies in
the lack of enforcement of the current statutory
provisions, not in the provisions themselves. The APA is
concerned that SB 931 would hurt the very people it seeks
to protect by establishing a de facto ban on a wage
payment method that offers substantial benefits to
employers and employees alike."
The APA also observes that the vast majority of payroll
cards currently in use bear a Visa, MasterCard, or
Discover logo. These branded cards can be used anywhere
that their payment brand is accepted. In practice, that
means that employees can take their cards to more than
90,000 bank branches nationwide and receive their full
wages from a bank teller without cost. Employees can
choose to treat their payroll cards exactly like a paper
paycheck and cash them out, but without the need to pay
check cashing fees. Alternately, they may choose to use
their cards to make point-of-sale purchases, receive cash
back from point-of-sale transactions, make purchases by
mail, phone, or the Internet, and pay bills online -
things they cannot do when they only carry cash.
Furthermore, all benefits offered on debit products by
the major payment brands are also available on payroll
cards free of charge. These include purchase protection,
dispute resolution procedures, and liability programs.
The APA offered the following table, to illustrate what it
considers the overly generous fee protections in SB 931,
and to highlight how the requirements and restrictions in
SB 931 go well beyond those imposed by the Labor Code on
SB 931 (Evans), Page 18
other permissible methods of wage payment.
--------------------------------------------------------------------
| Payment | Payroll Cards (SB | Checks (Labor | Direct Deposit |
| Restrictions | 931) | Code Section | (Labor Code |
| | | 212(a)) |Section 213(d)) |
|--------------+-------------------+----------------+----------------|
|Access to |One out-of-network |One means of |No free access |
|Wages Per Pay |ATM withdrawal, |cashing a |required. |
|Period |four in-network |paycheck at an |Deposit must be |
| |ATM withdrawals, |established |to a financial |
| |one means of |place of |institution of |
| |accessing full |business in the |the employee's |
| |wages. |state. One |choosing with a |
| | |means of |place of |
| | |accessing full |business in the |
| | |wages. |state. |
|--------------+-------------------+----------------+----------------|
|Free Services |Two point-of-sale |None required |None |
|Required |transactions per | |required |
| |pay period, | | |
| |unlimited | | |
| |electronic account | | |
| |balance inquiries, | | |
| |three live | | |
| |customer service | | |
| |calls per month, | | |
| |periodic | | |
| |statements, | | |
| |dispute resolution | | |
| |procedures, | | |
| |account | | |
| |maintenance for at | | |
| |least 24 months | | |
| |after last | | |
| |activity, one | | |
| |replacement card | | |
| |per year. | | |
|--------------+-------------------+----------------+----------------|
|Prohibited |Overdraft fees; |None |None |
|Fees |declined | | |
| |transaction fees; | | |
| |fees for loading | | |
| |wages, regardless | | |
| |of source; | | |
| |application, | | |
SB 931 (Evans), Page 19
| |initiation, and | | |
| |participation | | |
| |fees. | | |
|--------------+-------------------+----------------+----------------|
|Required |Pay stub; |Pay stub |Pay |
|Disclosures |description of all | |stub |
| |wage payment | | |
| |options; list of | | |
| |services | | |
| |available; | | |
| |cardholder | | |
| |agreement, | | |
| |including itemized | | |
| |fee schedule. | | |
--------------------------------------------------------------------
8. Amendments: SB 931 is ineligible for amendment. It is back
in the Senate for concurrence in Assembly amendments.
9. Prior and Related Legislation:
a. AB 51 (Yamada), 20011-12 Legislative Session:
Similar in subject matter and intent to this bill, but
drafted differently. Passed the Assembly and the Senate
Labor and Industrial Relations Committee. Not taken up
by the author in the Senate Banking and Financial
Institutions Committee before the deadline for policy
committees to report bills.
b. AB 1591 (Yamada), 2009-10 Legislative Session:
Would have prohibited an employer from requiring an
employee to receive his or her wages by payroll card,
unless the employee voluntarily agreed in writing to
receive his or her wages in this manner, and the employer
offered the employee an alternative, lawful method to
receive his or her wages. Referred to the Assembly Labor
and Industrial Relations Committee, but never taken up by
the author.
c. AB 822 (Benoit), 2005-06 Legislative Session: Would
have authorized the use of payroll cards by employers to
pay wages, provided an employee agreed to receive payment
in that manner, could use the card at an ATM, and could
obtain at least one fee-free card transaction per pay
period. Referred to the Assembly Labor and Industrial
Relations Committee, but never taken up by the author.
SB 931 (Evans), Page 20
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
California Labor Federation (sponsor)
California Conference Board of the Amalgamated Transit Union
California Conference of Machinists
California Employment Lawyers Association
California Professional Firefighters
California Rural Legal Assistance Foundation
California School Employees Association
California Teamsters Public Affairs Council
Center for Responsible Lending
Engineers & Scientists of California, IFPTE Local 20, AFL-CIO
International Longshore and Warehouse Union
Professional and Technical Engineers, IFPTE Local 21, AFL-CIO
Service Employees International Union
Service Employees International Union Local 1000
United Food & Commercial Workers Western States Council
UNITE-HERE, AFL-CIO
Utility Workers of America
Opposition
American Payroll Association
Association for Financial Professionals
Associated Builders and Contractors of California
California Association of Bed & Breakfast Inns
California Bankers Association
California Chamber of Commerce
California Farm Bureau Federation
California Grocers Association
California Hispanic Chambers of Commerce
California Hotel & Lodging Association
California Independent Bankers Association
California Restaurant Association
California Retailers Association
Ceridian Stored Value Solutions
First Data
Global Cash Card
Golden Gate Restaurant Association
HCR ManorCare
Independent maintenance Contractors Association
InteliSpend Prepaid Solutions
SB 931 (Evans), Page 21
La Quinta Inns and Suites
Los Angeles Area Chamber of Commerce
MasterCard Worldwide
NACHA - The Electronic Payments Association
Oakland Metropolitan Chamber of Commerce
Office of the Treasurer and Tax Collector, City and County of
San Francisco
Pacific Association of Building Service Contractors
Premiere Services
SBM Site Services
TechNet
Visa
Consultant: Eileen Newhall (916) 651-4102