WASHINGTON (Reuters) - The U.S. consumer watchdog warned on Thursday that employers cannot require workers to be paid using prepaid payroll cards, which are used as an alternative to traditional paychecks or directly depositing wages.
Employers and banks must disclose fees associated with the cards, allow employees to check their account balances and help fix any errors, the Consumer Financial Protection Bureau said.
Failing to comply with these rules could trigger regulatory action, the bureau warned in a bulletin posted on its website.
"Employees must have options when it comes to how they receive their wages," consumer bureau Director Richard Cordray said in a statement.
Congress created the consumer bureau as part of the 2010 Dodd-Frank law and gave it oversight over mortgages, credit cards and other consumer financial products.
Banks such as Bank of America, JPMorgan Chase and Citigroup promote reloadable, prepaid cards on their websites as a convenient, lower-cost payment method for employers. They can be used like debit cards, even if employees do not have checking accounts.
Some payroll cards can carry fees, such as costs per ATM visit or to check the balance on a card.
The New York Times reported in June that such fees were taking a big chunk out of some workers' paychecks. A group of Democratic U.S. senators in July urged the consumer bureau and the Department of Labor to look into the issue.
The consumer bureau said it heard reports of employers, particularly retail and food-service businesses, violating federal law by making payroll cards the only available payment option.
"Our goals are to be proactive about identifying violations, stopping violations before they grow into systemic problems, maximizing remediation to consumers, and deterring future violations," the consumer bureau said.
State laws determine what alternative payment methods employers must offer. The bureau can enforce federal laws that apply to payroll cards, according to the bulletin.
The bureau also said it would watch the banks it supervises to ensure they comply with federal laws related to payroll cards.