New York Payroll Regs Promise Protection, But May Hurt Low Income People

New York state has enacted new payroll regulations designed to protect consumers from having to pay money to access their paychecks, but the net effect of the rules may be just the opposite. The New Ork times reported that Gov. Andrew Cuomo would be announced the rules on Thursday.

The rules also prohibit a host of incremental fees, including charges for monthly maintenance, account inactivity, overdrafts, checking a card’s balance or contacting customer service.

Companies will have to offer their workers the option of being paid either by cash or check, if they prefer — employers will not be allowed to require that employees accept a payroll card. Federal regulations already prohibit such requirements, but worker advocates say the rule is routinely flouted.

While this all sounds good in theory, payroll card providers and employers are worried about whether the rules make it impossible to comply with the rules and still have card programs be self-sustaining, much less profitable.

Business groups say the new rules will increase compliance costs for employers and prompt companies to shy away from using payroll cards. In a comment filed on an earlier draft of the rules, the Business Council of New York State said that most employers viewed the new requirements as “unworkable.”

Companies have privately said that they are afraid of running afoul of state regulators if they criticize the rules. That said, rules that are supposed to protect low-income workers may end up forcing them back into paying check cashing fees and cash payment fees for money orders and in-person bill payments. Ultimately, regulators likely will force low income workers back into a cash-based economy that will take more out of their paychecks than payroll cards ever would. The payroll card business is much larger than estimates in the article give it credit for, and the number of workers that could be potentially affected is larger as well, especially if these kinds of rules spread to the rest of the nation.

Overview by Ben Jackson, Director, Prepaid Advisory Service at Mercator Advisory Group

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