Paycards 2 of 4: Regulation E

In addition to keeping up with paycard regulations in the states in which your business operates, it’s also necessary to know the rules that were established to help protect consumers nationwide.

Regulation E was issued by the Federal Reserve to set procedures for electronic funds transfers (EFTs), customer liability rules for unauthorized card usage and guidelines for the issue and sale of electronic debit cards.¹Regulation E also provides a basic framework to establish rights, liabilities and the responsibilities of cardholders.²

It’s important to have these rules in place to safeguard consumers. When Regulation E was established, paycards were not one of the consumer accounts outlined in the rules. In 2007, the Consumer Financial Protection Bureau amended the regulation to extend the application of the Electronic Fund Transfer Act and Regulation E to paycards. ³ It also issued a bulletin in 2013 to reiterate and communicate this amendment.⁴

Paycards are issued directly or indirectly through an employer to pay an employee’s wages, salary and other compensation.⁵ The protections placed on consumer paycards mirror those of electronic transfer funds, with a few exceptions.³ Paycard protections under Regulation E include:

• Disclosure: Cardholders are entitled to receive disclosures of any fees issued by the institution when the account is opened or before the first transaction occurs. ⁶
• Access to Account History: Paycard issuers must either provide periodic statements or make the customer’s account information available via telephone, electronic history or in written form, upon request. ⁷
• Limited Liability for Unauthorized Transfers: Limited liability protections fully apply to paycards.⁸
• Error Resolution Rights: Financial institutions must respond to a consumer’s report of errors within 60 days of a consumer accessing its history, receiving written notice or within 120 days of the alleged error – whichever comes first.⁹

Regulation E prohibits employers from mandating that employees receive wages via paycard, although an employer can require direct deposit of wages as long as the employee can choose the institution that will receive the direct deposit.¹⁰