New York Department of Labor's Payroll Debit Card Regulations Deemed Invalid

In September 2016, the New York State Department of Labor (NYSDOL) issued regulations adding notice and consent requirements for employers who use payroll debit cards or direct deposit as a method of paying their employees. NYSDOL also issued additional regulations for employers using payroll debit cards, requiring them to:
  • provide access to at least one ATM within a reasonable distance from an employee’s place of employment or home that offers free withdrawals;
  • provide a method for withdrawing funds without paying a fee; and
  • ensure no fees are imposed on employees using the card for receipt of wages, point-of-sale transactions, overdrafts, account inactivity, statement production, account closing or replacement cards.
The regulations were to go into effect March 7, 2017; however, on February 16, the New York State Industrial Board of Appeals, an independent agency tasked with reviewing the reasonableness and validity of NYSDOL rules, determined that NYSDOL’s payroll debit card regulations were mostly invalid because they exceeded the scope of the agency’s rulemaking authority. While NYSDOL has the authority to create regulations necessary and proper to the enforcement of New York’s labor laws, the regulation of banks and financial institutions is within the sole purview of the Department of Financial Services. The board found the regulation of fees associated with payroll debit cards falls within the scope of the authority of the Department of Financial Services because the proposed regulations exceeded the employment relationship and stretched into the realm of banking law, which is outside NYSDOL’s sphere of competence and expertise.

The board recognized that the payroll debit card regulations were created in response to a legitimate concern—that low-wage workers without traditional bank accounts could be coerced into accepting payment via payroll debit cards, the use of which can significantly lower payroll costs for employers. To that end, the board upheld the portions of the regulations preventing employers from charging any direct or indirect fees to employees to access their wages. However, the portions of the regulations prohibiting financial institutions from charging fees to employees using payroll debit cards were overturned.

The board’s opinion did not affect the notice and consent requirements of the regulations. Those portions of the law went into effect in March 2017 as planned.

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