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What Protects Payroll Card Holders?


There are several layers of protection on payroll cards that protect cardholders. Unlike general purpose reloadable (GPR) prepaid cards, payroll cards require identity verification. Once a payroll card holder’s identity is verified, the card is protected by many of the same entities that protect other types of cards. Both the Consumer Finance Protection Bureau (CFPB) and state laws regulate payroll card program features, employer paycard program implementations, and fees, while Federal Deposit Insurance Corporation (FDIC) insurance protects cardholders’ funds. Card issuer liability policies provide protection against fraudulent transactions. Payroll card programs are also beholden to Federal Regulation E.

Because each state has slightly different laws regarding paycards, most payroll card programs comply with the laws of most states—with the exception of Pennsylvania and Connecticut, where the payroll card laws differ greatly from other states’ paycard legislation. All payroll card companies are obligated to comply with state and CFBP regulations, but some stop there—while others proactively educate the cardholders on the best ways to use the payroll card while avoiding fees. Ultimately, the employer is responsible for selecting the best paycard program for its employees, and because the employer is the one actually distributing the paycard, the employer is also beholden to state and FDIC payroll card laws.

How the CFPB protects payroll card holders

The CFPB’s regulations regarding payroll cards apply primarily to fee disclosures and the structure of paycard programs. The CFPB requires that payroll card companies disclose “static” payroll card fees such as monthly account maintenance fees, as well as additional fees that generate high revenue for the payroll card company.

How state laws protect payroll card holders

Many states have legislated payroll cards and implemented regulations that are designed to protect payroll card holders. Some states that have not regulated payroll cards have created direct deposit laws that can be interpreted for payroll cards. The most common law is the “pay-to-the-penny” rule, which requires that payroll card holders must be able to withdraw their wages in full, at no cost, at least once every pay cycle (although some states require a higher frequency). Because this law is so common, most payroll card programs allow paycard holders to make what is known as a Bank Teller Cash Advance once per pay period. This means that the payroll card holder can walk into a bank and remove the full amount of their wages at no cost. Some states further specify the means through which the funds can be withdrawn, such as through no-cost ATM access. In addition to the Bank Teller Cash Advance, SOLE offers many ways for payroll card holders to access their full wages without incurring fees, including:

  • No-cost point of sale purchases when swiping the paycard as credit OR debit

  • No-cost cash back at point of sale

  • No-cost online transactions

  • No-cost online bill pay

  • No-cost transfers of funds to or from the paycard through third parties like Paypal

To see a detailed breakdown of payroll card laws by state, visit our paycard laws page.

How FDIC insurance protects payroll card holders

FDIC insurance means that the Federal Deposit Insurance Corporation insures the financial institution issuing the card for up to at least $250,000. Payroll card funds are insured by the FDIC when a bank fails. For example, bank accounts held by Washington Mutual cardholders in 2008 did not lose any funds when the bank failed (FDIC insurance does not apply to investments).

How card issuers protect payroll card holders

The CFPB requires that once a payroll card holder’s identity has been verified by the paycard company, the paycard company must provide dispute and error resolution, in addition to limiting paycard holders’ liability for fraudulent activity. Typically, the card issuer (Visa or MasterCard) provides limited liability. SOLE paycards are protected against fraud by the Visa Zero Liability Policy. The Visa Zero Liability policy for payroll card holders is the same policy that covers many Visa-issued debit and credit cards. The policy insures that payroll card holders’ funds are as protected as the funds on any card.  

How Regulation E protects payroll card holders

Payroll cards are required to be fully compliant with Federal Regulation E, like a traditional card would be. Regulation E protects payroll card holders from waiting long periods of time for recovery of unauthorized or fraudulent usage of their funds. SOLE has a dedicated dispute team to research any fraud that may occur when a cardholder’s card is lost or stolen and recover lost funds.

How payroll card companies protect payroll card holders

In addition to knowing the paycard laws for your state and ensuring your paycard program complies, it is also important for employers to look at a prospective paycard company’s other practices before selecting a payroll card program. A major consideration should be the products the payroll card company provides. Companies that focus only on paycards are more likely to know the most up-to-date legislation and have a robust payroll card compliance process, as their business literally depends on it. Companies that offer many products are less likely to be as laser-focused on complying with payroll card legislation.

How employers protect payroll card holders

Ultimately, the way the employer distributes, explains, and handles the payroll card program can have a profound impact on the payroll card holder’s experience. Employers who implement a top-down payroll card program should ensure that managers and supervisors who are distributing the paycards are as informed about the payroll card program as the HR department is. Communication is key once the cards begin moving through the chain. Those who distribute the payroll cards should be equipped with informational materials as well as key messages to ensure their employees know the best ways to use the paycard.

Questions employers should ask before implementing payroll cards:

  • Does the paycard company offer any type of cardholder education?

  • Ask the payroll card company to show you their “welcome” materials for new payroll card holders. Do the materials clearly point out how to avoid fees and best use the card?

  • Does the paycard company use email and/or social media ads to proactively target new payroll card holders with this messaging, or will the cardholder have to find the information on their own?

  • Does the company representative or salesperson seem to know the payroll card legislation in your state? Are they encouraging you to remain compliant?

The information in this blog post is not legal advice. This content is intended to be informational in nature and provides only a brief overview of some of the regulations and requirements regarding payroll cards. SOLE suggests consulting with your company’s lawyer before implementing a payroll card program to ensure adherence to all applicable state laws.

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