Q: If a payroll card issuer provides the cardholder means other than the card to access the employee's pay in the payroll account, is the payroll card still considered the only means of access to the underlying funds under § 235.5(c)(iii)?
A: Section 235.5(c)(1)(iii) provides that a prepaid card is eligible for the exemption even if a means of access other than the card is used to provide all remaining funds to the cardholder in a single transaction. For example, if a cardholder receives the entire amount underlying a payroll card as cash or using a convenience check made out to the cardholder, that payroll card could still qualify for the exemption so long as it meets the other requirements in § 235.5(c)(1). A payroll card would not qualify for the exemption, however, if the cardholder is permitted to write checks on funds in the payroll account to payees other than the cardholder or use other non-card means to make payments to third parties. In addition, some states require employers to provide employees with the full amount of their wages without any fees each pay period. A payroll card is eligible for the exemption in § 235.5(c) if an employer provides an employee with a non-card means to access his or her wages in the payroll card account each pay period in order to satisfy state law requirements applicable to the employer, provided the payroll card meets the other criteria for the exemption. Moreover, prepaid cards linked to an issuer's customers' transaction accounts such that funds may be swept from the transaction accounts to the prepaid accounts may warrant additional supervisory scrutiny to determine whether circumvention or evasion is occurring. See paragraph 6(a)-2.ii of the commentary to Regulation II. (Added September 14, 2011)
This Q&A was obtained from FRB’s website, in a section for Regulation II (Debit Card Interchange Fees and Routing) Frequently Asked Questions, which may be found here: