October 10, 2011
Practice Groups:
Mortgage Banking
&Consumer Financial
Products
Labor and
Employment
California Governor Vetoes Burdensome
Payroll Card Bill
By David L. Beam, Steven M. Kaplan and Kathryn M. Baugher
Introduction
The effort to impose demanding new requirements on payroll cards in California just lost some steam.
On Sunday, October 9, California Governor Jerry Brown vetoed a bill that would have imposed an
onerous set of requirements and restrictions on employers who want to pay employees by payroll card
(and, by extension, the financial institutions that provide payroll card programs to employers).1 The
provisions of the Bill were vastly more burdensome than the requirements imposed by federal law and
many other state wage and hour laws. Fortunately, Governor Brown recognized that the Bill went too
far.
Summary of the Bill
The Bill defined “payroll card” to mean “a prepaid card, code, or other device, issued or distributed to
an employee by an employer, or by another entity by arrangement with the employer, through which
the employer provides the employee access to his or her wages.” The Bill would have authorized
employers to pay wages to an employee using a payroll card only if numerous specific conditions
were satisfied.
Among the more extreme requirements, the Bill would have required that employees be given the
option to receive ongoing periodic statements in either electronic or paper form. (Regulation E, which
implements the Electronic Fund Transfer Act, requires only that issuers provide cardholders with the
ability to access account information.) The Bill also would have imposed the most extensive and
convoluted cash access requirements of any payroll card bill in the country. Most payroll card laws
require that the employer ensure that the employee have a way to get cash for free, but give employers
and issuers some flexibility to decide how to do this. The Bill, in contrast, would have required
issuers to provide several cash access alternatives, including: (1) the ability to make one cash
withdrawal down to the penny each pay period; (2) four free ATM withdrawals per pay period
through ATMs in the issuer’s network (with no explanation of what this means for issuers without
extensive ATM networks in California); and (3) at least one ATM withdrawal per pay period at an
ATM outside the issuer’s network without an issuer-imposed fee. The Bill also contained detailed fee
restrictions, as well as provisions related to account fee dispute resolution, overdrafts, credit features,
non-expiration of funds, and replacement of expired payroll cards. Noncompliance with the Bill
would have been a misdemeanor and could have resulted in civil penalties.
1
Senate Bill 931 (the “Bill”) passed the California State Assembly on September 8, 2011, and the California State Senate
on September 9, 2011. It would have amended the California Labor Code.
California Governor Vetoes Burdensome Payroll Card Bill
The Veto
On Sunday, October 9, Governor Brown returned Senate Bill 931 to the California State Senate
without his signature.2 In his veto message to the Senate, Governor Brown explained that he supports
the goal of containing costs for workers who choose to accept payroll cards. However, Governor
Brown stated that the Bill went too far, imposing “numerous and costly new requirements on pay card
providers.” Governor Brown considered it likely that, as a result of these mandates, financial
institutions and employers would stop offering payroll cards, thereby injuring the very employees the
Bill was designed to protect. Governor Brown expressed his intent to work with the Bill’s proponents
and financial institutions to come up with a set of more reasonable employee protections that the
Governor would be willing to sign into law.
_________________________________________________________________________________
K&L Gates’ payroll card practice is an interdisciplinary team of lawyers from our Consumer Financial
Services Practice Group and Employment Group. K&L Gates advises both financial institutions and
employers on state and federal regulatory requirements related to payroll cards.
Authors:
David L. Beam
Partner
david.beam@klgates.com
+1. 202.778.9026
Steven M. Kaplan
Partner
steven.kaplan@klgates.com
+1. 202.778.9204
Kathryn M. Baugher
Associate
kathryn.baugher@klgates.com
+1. 202.778.9435
2
A copy of Governor Brown’s veto message is available at http://gov.ca.gov/docs/SB_931_Veto_Message.pdf.
2