Fall 2006-03 Federal Reserve Board
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Fall 2006-03 Federal Reserve Board

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Number 65
Fall 2006
Federal Reserve Board

Regulation E to cover payroll card accounts

The Board of Governors of the Federal Reserve System has amended its Regulation E (which regulates electronic fund transfers) to extend coverage to payroll card accounts established through an employer, and to which transfers of salaries, wages, or other compensation are made on a recurring basis.

The amendment will become effective on July 1, 2007.




The 1978 Electronic fund Transfer Act, 15 U.S.C. 1693, establishes the rights, liabilities and responsibilities of those that participate in the electronic transfer of funds, such as:

automated teller machines,

point-of-sale terminals,

automated clearinghouses,

telephone bill payment systems and

Internet banking services.

Most provisions of the law and its implementing Regulation E deal with disclosures that must be given to users, but they also delve into substantive rules such as maximum customer liability for unauthorized transfers, procedures for error resolution, issuance of unsolicited ATM cards and the like.


Payroll cards


The payroll card product involves an employer who arranges with a bank to make available to its employees a plastic card that allows access to individual accounts. The employer transfers the employees’ wages and other compensation to these accounts, instead of paying the employees in cash or by check, or making direct deposits to their checking or savings accounts. Employees can use the payroll card as a debit card: to make purchases and withdraw funds from ATMs, for example. Payroll cards particularly benefits “unbanked” employees that do not have traditional bank accounts.


Regulation E Amendment


Although payroll cards will become covered by Regulation E come next July, they will be subject to some special rules. For example, banks need not provide periodic statements in connection to payroll card accounts (as they must do for other electronic transactions), if:

balance information is made available through the telephone,

transaction history is made available through the Internet or other electronic media, and

  • the history is provided in written form upon request.
A consumer’s maximum liability for unauthorized electronic fund transfers:

If the consumer notifies the bank within two business days after learning of the loss or theft of the card: the lesser of $50 or the amount of unauthorized transfers that occur before the notice.

If the consumer fails to notify: the lesser of $500 or the sum of:

(i) $50 or the amount of unauthorized transfers that occur within the two business days, whichever is less; and

(ii) The amount of unauthorized transfers that occur after the close of two business days and before the notice, provided the bank establishes that the transfers would not have occurred had timely notice been given.

© 2006 Goldman Antonetti & Cordóva, LLC