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Fed considers payroll cards accounts for Reg E purposes.

IN JANUARY, THE Federal Reserve Board issued an interim final rule amending Regulation E, which implements the Electronic Fund Transfer (EFT) Act. In a nutshell, the interim rule provides that payroll card accounts established directly or indirectly by an employer to which EFTs of a consumer's compensation are made on a "recurring basis" are "accounts" covered by Reg E.

The Fed issued an "interim final" rather than a "final" rule to obtain additional feedback on modifications to the proposal based on comments received during the initial comment period. These additional comments were due in mid-March. The interim rule goes into effect July 1, 2007.

What's a payroll card?

Payroll cards-plastic cards similar to debit cards-have become increasingly popular as a means of paying employee wages or other recurring compensation payments. For unbanked consumers, payroll cards can substitute for traditional financial institution accounts.

Here's how they work An employer, in conjunction with a financial institution, provides a plastic card with a magnetic strip that accesses an account or subaccount assigned to the employee. Each payday, the employer credits the account for the amount of the employee's compensation instead of providing a paper check or making a direct deposit to the employee's share draft/checking account. The employee can use the card to withdraw funds at an automated teller machine and to make purchases at the point-of-sale.

Reg E coverage

The interim final rule applies Reg E to accounts an employer establishes directly or indirectly to which EFTs of a consumer's wages or other compensation are "made on a recurring basis." Certain onetime payments wouldn't be covered.

Payroll cards are considered "accounts" for purposes of Reg E coverage. This is true regardless of whether funds are held in individual employee accounts or in a pooled account with some form of subaccounting maintained by a depository institution or third party. A credit union must comply with this rule if it directly or indirectly holds a payroll card account, or issues an access device (i.e., plastic card) to a consumer to initiate an EFT from a payroll card account.

# posted by Medical Information : 6:11 AM