Moving to improve and clarify payroll card industry practices, MasterCard last week released new standards requiring all employers and payroll card providers involved in offering MasterCard-branded payroll cards to meet specific protocols for consumer choice and transparency. These include adopting a new, standard disclosure table and providing payroll card education tools for consumers.
July, October 2014 Deadlines
The new standards go into effect July 1, 2014, for new payroll card programs. Existing payroll card programs must meet MasterCard’s new requirements by Oct. 1, 2014, MasterCard said. By those dates all MasterCard-branded payroll cards must include the payment network’s “easy-to-read” disclosure table outlining the services and fees associated with the card. In addition, providers of MasterCard payroll cards must offer cardholders educational resources to help them understand payroll card features and benefits. MasterCard is offering its “Your Money Smarter” financial literacy program free to all participants, but payroll providers may also develop their own educational modules that meet MasterCard’s approval.
A key element of MasterCard’s payroll card standards doubles up on existing federal rules requiring employers with payroll card programs to also offer consumers a choice—such as direct deposit or checks—in how they receive their pay, Ron Hynes, group executive, Global Prepaid Solutions, MasterCard, tells Paybefore. But the standards also establish broad new benchmarks to ensure consistency in card features, disclosures and consumer awareness, and education around payroll cards, he says.
Before devising its new payroll card standards, MasterCard reviewed all MasterCard-branded payroll card programs to ensure the programs were compliant with existing laws and MasterCard’s own requirements, according to Hynes. “With our new standards we have a set of rules by which we can ensure all our partners—whether they’re program managers, processors, banks or employers—are putting a good product in the market that allows for consumer choice and builds in consistent awareness and education standards for consumers, cardholders and employers participating in payroll card programs.”
The new standards specify that:
- Employees must be offered a choice in how they are paid, whether by card, direct deposit or other means, as required by law.
- Payroll cardholders can access their full pay for free at least once per pay period.
- Payroll card programs must provide “free and easy access” to account balance information online or via mobile devices.
- Each payroll card program must use MasterCard’s new, simplified disclosure table that outlines fees and services associated with the card.
- Payroll card providers must provide employers and their employees with resources to help them understand payroll card features and benefits, such as the “Your Money Smarter” program MasterCard developed.
Driving Financial Inclusion
MasterCard developed its standards during the last six to eight months as part of an effort to drive financial inclusion through education about payroll cards among millions of unbanked and underbanked consumers that have no access to financial services, Hynes explains.
MasterCard’s plan to introduce payroll card standards started before a spate of negative publicity about payroll cards began last summer following a New York Times story mischaracterizing payroll card programs, according to Hynes. Immediately after the story appeared, 16 U.S. senators sent a letter to the Consumer Financial Protection Bureau (CFPB) and the Department of Labor asking those agencies to investigate the article’s allegations. Subsequently a Pennsylvania lawmaker proposed legislation to ban payroll cards, and a separate class-action lawsuit filed in California alleges a major U.S. apparel maker’s payroll card program charged employees inappropriate fees.
The CFPB in September issued a bulletin reminding employers they cannot require employees to receive wages on a payroll card.
“Our core tenet here wasn’t to root out bad actors but to drive consumer awareness and education of payroll cards,” Hynes says. “We believe payroll cards provide a tremendous channel to bring people who have no access to mainstream financial services into the mainstream,” he adds.
Community Group Involvement
Apart from MasterCard’s move, prepaid card industry representatives in recent months have been working on various approaches to publicize payroll cards’ benefits and clarify their role in the economy as a growing number of major employers, including Walmart, rely on them as a convenient payment method for employees that lack bank accounts.
MasterCard is not worried payroll card providers will have to scramble to meet the deadlines for its new standards. A diverse array of client and community and consumer organizations, including Latino, African-American and labor groups, helped develop the standards, Hynes notes. While many existing payroll card program managers may need to change existing payroll card programs and disclosure materials, the deadlines are reasonable, he believes. “We spoke with clients to make sure we didn’t put them in a situation that would create chaos,” he adds.
Kudos from CFSI
Jennifer Tescher, president and CEO of the Center for Financial Services Innovation, which has established its own industry guidelines that touch on payroll cards, gave kudos to MasterCard for implementing its own standards. “We salute the company’s leadership in setting standards to promote a high-quality payroll card market,” she said.
As for whether MasterCard plans to introduce new proprietary standards for providers of GPR cards or cards targeting specific customer sectors, Hynes said there are no imminent plans. “As with all our products, the consumer experience is at the forefront, and we’ll continue to look at how we create and provide tools and assets to enhance the consumer experience,” he says.