Can My Employer Force Direct Deposit? In Plain Words

What direct deposit means

The CFPB’s guide “Ways to receive your money” explains direct deposit to a checking or savings account in plain words: “Your salary or wages are sent straight to your bank or credit union account electronically without the use of a paper check.”

The same guide lists other ways a worker can be paid: in cash, by paper paychecks, by direct deposit, or with a payroll card.

A financial institution is a bank, credit union, or similar place that holds accounts. On this page, “institution” means that place.

The federal law behind this, as the CFPB states it

The CFPB’s Bulletin 2013-10 is about payroll card accounts. It explains two names:

• The Electronic Fund Transfer Act, short for EFTA, is the federal law. It generally covers the electronic transfer of funds to and from consumers’ accounts.
• Regulation E is the rule that implements the EFTA. Implements means it puts the law into detailed rules.

The bulletin’s key statements about required direct deposit are in the next two sections. They are the CFPB’s own framing, and the lead federal framing on this page.

What Regulation E permits, in the CFPB’s words

The CFPB bulletin states: “Regulation E permits an employer to require direct deposit of wages by electronic means if the employee is allowed to choose the institution that will receive the direct deposit.”

The bulletin states a second, alternative structure: “Alternatively, an employer may give employees the choice of having their wages deposited at a particular institution (designated by the employer) or receiving their wages by another means, such as by check or cash.” Designated means picked out by the employer.

The CFPB’s official comments on Regulation E, at comment 10(e)(2)-1, headed “Payroll,” state the same two points in nearly the same words: “An employer may require direct deposit of salary by electronic means if employees are allowed to choose the institution that will receive the direct deposit. Alternatively, an employer may give employees the choice of having their salary deposited at a particular institution (designated by the employer) or receiving their salary by another means, such as by check or cash.”

The one firm federal ban: one particular institution

The CFPB bulletin states: “Regulation E states clearly that no ‘financial institution or other person’ can mandate that an employee receive direct deposit into an account at a particular institution.” Mandate means require.

The CFPB’s official comment states it the other way around: “An employer (including a financial institution) may not require its employees to receive their salary by direct deposit to any particular institution.”

So, in the CFPB’s framing, requiring direct deposit itself and requiring one named place are two different things. The first is permitted when the employee chooses the institution. The second is not permitted.

The bulletin also notes the CFPB’s enforcement role. It says the Bureau is authorized, subject to certain exceptions, to enforce the EFTA and Regulation E against any person subject to the Regulation, including financial institutions and employers.

Payroll cards: an employer can’t require one

A payroll card is a prepaid card arranged by an employer for the purpose of paying its employees’ wages or salary. The CFPB’s “What is a payroll card?” page explains that an employer arranges with a bank or other financial institution to pay its employees with a payroll card, and the employee’s pay is loaded directly onto the payroll card rather than directly deposited into the employee’s bank account or paid by paper check.

The CFPB’s Ask CFPB page “If my employer offers me a payroll card, do I have to accept it?” answers in one word first: “No.” It then states: “Your employer can’t require you to receive your wages on a payroll card. Your employer has to offer you at least one alternative and allow you to choose.”

The CFPB bulletin states the same point from the Regulation E side: “Regulation E prohibits employers from mandating that employees receive wages only on a payroll card of the employer’s choosing,” and “an employer may not require that its employees receive their wages by electronic transfer to a payroll card account at a particular institution.” The bulletin adds that an employer may, however, offer employees the choice of receiving their wages on a payroll card or receiving it by some other means.

Ask CFPB gives examples of the choices an employer may offer. Some employers may give a choice between direct deposit to a payroll card, direct deposit into your bank account, or a paper check. Others may only give a choice between direct deposit to your own bank account, a prepaid card you choose, or a payroll card.

What the U.S. Department of Labor handbook says, stated separately

The U.S. Department of Labor’s Wage and Hour Division keeps a Field Operations Handbook. It is a handbook for the division’s own work. Its Chapter 30, section 30c00, headed “Method of payment,” states this about direct deposit:

State law adds more, as the anchors word it

The CFPB bulletin states: “Most states’ laws contain additional restrictions on the manner in which employers may make wages available to their employees, sometimes specifically addressing payment of wages via payroll card, or calling for particular alternatives to payroll cards.”

The bulletin also states that permissible alternative wage payment methods are governed by state law, but may include direct deposit to an account of the employee’s choosing, a paper check, cash, or other evidence of indebtedness. Evidence of indebtedness is a written promise or record showing money is owed.

Ask CFPB states it this way: “State law determines what choices your employer has to offer to you, or if your employer must obtain your written consent before paying you with a payroll card.”

The CFPB’s fees page adds one more state point: “Many state laws require that you’re able to access or withdraw your money for free, so check your state’s laws.” That sentence is about payroll cards.

The bulletin also states how state law and federal law relate, in its words: the EFTA and Regulation E preempt state laws relating to electronic fund transfers only to the extent of any inconsistency, and a state law is not considered inconsistent if the state law affords consumers greater protections than the EFTA and Regulation E. Preempt means federal law overrides state law. Affords means gives.

If you are offered a payroll card: terms, disclosures, and fees

Ask CFPB states that your employer or the card issuer must provide you with the card’s terms and conditions. Terms and conditions are the written rules for the card.

Ask CFPB also states that the CFPB’s prepaid rule requires providers to give you certain disclosures before you choose to be paid through a payroll card. A disclosure is written information you are given so you can see the terms. The disclosures include a “short form” that includes key fees and other important information, and a “long form” that includes all fees and other information about the card.

The CFPB’s fees page states that most prepaid payroll cards charge fees to use certain card features, and that before you agree to receive your wages on a payroll card, you should read the disclosures to understand the fees and other terms. It states you are not typically charged a monthly fee, but you may incur other fees, such as for ATM withdrawals or if the card isn’t used for a certain period of time. Incur means be charged. An ATM is a cash machine.

Ask CFPB’s payroll card page gives fee examples in its own words: some cards charge fees for out-of-network ATM withdrawals, receiving paper statements, or checking your account balance at an ATM, and some cards charge fees every time you make a purchase.

The fees page gives two steps, in the CFPB’s own framing: read the disclosures and the cardholder agreement, thinking about how you will use the card and looking at all the fees that may apply; and compare the fees and features to other payroll options, such as direct depositing your wages to a checking account or choosing a different prepaid card with lower fees.

If you have a problem with a payroll card

The CFPB’s fees page gives this route, in its own words, for payroll card problems: “If you have problems with a payroll card, you may file an online complaint to the CFPB, or by calling (855) 411-2372.”

That route is printed here exactly as the CFPB words it: for problems with a payroll card. This page does not extend it to other pay problems, because the anchor does not.

What this page does not cover

This page does not state any one state’s law. The anchors describe state laws only in general, so no state’s rule, deadline, or penalty is printed here.

This page does not say whether a paper check or cash must be offered in your workplace. The CFPB material and the Department of Labor handbook statement above frame that point differently, and state law also plays a part, as the anchors state. This page does not resolve that.

This page does not cover pay timing, pay amounts, overtime, or deductions. The sources read for this page were read for the direct deposit question only.

This page does not tell you what to do in your own case. It prints the routes the anchors themselves give, and no others.

Words to know

Direct deposit: Your salary or wages are sent straight to your bank or credit union account electronically, without the use of a paper check. That is the CFPB guide’s wording.

Payroll card: A prepaid card arranged by an employer for the purpose of paying its employees’ wages or salary. The CFPB bulletin also defines a payroll card account as an account established directly or indirectly through an employer, to which transfers of the consumer’s salary, wages, or other employee compensation are made on a recurring basis. Recurring means happening again and again.

Financial institution: A bank, credit union, or similar place that holds accounts.

Electronic Fund Transfer Act (EFTA): The federal law the CFPB bulletin discusses. It generally covers the electronic transfer of funds to and from consumers’ accounts.

Regulation E: The rule that implements the EFTA.

Disclosure: Written information given to you so you can see fees and other terms before you choose.

Cardholder agreement: In the CFPB’s words, the agreement which sets out the additional terms and conditions of the payroll card program.

This page is general information only. It is not legal advice.