Compliance: How much can CUs mandate about workers' direct deposits?

February 1, 2016

WASHINGTON (2/1/16)--Can a credit union mandate employees receive pay via direct deposit, and tell them which financial institution the funds must go to? The Credit Union National Association’s (CUNA) compliance staff was recently asked this question, and a deeper dive into Regulation E (Electronic Funds Transfer Act) offers some clarity.

Direct deposit allows money to be transferred safely and confidentially into a checking or savings account. It is a benefit for many employees since it eliminates the step where the consumer must make the deposit.

“Q: Our institution’s management team wants all employees to deposit their payroll checks into the credit union via direct deposit. Most employees are in favor of the plan. However, our compliance officer says implementing this plan would violate Regulation E. Is this true?” reads the question, as it appears in CUNA’s CompBlog.

According to CUNA, as the plan stands, the compliance officer is correct--the credit union cannot mandate direct deposit of payroll checks into the credit union with no other options available to employees says.

Section 1005.10(e)(2) of Regulation E states, “no financial institution or other person may require a consumer to establish an account for receipt of electronic fund transfers with a particular institution as a condition of employment or receipt of a government benefit.”

In other words, the credit union can require direct deposit of salary if employees are allowed to choose the institution that will receive the direct deposit.

If the management team wants to designate the institution to receive the direct deposit, it must provide employees additional options for receiving their salary, such as paper check or cash.

CUNA’s Compliance Community features the latest entries from CompBlog, as well as discussions of compliance issues from credit union compliance staff around the country.