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Employees Required to Open Account at Other FI for Payroll Deposit

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For payroll confidentiality reasons, the FI where I work requires that all employees open a checking account at another institution for direct deposit of payroll. Is this a violation of Reg E relating to employment or government benefits which 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? As for as I know this issue has never been raised by any examiners.

If your bank is specifying the other financial institution where direct deposits must be made and does not offer any non-electronic means for employees to receive their deposits, then yes, this would be a violation of Reg E and the EFT Act. This is more typically a violation where the bank specifies that employees must open an account at that institution to receive direct deposit, but it applies equally if the bank specifies another bank.

If your bank wants to mandate direct deposit, then it must allow the employee to choose the financial institution. If it wants to specify an institution for all direct deposits, then it must give employees another option for receiving their pay non-electronically.

For what its worth, I don't know if the law would allow you to exclude one particular institution (yours) from those eligible for employees to select if you are mandating electronic deposits. In other words, can you tell all employees that they must have direct deposit and they can have that go to any bank of their choosing except your bank? I don't know. That would most likely come down to a matter of case law.

First published on 5/15/06

First published on 05/15/2006

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