Legal

Virtual Cards Run Into Payroll Card-Like Legal Troubles

In recent years, payroll cards have run into controversy as lawsuits and lawmakers scrutinize fees that often come with the tool. Employees hit with costs to make purchases with their payroll cards, withdraw cash at ATMs, check balances and other everyday banking needs are fighting back against those fees, and introducing new conversations about the legal language of “lawful money,” employee protections and beyond.

Now, a new legislative battle is waging in the state of Georgia. The debate involves virtual cards and their use by insurers to pay healthcare providers. But, much like the payroll card debate, the legal questions around virtual cards also focus on fees.

Reports in Online Athens on Monday (July 16) highlighted the Georgia General Assembly’s passage of legislation that bans insurance providers from requiring medical service practitioners to accept virtual cards without another option of receiving payment.

House Bill 818, passed unanimously in the state Legislature, makes Georgia the second state to adopt legislation, which also passed in Alabama, according to reports. The rules become effective Jan. 1, 2019.

Proponents of the bill noted the fees linked to funds transfers when healthcare providers wanted to move funds stored on a virtual card into their accounts; reports said those fees could reach as high as 5 percent, and for large hospitals the costs added up into the thousands of dollars.

Lawmakers targeted the contractual agreements between insurance providers and healthcare providers, noting that in one payment notice to a provider, the insurance company noted that if one virtual card payment is processed, that provider must then accept only virtual cards as payments from then on.

The new rules require insurance firms to notify healthcare providers about any fees associated with virtual card payments, as well as advise them of other payment options and provide instructions on how those healthcare providers can choose a different form of payment. Proponents also cited improved communication between providers and insurance companies as a benefit of the bill.

The Georgia Dental Association and the Medical Association of Georgia, along with groups representing pharmacists, hospitals and other healthcare providers, all backed the legislation, according to reports.

State representative Lee Hawkins (R), also a dentist, was the lead sponsor of the bill.

“Interest companies were charing us 3 to 5 percent,” he told the publication, a statement echoed by the Medical Association of Georgia. “Over the years — I’ve been doing this for 40 years — we’ve become more of an insurance office or small bank.”

Virtual cards can provide enhanced data security compared to other forms of payment like physical cards or paper checks — which can also be expensive for insurance providers.

Alabama passed legislation in 2016 to address unfair fees linked to virtual card payments to health care providers. Similar to Georgia’s law, Alabama’s SB 291 requires insurers to educate healthcare providers on their rights to request direct deposit methods of payment that include a flat fee, instead of forcing them to accept virtual cards with fees based on percentage of claims. The legislation also requires that insurers honor providers’ payment preference requests.

Virtual card fees are not the only controversial B2B payment fee topic today.

Legal action concerning fees linked to physical payroll cards have emerged in recent years. Last year reports in the National Law Review said the New York State Industrial Board of Appeals ruled against the New York State Department of Labor, arguing that the NYSDOL’s payroll card regulations imposed in 2016 were “invalid” and overstepped the department authority.

The legal debate stemmed back to 2015, when the state introduced new payroll regulations to protect employers against fees associated with the payroll vehicle, including fees charged at the ATM when workers attempted to access wages. Like Georgia’s and Alabama’s virtual card regulations, New York’s attempted rules would have required employers to notify their workers about payroll cards, clearly present all options for receiving wages, and receive consent from employees that choose to take payroll debit cards.

The New York State Department of Labor later appealed the board’s ruling.

In Pennsylvania, a class action lawsuit filed in 2015 against McDonald’s franchise owners was settled last year. That case similarly targeted fees linked to payroll cards, and the suit named the franchise owners as well as the card-issuing banks JPMorgan Chase as defendants.

The McDonald’s case set off a debate about the legal definition of “lawful money” or “check” under Pennsylvania law; the settlement resulted from a court’s earlier ruling that payroll debit cards were not lawful money or a check.

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