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March 18, 2004
CA Paycheck-Cashing Fees Called Illegal
California employers are breaking the law if they process their paychecks through banks that charge check-cashing fees to workers who don't hold accounts with the banks, state officials said this week.

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The state Department of Industrial Relations issued the statement in response to a San Francisco Chronicle column last Sunday that explored such fees.

Since August 2002, Bank of America has required Californians who don't hold accounts at the bank to pay $5 anytime they want to cash a paycheck issued by a BofA business client. Wells Fargo plans to follow suit on April 1.

The state Department of Industrial Relations said the charges violate Section 212 of the California Labor Code, which requires that payroll checks "be negotiable and payable in cash, on demand, without discount."

"It is clear that every employer who has allowed a fee to be charged for cashing a paycheck is in violation of the labor code," said Dean Fryer, a department spokesman.

The banks are off the hook regarding Section 212, according to the Chronicle's David Lazarus, who wrote the original column. That's because a federal court ruled last year that state laws cannot block a major financial institution from imposing fees for check cashing.

But the banks do have to worry about another part of the labor code, Section 215. It stipulates that any "agent'' of a California employer who violates Section 212 is guilty of a misdemeanor. Fryer told Lazarus for a follow-up column that the department's lawyers are studying whether banks are agents and thus violating the law in their capacity as payroll processors.

Lazarus notes that employers are required by law to pay a $50 fine the first time check-cashing fees are levied on employees. All subsequent violations are punishable by a $100 fine plus 25 percent of the amount deducted.

"We're talking about thousands of companies and tens of thousands of people whose checks are written on bank accounts," Fryer said, adding that the issue is now "one of the highest priorities" for the department.

Lazarus said it's unclear exactly how many California workers may be affected, because Bank of America will not specify its number of business accounts in the state or how many companies use the bank to issue paychecks. Wells Fargo also refuses to disclose such information.


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