Direct deposit best way to get paid

President of a South Florida staffing agency says it’s still the safest, quickest method

Don’t opt out of using direct deposit to receive your pay from your employer. It’s still the safest and quickest way to get paid.

That’s the advice provided by the president of a South Florida staffing agency days after fearing that a reverse direct deposit scandal that plunged hundreds of his employees into financial crisis would ruin his company’s reputation and put it out of business.

Brad Mete, owner of Miami Lakes-based Affinity Resources, was one of hundreds of managers across the country forced to respond to angry, frightened employees who logged onto their bank accounts and discovered the money they thought was available to pay mortgage or rent bills, buy groceries, fix broken vehicles or keep their utilities on had been electronically snatched away.

Plunged into such a crisis, experts say, it’s understandable to question the security of direct deposit and wonder how likely such reversals will occur in the future.

Mete said he had to advance $300,000 to help up to 300 of his workers overcome having not one but two direct deposited paychecks suddenly disappear from their checking accounts since Sept. 5. Since then, he’s been coaching the employees on how to dispute the reversals with their banks and calming business clients who he says were understandably alarmed when their workers started complaining.

By Friday, 75% of those employees reported at least one of the two reversed paychecks have been restored. Mete believes the crisis is unlikely to happen again.

“I’ve been in this business for 23 years, and I’ve paid workers hundreds of thousands of times with direct deposit and I’ve never seen this happen before,” Mete said. “I consider it a freak one-off.”

Romeo Chicco, president of the Independent Payroll Providers Association, which represents hundreds of payroll servicers nationwide, said employees should not stop using direct deposit.

“Direct deposit is overall a safe, great benefit,” he said. “Especially here in South Florida, where we just had Hurricane Dorian nearly come through. In a disaster like that, you don’t want to be on a paper check. You want that money in your account.”

Chicco, who also is president and CEO of Boynton Beach-based payroll processor Paymaster, said the crisis appears to have been caused by multiple failures to follow rules created to protect consumers, based on what he’s read about the case and discussed with members of his association’s board of directors.

FBI seeking answers

Investigators are looking at whether those failures originated with a criminal act.

The Albany, N.Y. office of the FBI has tweeted an email address — MyPayrollHRVictims@FBI.gov — and asked affected business owners to email contact information, employee counts, and how much money was lost. That followed calls by New York Gov. Andrew Cuomo for an investigation into “irresponsible” actions that led to the sudden closure last week of MyPayrollHR in Clifton Park, N.Y.

MyPayrollHR CEO Michael Mann has stopped taking phone calls from affiliated companies and has declined

interview requests from various media.

The saga began Sept. 5 when employees working for companies contracted with MyPayrollHR began noticing withdrawals of their Aug. 30 pay from their checking accounts. A day or so later, many of the employees discovered a second week’s worth of pay had disappeared.

By the following Monday, outraged leaders among 4,000 MyPayrollHR clients, including Mete, started demanding answers. Cachet Financial Services, a Pasadena, California-based payment processing company, admitted initiating the withdrawals but said the company did it because it was a victim of massive fraud.

On Monday, Cachet’s general counsel, Wendy Slavkin, told the South Florida Sun Sentinel that Cachet had worked for MyPayrollHR for 12 years because Cachet

was authorized under federal rules to conduct electronic payroll transfers, while MyPayrollHR was not.

Week in and week out, MyPayrollHR oversaw collection of payroll money from its 4,000 business clients and deposited the funds into an account controlled by Cachet. Cachet would then move that money into checking accounts of employees who work for MyPayrollHR’s business clients. The process is mostly automated, Slavkin said.

But on Aug. 30, Cachet’s computers paid the employees as usual before the company’s officials noticed that MyPayrollHR hadn’t made its deposit. Only after sending the pay did Cachet figure out that someone at MyPayrollHR diverted the money to an account at Pioneer Bank, based in Albany. N.Y., Slavkin said.

Cachet should have

programmed its system to send an alert if it didn’t get the deposit before it sent out the payroll, Chicco said.

Whether the money remains at Pioneer Bank is unknown, but the bank filed a statement Wednesday with the Securities and Exchange Commission disclosing it stands to lose $35 million resulting from “potentially fraudulent activity” by an “established business customer” and “related entities.” Pioneer Bank is working with appropriate law enforcement on the matter and “may be limited in what information it can disclose due to the ongoing investigation,” the statement said.

After discovering the money was missing, Cachet sent an electronic command to all the employees’ banks to retrieve the Aug. 30 direct deposit pay, Slavkin said. But that command was improperly coded and should have been rejected by the employees’

banks. So Cachet sent a second command to correct the improper one, but many banks had failed to reject the first order and both went through — resulting in thousands of employees discovering reversals of two paychecks.

The organization that creates the rules that govern direct deposit transfers asserted on its website that Cachet’s reversal was “not permitted,” adding it was “investigating the responsible parties.”

Banks’ reactions mixed

Employees’ banks compounded the failures because many were slow to recognize that consumers have the right to dispute unauthorized direct deposit withdrawals just as they can dispute a fraudulent credit card charge or counterfeit

check written against their account, Chicco said.

Employees posting on a Facebook page joined by more than 2,000 victims described mixed results disputing the withdrawals.

“I’ve spent over seven hours on the phone with [Bank of America] since Thursday and they’re still claiming it’s not their fault and not their issue to fix. Infuriating,” one frustrated victim wrote.

Another wrote that her bank was “spot on” in resolving the problem.

Mete said some of his employees were told they couldn’t dispute the unauthorized withdrawals and it had to be done by their employer. That’s not true, Chicco said.

Many employees likely dealt with their banks’ customer service representatives and didn’t know to ask for its Automated Clearing House — or ACH — depart