California SB 497: Qualifying Accounts, Fees, and EDD Deposits

California Senate Bill 497, enacted in the 2021–2022 session, sets standards for the bank, credit union, or prepaid accounts that can receive direct deposit of government-administered payments in California, including unemployment, state disability insurance, paid family leave, child support, and CalWORKs public assistance. It does not govern private employer payroll. Its purpose is to keep recipients of public funds from losing part of those funds to overdraft fees and weak consumer protections on nonbank prepaid and fintech accounts.

Which Payments the Law Covers

SB 497 applies to four categories of publicly administered funds:

Child support payments distributed through the State Disbursement Unit of the Department of Child Support Services.
Unemployment compensation benefits administered by the Employment Development Department (EDD).
State disability insurance and paid family leave benefits, also administered by EDD.
Public assistance payments, including CalWORKs, administered through the Department of Social Services and county welfare departments.

The qualifying account rules are nearly identical across all four programs. If you receive any of these payments by direct deposit, the account you pick has to meet the same core standards.¹

What Makes an Account Qualify

The law recognizes two paths.

A Regular Bank or Credit Union Account

A standard checking or savings account offered directly by an FDIC-insured bank or NCUA-insured credit union, held in the recipient’s name, qualifies. If you already bank with a familiar institution through its branches or website, your account almost certainly meets the standard.²

A Prepaid or Nonbank Fintech Account

Accounts offered by companies that are not themselves insured banks or credit unions face a stricter test. This includes prepaid debit card accounts and checking-style accounts offered by fintech companies that partner with a bank behind the scenes. To qualify, the account must meet all four of these conditions:

The underlying funds are held at an FDIC-insured bank or NCUA-insured credit union.
Deposit insurance passes through to the account holder individually under federal rules in 12 CFR Part 330 (FDIC) or 12 CFR Part 745 (NCUA).
The account has no automatic overdraft or credit repayment feature unless that feature is completely free to the account holder or complies with federal Truth in Lending Act rules for credit attached to prepaid accounts.
The account provides every consumer protection required under the federal Electronic Fund Transfer Act, including error resolution and unauthorized transaction rights.

Three out of four is not enough. All four have to be satisfied.²

The Overdraft and Fee Fix

The overdraft rule is the point of the bill. Before SB 497, some nonbank providers were rebranding prepaid products as “checking accounts” to sidestep federal Consumer Financial Protection Bureau limits on overdraft fees for prepaid accounts. Recipients of unemployment or CalWORKs payments could lose part of that money to overdraft charges attached to the account receiving the deposit.³

Now, if a nonbank provider’s account carries any automatic credit or overdraft repayment feature, that feature must cost the account holder nothing, or it must follow the federal Truth in Lending Act’s rules for credit linked to prepaid accounts. The practical effect is that most fee-generating overdraft products attached to prepaid-style accounts will disqualify the account from receiving public benefit deposits.²

SB 497 also directly prohibits nonbank companies from soliciting, accepting, or facilitating the direct deposit of covered government payments into a nonqualifying account. The obligation runs against the provider, not the recipient.²

Direct Deposit for EDD Disability and Paid Family Leave

One concrete change came at EDD. Before SB 497, EDD paid disability insurance and paid family leave benefits primarily through a prepaid debit card. SB 497 required EDD to offer direct deposit as a payment option starting January 1, 2024, alongside debit cards and mailed checks.² EDD launched the direct deposit option in June 2024, letting customers filing unemployment, disability, and paid family leave claims choose direct deposit, a prepaid debit card, or a mailed check.⁴

Who Is Responsible if an Account Falls Short

SB 497 shields the paying agencies. EDD, the Department of Child Support Services, and county welfare departments are not liable if a recipient directs their payment into an account that turns out not to qualify, and those agencies have no duty to investigate whether the account meets the standards.²

Responsibility sits with two other parties. Account providers must not solicit or accept deposits into nonqualifying accounts. Recipients should confirm that the account they choose actually qualifies. In practice, a standard account at a familiar bank or credit union is safe. The real risk is on prepaid cards and fintech products where the underlying account structure is not obvious from the marketing.

What SB 497 Does Not Cover

Because the bill number gets confused with unrelated laws, a few boundaries are worth being direct about.

SB 497 does not regulate private employer payroll. It does not require employers to get employee consent for direct deposit and does not set rules for how businesses pay wages. Those rules come from Labor Code Section 213, particularly Section 213(d), which requires an employee’s voluntary authorization for direct deposit of wages and allows deposit into a bank, savings and loan, or credit union account. Section 213 also addresses what happens to that authorization when an employee quits or is fired. It predates SB 497 and is unrelated to it.

There is also a separate bill numbered SB 497 from the 2023–2024 legislative session, authored by Senator Smallwood-Cuevas, which addresses whistleblower retaliation. That bill creates a rebuttable presumption of retaliation when an employer takes adverse action within 90 days of an employee’s protected activity, with a civil penalty of up to $10,000 per violation. Same number, different subject.

1
California Legislative Information. California Senate Bill 497 – Qualifying Accounts for Direct Deposit of Publicly Administered Funds
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California Legislative Information. California SB-497 – Qualifying Accounts for Direct Deposit of Publicly Administered Funds
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California Legislative Information. SB 497 Analysis – Assembly Banking and Finance Committee
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Employment Development Department. Direct Deposit is Now Available!