CFPB’s Guidance on Reg E and EIPs
Happy Hump Day, Compliance Friends!
A few days ago, the Consumer Financial Protection Bureau (CFPB) issued an interpretive rule to clarify that, for the purposes of the Electronic Fund Transfer Act (EFTA) and Regulation E, government benefits do not include COVID-19 related assistance or economic impact payments (EIPs), such as those established under the Coronavirus Aid, Relief and Economic Security Act (CARES Act).
Section 1005.10(e)(2) of Regulation E provides: “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.” This means that neither a credit union nor government agency may require a member to set up direct deposit with any particular institution in order to receive the benefit. Although Reg E does not define “government benefit,” the CFPB has interpreted the term to include benefits such as social security, child support, and unemployment benefits. The commentary to section 1005.10(e) goes on to explain:
“A government agency may not require consumers to receive government benefits by direct deposit to any particular institution. A government agency may require direct deposit of benefits by electronic means if recipients are allowed to choose the institution that will receive the direct deposit. Alternatively, a government agency may give recipients the choice of having their benefits deposited at a particular institution (designated by the government agency) or receiving their benefits by another means.”
The CFPB’s recent interpretive rule was published to clarify that the COVID-19 related economic impact payments are not “government benefits” as described in the above rule, often referred to as the compulsory use provision. The CFPB explains government benefits do not include certain payments if the payments:
“(1) are made to provide assistance to consumers in response to the COVID-19 pandemic or its economic impacts;
(2) are not part of an already-established government benefit program;
(3) are made on a one-time or otherwise limited basis; and
(4) are distributed without a general requirement that consumers apply to the agency to receive funds.”
The interpretive rule explains that these COVID-related payments should be treated differently from traditional government benefits for the purposes of this rule because these payments are one-time or very limited. Additionally, members do not apply for these payments as they would with government benefits, which may make it difficult to determine members’ payment preferences.
Since the compulsory use provision does not apply, governments could, in accordance with other applicable laws, require people to establish an account for receipt of electronic fund transfers with a particular institution in order to receive the payments. The CFPB explained the importance of this option as federal, state, and local governments take action to bring relief directly to their affected communities. For example, if a state government decides to take action to provide additional payments to state residents, the state may disregard the compulsory use provision and require electronic fund transfers into a particular account for those residents. This option allows smaller government entities, who may not be able to offer multiple payment options to continue to support their citizens.
It is also important to note that just because the compulsory use provision does not apply to COVID-related EIPs, this does not mean that other Reg E sections – like the prepaid account rules – are also inapplicable. Other sections of Reg E apply if the payments fit within the scope of those rules.
For recent developments related to the pandemic, keep up with NAFCU’s Coronavirus Resource Page for updates and helpful resources. Additionally, NAFCU members can read more about the CFPB’s interpretive rule in this NAFCU Regulatory Alert.
About the Author
Loran Jackson joined NAFCU as Regulatory Compliance Counsel in April 2019 and was named Senior Regulatory Compliance Counsel in February 2021. In her role, she provides daily compliance assistance to member credit unions on a variety of topics. She also writes articles for NAFCU publications and presents at NAFCU conferences