Rule2022-03587
Bulletin 2022-02: Compliance Bulletin on the Electronic Fund Transfer Act's Compulsory Use Prohibition and Government Benefit Accounts
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Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
February 24, 2022
Issuing agencies
Consumer Financial Protection Bureau
Abstract
The Electronic Fund Transfer Act (EFTA) provides, among other things, that no person may require a consumer to establish an account for receipt of electronic fund transfers with a particular financial institution as a condition of receipt of a government benefit. The Bureau of Consumer Financial Protection (Bureau) is issuing this Compliance Bulletin to reiterate that this prohibition in EFTA applies to government benefit accounts.
Full Text
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<title>Federal Register, Volume 87 Issue 37 (Thursday, February 24, 2022)</title>
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[Federal Register Volume 87, Number 37 (Thursday, February 24, 2022)]
[Rules and Regulations]
[Pages 10297-10299]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-03587]
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Rules and Regulations
Federal Register
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This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
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Federal Register / Vol. 87, No. 37 / Thursday, February 24, 2022 /
Rules and Regulations
[[Page 10297]]
BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Part 1005
Bulletin 2022-02: Compliance Bulletin on the Electronic Fund
Transfer Act's Compulsory Use Prohibition and Government Benefit
Accounts
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Compliance bulletin.
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SUMMARY: The Electronic Fund Transfer Act (EFTA) provides, among other
things, that no person may require a consumer to establish an account
for receipt of electronic fund transfers with a particular financial
institution as a condition of receipt of a government benefit. The
Bureau of Consumer Financial Protection (Bureau) is issuing this
Compliance Bulletin to reiterate that this prohibition in EFTA applies
to government benefit accounts.
DATES: This bulletin is applicable on February 24, 2022.
FOR FURTHER INFORMATION CONTACT: Eliott C. Ponte, Counsel, or Kristine
M. Andreassen, Senior Counsel, Office of Regulations, at 202-435-7700.
If you require this document in an alternative electronic format,
please contact <a href="/cdn-cgi/l/email-protection#edaeabbdafb2ac8e8e889e9e848f8481849994ad8e8b9d8fc38a829b"><span class="__cf_email__" data-cfemail="3e7d786e7c617f5d5d5b4d4d575c5752574a477e5d584e5c10595148">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
I. Discussion
Section 913 of EFTA provides, among other things, that no person
may require a consumer to establish an account for receipt of
electronic fund transfers (EFTs) with a particular financial
institution as a condition of employment or receipt of a government
benefit.\1\ This provision, often referred to as the compulsory use
prohibition, is implemented in Sec. 1005.10(e)(2) of Regulation E. The
Bureau is issuing this Compliance Bulletin to reiterate that the
compulsory use prohibition in EFTA applies to government benefit
accounts.
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\1\ 15 U.S.C. 1693k.
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A. Background
Congress enacted EFTA in 1978 with the purpose of ``provid[ing] a
basic framework establishing the rights, liabilities, and
responsibilities of participants in electronic fund transfer systems.''
\2\ EFTA's primary objective is ``the provision of individual consumer
rights.'' \3\ Congress also empowered the Board of Governors of the
Federal Reserve System (Board) to promulgate regulations implementing
EFTA. With the adoption of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act), authority to implement most
of EFTA transferred to the Bureau.\4\
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\2\ Public Law 95-630, 92 Stat. 3728 (1978).
\3\ 15 U.S.C. 1693b.
\4\ Public Law 111-203, tit. X, section 1084, 124 Stat. 1376,
2081 (2010) (codified at 15 U.S.C. 1693a et seq.). See also Dodd-
Frank Act section 1061(b), 124 Stat. 2036 (codified at 12 U.S.C.
5581(b)).
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The regulations first promulgated by the Board to implement EFTA
now reside in subpart A of Regulation E.\5\ These rules provide a broad
suite of protections to consumers who make EFTs, and for accounts from
which consumers can make EFTs. An EFT is any transfer of funds
initiated through an electronic terminal, telephone, computer, or
magnetic tape for the purpose of ordering, instructing, or authorizing
a financial institution to debit or credit a consumer's account.\6\ In
its initial rulemaking to implement EFTA, the Board developed a broad
definition of ``account,'' which closely mirrored the definition of
``account'' in EFTA.\7\ The definition provides that, subject to
certain specific exceptions, an account is a demand deposit (checking),
savings, or other consumer asset account (other than an occasional or
incidental credit balance in a credit plan) held directly or indirectly
by a financial institution and established primarily for personal,
family, or household purposes.\8\
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\5\ These provisions were originally adopted as 12 CFR part 205
but, upon transfer of authority in the Dodd-Frank Act to implement
Regulation E to the Bureau, were renumbered as 12 CFR part 1005. 76
FR 81020 (Dec. 27, 2011).
\6\ 12 CFR 1005.3(b)(1).
\7\ 44 FR 18468, 18480 (Mar. 28, 1979).
\8\ 12 CFR 1005.2(b)(1).
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In 1994, the Board amended Regulation E to extend Regulation E's
protections to accounts used for the electronic distribution of
government benefits (1994 EBT Rule).\9\ After the Board finalized the
1994 EBT Rule, Congress amended EFTA to exempt ``needs-tested'' State
and local electronic benefit transfer (EBT) programs.\10\ The Board
subsequently adopted a rule exempting EBT programs established or
administered by State or local government agencies from Regulation E.
However, all accounts used to distribute benefits for federally
administered programs (including Federal needs-tested programs) as well
as non-needs tested State and local government benefit programs
remained covered by Regulation E.\11\
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\9\ 59 FR 10678 (Mar. 7, 1994).
\10\ Public Law 104-193, 110 Stat. 2105 (1996).
\11\ 62 FR 43467 (Aug. 14, 1997).
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On October 5, 2016, the Bureau issued a final rule titled ``Prepaid
Accounts Under the Electronic Fund Transfer Act (Regulation E) and the
Truth In Lending Act (Regulation Z)'' (2016 Final Rule).\12\ The 2016
Final Rule, as subsequently amended,\13\ is referred to herein as the
Prepaid Accounts Rule. The Prepaid Accounts Rule, among other things,
extended Regulation E coverage to prepaid accounts and adopted
provisions specific to such accounts. The definition of ``prepaid
account'' in the Prepaid Accounts Rule includes government benefit
accounts (as defined in Sec. 1005.15(a)(2)), which were already
covered by Regulation E since the mid-1990s. The Prepaid Accounts Rule
generally maintained the existing provisions specific to government
benefit accounts, while adding certain new requirements such as pre-
acquisition disclosures. The Prepaid Accounts Rule did not change the
compulsory use prohibition in Sec. 1005.10(e) of Regulation E, but did
add commentary to clarify the compulsory use prohibition's application
to government benefits (comment 10(e)(2)-2), which is in line with pre-
existing commentary regarding payroll card accounts (comment 10(e)(2)-
1).
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\12\ 81 FR 83934 (Nov. 22, 2016).
\13\ See 82 FR 18975 (Apr. 25, 2017) and 83 FR 6364 (Feb. 13,
2018). These amendments, among other things, extended the effective
date of the Prepaid Accounts Rule to April 1, 2019.
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B. Compulsory Use Prohibition
As mentioned above, the compulsory use prohibition of EFTA, as
implemented by Regulation E, provides that no person may require a
consumer
[[Page 10298]]
to establish an account for receipt of EFT with a particular financial
institution as a condition of receipt of a government benefit.\14\
Person, for the purposes of Regulation E and the compulsory use
prohibition, means a natural person or an organization, including a
corporation, government agency, estate, trust, partnership,
proprietorship, cooperative, or association.\15\ The compulsory use
prohibition applies to all persons, not just financial institutions as
defined in Regulation E.\16\ The compulsory use prohibition applies to
``government benefit accounts,'' which is defined as an account
established by a government agency for distributing government benefits
to a consumer electronically. However, for purposes of Regulation E,
including the compulsory use prohibition, a government benefit account
does not include an account for distributing needs-tested benefits in a
program established under State or local law or administered by a State
or local agency.\17\
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\14\ 12 CFR 1005.10(e).
\15\ 12 CFR 1005.2(j).
\16\ 12 CFR 1005.3(a).
\17\ 12 CFR 1005.15(a)(2).
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The term ``needs-tested'' is not defined in EFTA or Regulation E.
In the preamble to its 2016 Final Rule, the Bureau identified examples
of needs-tested government benefit programs that are not ``government
benefit accounts'' subject to the compulsory use prohibition, such as
those used to distribute funds related to Temporary Assistance for
Needy Families (TANF), Special Supplemental Nutrition Program for
Women, Infants, and Children (WIC), and the Supplemental Nutrition
Assistance Program (SNAP).\18\ Accounts established under programs
administered by State or local agencies for benefits that are not
needs-tested are ``government benefit accounts'' subject to the
compulsory use prohibition. Examples of government benefit accounts
administered by State or local agencies that are subject to the
compulsory use prohibition because they are not needs-tested include
accounts used to distribute unemployment insurance, child support,
certain prison and jail ``gate money'' benefits, and pension plan
payments.\19\
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\18\ See 81 FR 83934, 83942 (Nov. 22, 2016). While these
accounts do not constitute ``government benefit accounts'' as
defined in Sec. 1005.15(a)(2), the Bureau notes that they may still
be ``prepaid accounts'' under one of the other prongs of that
definition in Sec. 1005.2(b)(3). To the extent that they are
prepaid accounts, the requirements of the Prepaid Accounts Rule
apply.
\19\ See 81 FR 83934, 83995 (Nov. 22, 2016); In re JPay, LLC,
File No. 2021-CFPB-0006 (Oct. 19, 2021), <a href="http://www.consumerfinance.gov/enforcement/actions/jpay-llc/">www.consumerfinance.gov/enforcement/actions/jpay-llc/</a>.
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In addition, all accounts used to distribute funds under federally
administered benefits programs (even if those benefits are needs-
tested) are ``government benefit accounts'' subject to the compulsory
use prohibition; for example, accounts used to distribute Social
Security, Social Security Disability Insurance, and Supplemental
Security Income (SSI) payments; or Federal tax credits like the Earned
Income Tax Credit (EITC) or the Child Tax Credit (CTC) are subject to
the compulsory use prohibition.\20\
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\20\ See id. at 83995, 84320.
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The compulsory use prohibition ensures that consumers receiving the
government benefits described above have a choice with respect to how
they receive their funds. Government agencies, financial institutions,
and other persons have several options available to them to ensure
consumers are provided a choice.\21\ For example, a government agency
that requires consumers to receive benefits through direct deposit will
not violate the compulsory use prohibition if it allows consumers to
choose the financial institution they want to use in receiving the
direct deposit.\22\ Alternatively, a government agency may give a
consumer the choice of having their benefits deposited at a particular
institution (designated by the government agency) so long as the
consumer is able to receive their benefits by another means.\23\
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\21\ In 2013, the Bureau issued a Compliance Bulletin on Payroll
Card Accounts (Payroll Card Bulletin) to, among other things,
reiterate that the compulsory use provision of EFTA and Regulation E
prohibits employers, financial institutions, and other persons from
mandating that employees receive wages only on a payroll card at a
particular institution. As explained in the Payroll Card Bulletin,
payroll card accounts are accounts that are established directly or
indirectly through an employer, and to which transfers of the
consumer's salary, wages, or other employee compensation are made on
a recurring basis. See CFPB Bulletin 2013-10 (Sept. 12, 2013),
<a href="http://www.consumerfinance.gov/compliance/supervisory-guidance/bulletin-payroll-card-accounts/">www.consumerfinance.gov/compliance/supervisory-guidance/bulletin-payroll-card-accounts/</a>.
\22\ 12 CFR 1005.10(e)(2) and comment 10(e)(2)-2.
\23\ See id.
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As the Bureau explained in the 2016 Final Rule, the Bureau believes
that consumers are not provided a choice when a consumer is required to
receive the first payment of government benefits on a prepaid card (or
otherwise at a particular institution), even if the consumer can later
re-direct the payment to an account of their choice.\24\ In such a
scenario, the consumer does not have a choice with respect to how to
receive the first payment of the government benefit; rather, with
respect to that first payment, the consumer was required to establish
an account with the financial institution that issued the prepaid card
as a condition of receiving the funds.\25\
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\24\ 81 FR 83934, 83985 (Nov. 22, 2016).
\25\ Id.
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In addition to having a choice with respect to how consumers
receive their government benefits, Regulation E requires that a
statement of the consumer's payment options be included in disclosures
provided before a consumer acquires a government benefit account.
Specifically, that statement must disclose that (1) the consumer has
several options to receive benefit payments, followed by a list of the
options available to the consumer, and a statement directing the
consumer to tell the agency which option the consumer chooses; or (2)
the consumer does not have to accept the government benefit account and
directing the consumer to ask about other ways to receive government
benefit payments.\26\ As discussed more below, government benefit
accounts are entitled to additional protections and disclosures under
Regulation E.
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\26\ 12 CFR 1005.15(c)(2)(i).
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C. Additional Regulation E Protections for Government Benefit Accounts
As mentioned above, government benefit accounts are entitled to the
protections of EFTA generally, and Regulation E's provisions applicable
to prepaid accounts specifically. The protections in Regulation E for
consumers who receive government benefits include the following:
<bullet> Disclosures. Under Regulation E, consumers are entitled to
three types of disclosures for government benefit accounts: Pre-
acquisition disclosures, disclosures on the access device or entry
point, and initial disclosures.
Pre-acquisition disclosures for a government benefit account must
set forth key information about the account that includes, as mentioned
above, a statement regarding the consumer's payment options.\27\ A
government agency must provide the consumer with pre-acquisition
disclosures before the consumer acquires a government benefit
account.\28\
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\27\ 12 CFR 1005.15(c)(2).
\28\ 12 CFR 1005.15(c)(1).
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Disclosures on the access device or entry point for a government
benefit account must contain the name of the financial institution that
directly holds the account or issues the access device as well as a
website and phone number that the consumer can use to contact that
financial institution about the
[[Page 10299]]
government benefit account.\29\ These disclosures must be included on
the access device or, if there is no physical access device, on a
website, mobile application, or other entry point a consumer must visit
to access the government benefit account electronically.\30\
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\29\ 12 CFR 1005.15(f), 1005.18(f).
\30\ 12 CFR 1005.15(f), 1005.18(f)(3).
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Initial disclosures must set forth comprehensive fee information
that may be imposed in connection with the account as well as the
information required to be included in the initial disclosures for
other accounts subject to Regulation E, which include, among other
things, disclosures regarding a consumer's liability for unauthorized
EFTs, an error resolution notice, contact information for the financial
institution providing the account, the types of transfers a consumer
may make and any limitations on the frequency and dollar amount of
transfers, and the fees associated with making.\31\ Initial disclosures
must be made at account opening or before the first EFT occurs.\32\
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\31\ 12 CFR 1005.15(e)(1) and (f), 1005.18(h)(2)(ii)(A) and
(iv). See generally 12 CFR 1005.7(b).
\32\ 12 CFR 1005.7(a).
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<bullet> Change-in-Terms Notices. Change-in-terms notices are
required when a term or condition required to be disclosed in the
initial disclosures changes or the change results in an increased fee,
increased liability for the consumer, fewer types of available EFTs, or
stricter limitations on the frequency or dollar amount of EFTs.\33\
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\33\ 12 CFR 1005.8(a)(1); 1005.15(f); 1005.18(f), (h)(2)(ii)(A),
(iii), and (iv).
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<bullet> Access to Account History. Government agencies must either
provide a periodic statement as required by Regulation E generally, or
must make available to the consumer (1) the consumer's account balance,
by telephone; (2) an electronic history, such as through an website, of
the consumer's account transactions covering at least 12 months
preceding the date the consumer electronically accesses the account;
and (3) written account transaction histories provided upon request
must cover at least the 24 months preceding the date on which the
government agency receives the consumer's request for the account
transaction history.\34\
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\34\ 12 CFR 1005.9(b); 1005.15(d)(1); and 1005.18(h)(3)(i).
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<bullet> Limited Liability for Unauthorized Transfers and Error
Resolution Rights. With limited modifications regarding the period
within which an unauthorized transfer must be reported, Regulation E's
limited liability protections and error resolution rights fully apply
to government benefit accounts.
II. Conclusion
The Bureau is issuing this Compliance Bulletin to reiterate that
the compulsory use prohibition in EFTA applies to government benefit
accounts, as defined in Regulation E. The Bureau notes that it is
authorized, subject to certain exceptions, to enforce EFTA and
Regulation E against any person subject to EFTA and Regulation E,
including financial institutions.\35\ In addition, subject to certain
exceptions, the Bureau has enforcement authority over covered persons
offering or providing certain consumer financial products or services--
including government benefit accounts--under the Consumer Financial
Protection Act of 2010.\36\
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\35\ 15 U.S.C. 1693o(a)(5).
\36\ Public Law 111-203, tit. X, 124 Stat. 1955 (2010) (12
U.S.C. 5561 through 5567).
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2022-03587 Filed 2-23-22; 8:45 am]
BILLING CODE 4810-AM-P
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