Proposed Rule2025-00565
Electronic Fund Transfers Through Accounts Established Primarily for Personal, Family, or Household Purposes Using Emerging Payment Mechanisms
Primary source
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Published
January 15, 2025
Issuing agencies
Consumer Financial Protection Bureau
Abstract
In light of interest by electronic fund transfer system market participants to offer new types of products to transfer funds and make purchases through accounts established primarily for personal, family, or household purposes, the Consumer Financial Protection Bureau (CFPB) is proposing this interpretive rule to assist companies, investors, and other market participants evaluating existing statutory and regulatory requirements governing electronic fund transfers (EFTs).
Full Text
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<title>Federal Register, Volume 90 Issue 9 (Wednesday, January 15, 2025)</title>
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[Federal Register Volume 90, Number 9 (Wednesday, January 15, 2025)]
[Proposed Rules]
[Pages 3723-3727]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-00565]
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CONSUMER FINANCIAL PROTECTION BUREAU
12 CFR Part 1005
[CFPB-2025-0003]
Electronic Fund Transfers Through Accounts Established Primarily
for Personal, Family, or Household Purposes Using Emerging Payment
Mechanisms
AGENCY: Consumer Financial Protection Bureau.
ACTION: Notice of proposed interpretive rule; request for comment.
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SUMMARY: In light of interest by electronic fund transfer system market
participants to offer new types of products to transfer funds and make
purchases through accounts established primarily for personal, family,
or household purposes, the Consumer Financial Protection Bureau (CFPB)
is proposing this interpretive rule to assist companies, investors, and
other market participants evaluating existing statutory and regulatory
requirements governing electronic fund transfers (EFTs).
DATES: Comments must be received by March 31, 2025.
ADDRESSES: You may submit comments, identified by Docket No. CFPB-2025-
0003, by any of the following methods:
<bullet> Federal eRulemaking Portal: <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
Follow the instructions for submitting comments. A brief summary of
this document will be available at <a href="https://www.regulations.gov/docket/CFPB-2025-0003">https://www.regulations.gov/docket/CFPB-2025-0003</a>.
<bullet> Email: <a href="/cdn-cgi/l/email-protection#d5e7e5e7e0f890b8b0a7b2bcbbb2f885b4acb8b0bba1a6f89cbba1b0a7a5a7b0a1bca3b0f887a0b9b095b6b3a5b7fbb2baa3"><span class="__cf_email__" data-cfemail="1a282a282f375f777f687d73747d374a7b63777f746e693753746e7f686a687f6e736c7f37486f767f5a797c6a78347d756c">[email protected]</span></a>.
Include Docket No. CFPB-2025-0003 in the subject line of the message.
<bullet> Mail/Hand Delivery/Courier: Comment Intake--2025 Emerging
Payments Interpretive Rule, c/o Legal Division Docket Manager, Consumer
Financial Protection Bureau, 1700 G Street NW, Washington, DC 20552.
Instructions: The CFPB encourages the early submission of comments.
All submissions should include the agency name and docket number.
Because paper mail is subject to delay, commenters are encouraged to
submit comments electronically. In general, all comments received will
be posted without change to <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
All submissions, including attachments and other supporting
materials, will become part of the public record and subject to public
disclosure. Proprietary information or sensitive personal information,
such as account numbers or Social Security numbers, or names of other
individuals, should not be included. Submissions will not be edited to
remove any identifying or contact information.
FOR FURTHER INFORMATION CONTACT: George Karithanom, Program Analyst,
Office of Regulations at (202) 435-7700 or <a href="https://reginquiries.consumerfinance.gov">https://reginquiries.consumerfinance.gov</a>. If you require this document in an
alternative electronic format, please contact
<a href="/cdn-cgi/l/email-protection#98dbdec8dac7d9fbfbfdebebf1faf1f4f1ece1d8fbfee8fab6fff7ee"><span class="__cf_email__" data-cfemail="4a090c1a08150b29292f393923282326233e330a292c3a28642d253c">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
I. Background
A. The Passage and Evolution of the Electronic Fund Transfer Act
Advances in automation brought about enormous innovation in the
middle of the twentieth century with respect to the movement of funds.
In 1969, Chemical Bank installed the first automated teller machine in
Rockville Center, New York. New payment networks also launched, forming
the foundation of mechanisms facilitating EFTs. However, adoption of
these new technologies raised questions about the rights and
liabilities of consumers who use EFT services, and the responsibilities
of financial institutions that offer them. In particular, while
financial firms would reap benefits from automation, consumer adoption
might be stymied by concerns about and risks of errors and fraud.
To provide fairness, efficiency, and confidence in burgeoning
technologies to make payments outside of paper currency, coins, and
paper checks, Congress enacted the Electronic Fund Transfer Act (EFTA)
in 1978.\1\ To ensure that industry participants in electronic fund
transfers (EFTs) had appropriate incentives to guard against errors and
fraud, EFTA provides a considerable set of rights to consumers to
dispute errors and limit their liability for unauthorized EFTs, among
other things. To help vindicate the rights established in EFTA,
Congress provided mechanisms for both public and private
enforcement.\2\ In addition, courts have held that EFTA is a ``remedial
statute accorded a broad, liberal construction in favor of the
consumer.'' \3\
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\1\ See Electronic Fund Transfers, Public Law 95-630, tit. XX,
section 2001, 92 Stat. 3728 (1978); see also S. Rept. 95-1273 at 10
(1978) (``EFT payment systems, which now involve billions of dollars
annually and are growing in size, must have clearly defined rules to
operate fairly, efficiently, and with public confidence.'').
\2\ See 15 U.S.C. 1693m, 1693o.
\3\ Clemmer v. Key Bank Nat. Ass'n, 539 F.3d 349, 353 (6th Cir.
2008) (citation omitted); see also Curtis v. Propel Prop. Tax
Funding, LLC, 915 F.3d 234, 239 (4th Cir. 2019).
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The United States was among the first to adopt a framework like
EFTA, providing greater certainty and protection for consumers,
financial firms, and other participants in electronic fund transfer
systems. In enacting that legislation, Congress recognized that
electronic fund transfer services would continue to develop in the
future. In particular, EFTA's legislative history demonstrates that
Congress drafted the definitions used in the statute in a broad manner
to ensure that EFTA was ``sufficiently flexible to accommodate the
continued evolution of electronic fund transfer services.'' \4\
Congress also granted the Board of Governors of the Federal Reserve
System (the Board) and later the CFPB the authority to issue
regulations and guidance to implement the broad provisions of EFTA.\5\
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\4\ Electronic Fund Transfer Act, H. Rept. 95-1315, at 5 (1978)
(discussing definition of ``financial institution''); see also,
e.g., S. Rept. 95-1273 at 25 (1978) (``The definition of `electronic
fund transfer' is intended to give the Federal Reserve Board
flexibility in determining whether new or developing electronic
services should be covered by the act and, if so, to what
extent.''); id. at 26 (noting that ``[t]he definitions of `financial
institution' and `account' are deliberately broad so as to assure
that all persons who offer equivalent EFT services involving any
type of asset account are subject to the same standards and
consumers owning such accounts are assured of uniform protection'').
\5\ See 15 U.S.C. 1693b, 1693m(d).
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The Board implemented EFTA through Regulation E shortly after the
statute's passage in 1978.\6\ Over time, the Board and then the CFPB
have amended and interpreted Regulation E in response to the emergence
of new electronic payment instruments and systems, broader developments
in the market, and new congressional legislation.\7\ Most recently, in
2016, the
[[Page 3724]]
CFPB issued a final rule to create comprehensive consumer protections
for prepaid accounts under Regulation E.\8\ The CFPB noted in the rule
that its analysis with respect to virtual currencies and related
products and services was ongoing, and that the rule did not resolve
issues with respect to the application of existing regulations or the
prepaid rule to such products and services.\9\ The CFPB therefore
treated comments addressing crypto-assets and related products and
services as outside the scope of the rulemaking.\10\
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\6\ See 44 FR 18468 (Mar. 28, 1979); 44 FR 59464 (Oct. 15,
1979).
\7\ See, e.g., 61 FR 19662, 19662 (May 2, 1996) (amending
Regulation E as part of periodic review to ``reflect technological
and other developments''); 62 FR 43467 (Aug. 14, 1997) (amending
Regulation E with respect to government-administered EBT programs);
71 FR 51437 (Aug. 30, 2006) (amending Regulation E with respect to
payroll cards). The CFPB also issued new requirements in subpart B
of Regulation E relating to remittance transfers in final rules
issued in 2012 and 2013. See 78 FR 30662, 30662 (May 22, 2013)
(summarizing 2012 and 2013 rules).
\8\ 81 FR 83934 (Nov. 22, 2016). The prepaid rule also amended
Regulation Z, which implements the Truth in Lending Act, to create
consumer protections for prepaid accounts.
\9\ Id. at 83978 (discussing ``virtual currencies'').
\10\ Id.
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B. Facebook's 2019 Libra Proposal
While most payment networks rely on significant network effects,
like those that exist among banks and merchants through card networks,
advances in mobile technology spawned new networks for payments. More
recently, large technology firms have begun to explore additional ways
to leverage their network effects to facilitate payments.
In 2019, the technology firm Facebook announced the creation of a
new global currency known as Libra.\11\ Libra was a proposed
``stablecoin.'' \12\ Rather than offering Libra to the public for
speculative trading, the goal of Libra was to provide a mechanism to
make payments throughout the digital world.\13\ Users would transmit
Libra through a Calibra wallet account, which would also be established
by Facebook. A broad range of merchants, including app-based services,
indicated that they would participate in the Libra scheme.\14\
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\11\ See Mike Isaac & Nathaniel Popper, Facebook Plans Global
Financial System Based on Cryptocurrency, N.Y. Times (June 18,
2019), <a href="https://www.nytimes.com/2019/06/18/technology/facebook-cryptocurrency-libra.html">https://www.nytimes.com/2019/06/18/technology/facebook-cryptocurrency-libra.html</a>.
\12\ See Rebecca Nelson & David Perkins, Libra: A Facebook-led
Cryptocurrency Initiative, Congressional Research Service (Oct. 21,
2019), <a href="https://crsreports.congress.gov/product/pdf/IN/IN11183/2">https://crsreports.congress.gov/product/pdf/IN/IN11183/2</a>.
\13\ See Libra, White Paper (June 18, 2019), <a href="https://web.archive.org/web/20190618085610/https://libra.org/en-US/white-paper/">https://web.archive.org/web/20190618085610/https://libra.org/en-US/white-paper/</a> (``[t]he mission for Libra is a simple global currency and
financial infrastructure that empowers billions of people'').
\14\ See PYMNTS, A Brief History of Libra (July 15, 2019),
<a href="https://www.pymnts.com/cryptocurrency/2019/a-brief-history-of-facebook-libra/">https://www.pymnts.com/cryptocurrency/2019/a-brief-history-of-facebook-libra/</a>.
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Regulators around the world charged with assuring compliance with
privacy, consumer protection, and anti-money laundering laws raised
concerns about many aspects of the Libra proposal.\15\ Central banks
and authorities charged with ensuring stability of the financial system
also sought clarity on how the Libra stablecoin would fit into existing
regulatory frameworks.\16\
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\15\ See Off. of the Priv. Comm'r of Can., Joint statement on
global privacy expectations of the Libra network (Aug. 5, 2019),
<a href="https://www.priv.gc.ca/en/opc-news/speeches-and-statements/2019/s-d_190805/">https://www.priv.gc.ca/en/opc-news/speeches-and-statements/2019/s-d_190805/</a>; Foo Yun Chee, EU antitrust regulators raise concerns
about Facebook's Libra currency: sources, Reuters (Aug. 21, 2019),
<a href="https://www.reuters.com/article/technology/eu-antitrust-regulators-raise-concerns-about-facebooks-libra-currency-sources-idUSKCN1VB1C1/">https://www.reuters.com/article/technology/eu-antitrust-regulators-raise-concerns-about-facebooks-libra-currency-sources-idUSKCN1VB1C1/</a>.
\16\ See, e.g., Zachary Warmbrodt, Jerome Powell: Facebook's
Libra poses potential risk to financial system, Politico (July 10,
2019), <a href="https://www.politico.com/story/2019/07/10/jerome-powell-facebook-libra-1578306">https://www.politico.com/story/2019/07/10/jerome-powell-facebook-libra-1578306</a>.
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Ultimately, Libra was abandoned.\17\ However, questions surrounding
the safety and utility of emerging forms of fund transfers for
``personal, family, or household purposes'' operating outside of
traditional bank and credit union accounts have persisted.\18\
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\17\ Katie Paul, Facebook's cryptocurrency venture to wind down
after asset sale to Silvergate, Reuters (Jan. 31, 2022), <a href="https://www.reuters.com/technology/facebooks-cryptocurrency-venture-wind-down-after-asset-sale-silvergate-2022-02-01">https://www.reuters.com/technology/facebooks-cryptocurrency-venture-wind-down-after-asset-sale-silvergate-2022-02-01</a>.
\18\ See CFPB, Prepared Remarks of CFPB Director Rohit Chopra at
the Brookings Institution Event on Payments in a Digital Century
(Oct. 6, 2023), <a href="https://www.consumerfinance.gov/about-us/newsroom/prepared-remarks-of-cfpb-director-rohit-chopra-at-the-brookings-institution-event-on-payments-in-a-digital-century/">https://www.consumerfinance.gov/about-us/newsroom/prepared-remarks-of-cfpb-director-rohit-chopra-at-the-brookings-institution-event-on-payments-in-a-digital-century/</a> (``Libra never
became a new global currency. But the questions it provoked in the
West for consumer and data protection regulators . . . live on.'').
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C. CFPB Research Into Emerging Payments
While there has been considerable attention paid to
cryptocurrencies acquired for speculation and other purposes, the CFPB
has conducted research to evaluate emerging forms of payments, fund
transfers, and digital technologies for ``personal, family, or
household purposes.'' For example, in 2021, the CFPB launched an
inquiry into the payment products and services offered by large
technology firms and by widely used digital payment applications.\19\
There were many insights from the research, including developments in
how firms were offering accounts for storing and transmitting funds.
While firms primarily offered the ability to transfer funds by relying
on balances in a consumer's bank or credit union account, many of the
firms offered stored balance products, where funds held in an account
were not necessarily deposited in a traditional insured account. There
were indicia that some of the firms were actively developing
proprietary products, including stablecoins similar to Libra.
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\19\ Press Release, CFPB, CFPB Orders Tech Giants to Turn Over
Information on their Payment System Plans (Oct. 21, 2021), <a href="https://www.consumerfinance.gov/about-us/newsroom/cfpb-orders-tech-giants-to-turn-over-information-on-their-payment-system-plans/">https://www.consumerfinance.gov/about-us/newsroom/cfpb-orders-tech-giants-to-turn-over-information-on-their-payment-system-plans/</a>.
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Because gaming platforms served as early adopters of technologies
that inevitably become more broadly adopted, the CFPB also undertook a
study of payments in fund transfers used on such platforms.\20\ In a
report from April 2024, the CFPB detailed some of the business
practices on how game players convert U.S. dollars into virtual
currencies. The payment systems on these gaming platforms have rapidly
evolved. Rather than relying on a business model in which players make
a one-time payment to buy or play the game, some gaming platforms have
developed elaborate economies where the platforms accept U.S. dollars
in exchange for virtual currency that can be transacted among players
and other platform participants, and even exchanged back to U.S.
dollars in certain circumstances. The report described how players and
other platform participants maintain an account where these virtual
currencies are stored, and how some consumers have experienced the loss
of assets in these accounts through hacking attempts, account theft,
scams, and unauthorized transactions. The developments described in the
report raise questions about responsibilities and liabilities when
errors or fraud take place.
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\20\ See CFPB, Banking in video games and virtual worlds (Apr.
4, 2024), <a href="https://www.consumerfinance.gov/data-research/research-reports/issue-spotlight-video-games/">https://www.consumerfinance.gov/data-research/research-reports/issue-spotlight-video-games/</a>.
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The CFPB has also conducted research into online services that
offer betting on sporting events and casino games.\21\ Some of these
services allow bettors to maintain accounts that allow individuals to
make a range of electronic transfers, including to and from linked
accounts. These accounts may be denominated in U.S. dollars, or in
proprietary currencies.
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\21\ Id. (``Third-party websites also facilitate a growing skin
gambling industry that supports wagering skins, similar to casino
chips, in virtual games such as blackjack, roulette, or craps. . . .
competitive gaming contests, also known as esports, and games
between professional sports teams. Winnings can be converted to fiat
currency or other forms of virtual currency and withdrawn for a fee
directly to the player's digital wallet.'')
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Recognizing that many arrangements, such as stablecoins and virtual
currencies, constitute alternative electronic fund transfer mechanisms,
private sector participants have made certain determinations about how
to treat transactions to obtain these currencies. For example, many
large credit card issuers categorize purchases of virtual currencies as
``cash
[[Page 3725]]
advances,'' reflecting the money-like nature of the funds held in these
accounts.
D. 2021 Report on Stablecoins
In November 2021, the President's Working Group on Financial
Markets (consisting of the Secretary of the Treasury, the Chairperson
of the Board of Governors of the Federal Reserve System, the
Chairperson of the Securities and Exchange Commission, and the
Chairperson of the Commodity Futures Trading Commission), in
conjunction with the Federal Deposit Insurance Commission and the
Office of the Comptroller of the Currency, issued a report on
stablecoins.\22\ The report described certain financial stability
concerns, as well as issues related to the issuance of stablecoins by
banks and nonbanks. The report did not include a specific assessment on
consumer protection issues, but noted that existing laws (including
EFTA) accord certain consumer protections to payments services used by
consumers.\23\ The report further urged regulators to continue to
coordinate on these issues and for Congress to consider legislation on
a prudential framework for so-called ``payment stablecoins.'' \24\
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\22\ See President's Working Grp. on Fin. Mkts., Fed. Deposit
Ins. Corp.& Off. of the Comptroller of the Currency, Report on
Stablecoins (Nov. 2021), <a href="https://home.treasury.gov/system/files/136/StableCoinReport_Nov1_508.pdf">https://home.treasury.gov/system/files/136/StableCoinReport_Nov1_508.pdf</a>.
\23\ Id. at 18.
\24\ Id. at 2, 16-18.
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Consistent with the report, the CFPB has coordinated with
regulators on issues with respect to stablecoins and emerging
payments.\25\ There has been considerable legislative discussion on
many aspects of stablecoins and digital assets, but these discussions
have primarily focused on stablecoins' status under the securities and
commodities trading laws, rather than their potential use as a payment
mechanism.
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\25\ See CFPB, Statement of CFPB Director Chopra on Stablecoin
Report (Nov. 1, 2021), <a href="https://www.consumerfinance.gov/about-us/newsroom/statement-cfpb-director-chopra-stablecoin-report/">https://www.consumerfinance.gov/about-us/newsroom/statement-cfpb-director-chopra-stablecoin-report/</a>.
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E. Rationale for Development of Interpretive Rule
The CFPB is concerned that if market participants do not apply EFTA
and Regulation E in a consistent manner, consumers making electronic
fund transfers using accounts established primarily for personal,
family, or household purposes might face challenges in vindicating
their rights in the event of unauthorized transfers and other errors.
The CFPB is also concerned that inconsistent application of EFTA and
Regulation E might put certain providers at an unfair, competitive
disadvantage.
While the application of Federal consumer financial protection
laws, such as EFTA, to new methods of payments is often developed
through case-by-case adjudications by courts, consumers and market
participants may face conflicting guidance from case law. Consistent
with the CFPB's mandate to promote fair, transparent, and competitive
markets, as well as its mandate to advance the underlying goal of EFTA
to create confidence in electronic fund transfer mechanisms by
establishing a framework of rights, liabilities, and
responsibilities,\26\ this proposed interpretive rule, if adopted,
would provide a consistent framework for the applicability of EFTA and
Regulation E with respect to a range of emerging payment mechanisms.
The proposed interpretive rule seeks to synthesize the range of
insights developed by the CFPB in recent years derived from research
and coordination to outline how market participants can develop
beneficial products and services in compliance with EFTA and Regulation
E, by ensuring that similar products are treated similarly under the
law.
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\26\ See 12 U.S.C. 5511(a); 15 U.S.C. 1693(b).
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II. Proposed Interpretive Rule
The text of the proposed interpretive rule is as follows.
A. Legal Analysis
EFTA and Regulation E apply to an electronic fund transfer (EFT)
that authorizes a ``financial institution'' to debit or credit a
consumer's account.\27\ The term ``electronic fund transfer'' generally
means any transfer of ``funds'' that is 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.\28\
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\27\ 12 CFR 1005.3(a).
\28\ EFTA section 903(7); 15 U.S.C. 1693a(7).
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1. ``Financial Institution''
The term ``financial institution'' under EFTA, as implemented in
Regulation E, means a bank, savings association, credit union, or any
other person that directly or indirectly holds an account belonging to
a consumer, or that issues an access device and agrees with a consumer
to provide EFT services.\29\ It is well-established that financial
institutions include nonbank entities that directly or indirectly hold
an account belonging to a consumer, or that issue an access device and
agree with a consumer to provide EFT services.\30\
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\29\ 12 CFR 1005.2(i). Regulation E defines ``access device'' as
a card, code, or other means of access to a consumer's account, or
any combination thereof, that may be used by the consumer to
initiate electronic fund transfers. 12 CFR 1005.2(a)(1).
\30\ See, e.g., S. Rept. 95-1273 at 26 (``The term `financial
institution' is defined to mean traditional depository institutions
as well as any other person who directly or indirectly holds a
consumer's account.''); Electronic Fund Transfer Act, H. Rept. 95-
1315, at 5 (1978) (``Section 903(h) of the bill defines the term
`financial institution' to include not only traditional depository
institutions that are normally considered to be financial
institutions but also `. . . any other person who, . . . indirectly,
holds a consumer account belonging to an individual; . . . .' This
language is intended by the Committee to assure that the legislation
remains sufficiently flexible to accommodate the continued evolution
of electronic fund transfer services.''); see also 81 FR 83934 at
83964 (noting that the prepaid rule's ``requirements apply equally
to depositories and non-depositories alike'').
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2. ``Funds''
The term ``funds'' is not specifically defined in EFTA or
Regulation E, but has been broadly construed to cover a broad array of
assets, beyond those held in a traditional bank or credit union
account. Specifically, at the time of EFTA's enactment in 1978, as well
as today, the term was and is broadly understood to cover much more
than the U.S. dollar and other fiat currencies.
For example, one leading court decision from before the enactment
of EFTA recognized that the dictionary defined ``funds'' ``as
`available pecuniary resources ordinarily including cash and negotiable
paper' '' and that ``in a legal context the courts have also taken it
to include property of value which may be converted into cash.'' \31\
Another decision from that time stated that the term `` `[f]unds'
includes moneys, and much more, such as notes, bills, checks, drafts,
stocks, and bonds. In other words the general term can and does include
not only currency but also other types of pecuniary resources which are
readily converted into cash.'' \32\
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\31\ Keene v. Keene, 371 P.2d 329, 332 (Cal. 1962) (quoting
definition of ``funds'' in Webster's New International Dictionary
921 (3d ed. 1961)); see also Funds, Webster's New International
Dictionary 921 (3d ed. 1961) (defining ``funds'' as ``available
pecuniary resources ordinarily including cash and negotiable paper
that can be converted to cash at any time without loss'').
\32\ In re Plich's Est., 348 P.2d 706, 708-09 (Colo. 1960); see
also, e.g., Zamora v. United States, 369 F.2d 855, 859 (10th Cir.
1966) (``The word `funds' is broader than but in its usual sense
includes `moneys.' '').
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Similarly, Black's Law Dictionary at that time defined ``fund'' as
``[a] generic term and all-embracing as compared with [the] term
`money,' etc., which is
[[Page 3726]]
specific.'' \33\ Modern dictionaries (both legal and general-use)
similarly define ``funds'' in reference to pecuniary resources and
further define ``pecuniary'' as ``concerning or involving money'' or
``of or relating to money.'' \34\ The term ``money'' means ``something
generally accepted as a medium of exchange, a measure of value, or a
means of payment.'' \35\
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\33\ Fund, Black's Law Dictionary (4th ed.1957); see also Funds,
Black's Law Dictionary (4th ed.1957) (``Moneys and much more, such
as notes, bills, checks, drafts, stocks and bonds, and in broader
meaning may include property of every kind.'').
\34\ Funds, Collins English Dictionary, <a href="https://www.collinsdictionary.com/us/dictionary/english/funds">https://www.collinsdictionary.com/us/dictionary/english/funds</a> (last visited
Dec. 11, 2024); Pecuniary, Collins English Dictionary, <a href="https://www.collinsdictionary.com/us/dictionary/english/pecuniary">https://www.collinsdictionary.com/us/dictionary/english/pecuniary</a> (last
visited Dec. 16, 2024); Funds, Merriam-Webster Dictionary, <a href="https://www.merriam-webster.com/dictionary/money">https://www.merriam-webster.com/dictionary/money</a> (last visited Dec. 11,
2024); Pecuniary, Merriam-Webster Dictionary, <a href="https://www.merriam-webster.com/dictionary/pecuniary">https://www.merriam-webster.com/dictionary/pecuniary</a> (last visited Dec. 16, 2024).
\35\ Money, Merriam-Webster Dictionary, <a href="https://www.merriam-webster.com/dictionary/money">https://www.merriam-webster.com/dictionary/money</a> (last visited Dec. 11, 2024).
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Based on the plain language used in EFTA and the reasoning of
judicial decisions, as well as the CFPB's experience in market
monitoring, it has long been clear that the term ``funds'' in EFTA is
not limited to fiat currency like U.S. dollars. The CFPB interprets the
term ``funds'' to include assets that act or are used like money, in
the sense that they are accepted as a medium of exchange, a measure of
value, or a means of payment. Under this interpretation, the term
``funds'' would include stablecoins, as well as any other similarly-
situated fungible assets that either operate as a medium of exchange or
as a means of paying for goods or services.\36\
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\36\ Whether a specific digital asset is included in the term
``funds'' for purposes of EFTA and Regulation E is fact specific,
and there are likely some digital assets that are not ``funds''
because, for example, they cannot be used to make payments or cannot
be readily exchanged for fiat currency. For example, most
nonfungible tokens (``NFTs'') are unlikely to be ``funds.''
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In addition, the fact that the asset may fluctuate in value does
not exempt it from this definition. Several courts interpreting
``funds'' in the context of Federal money transmitter and money
laundering statutes have similarly held that the term ``funds'' is not
limited to fiat currency and encompasses other types of assets,
including widely held currencies like Bitcoin.\37\ A Federal district
court also recently held that cryptocurrency, as a ``digital form of
liquid, monetary assets,'' unambiguously constitutes ``funds'' under
EFTA.\38\ These interpretations of ``funds'' accord with Congress's
intent by ensuring that consumers are adequately protected and have
access to the benefits of innovative electronic fund transfer systems
and technology.
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\37\ See, e.g., United States v. Day, 700 F.3d 713, 726 (4th
Cir. 2012) (holding that ``gold can constitute `funds' under the . .
. statute where it is moved as a liquid, monetary asset''); United
States v. Iossifov, 45 F.4th 899, 913 (6th Cir. 2022), cert. denied,
143 S. Ct. 812 (2023) (holding that the ordinary meaning of
``funds'' is ``available pecuniary resources,'' and noting that
courts have ``unanimously determined that Bitcoin'' is encompassed
by the terms ``funds'' and ``monetary instrument''); United States
v. Murgio, 209 F. Supp. 3d 698, 707 (S.D.N.Y. 2016) (``[t]he
ordinary meaning of `funds' . . . is `available pecuniary resources'
'') (citation omitted); United States v. Budovsky, No. 13CR368 DLC,
2015 WL 5602853 (S.D.N.Y. Sept. 23, 2015) (assigning ``funds'' its
ordinary meaning, ``assets that `can be used to pay for things in
the colloquial sense,' '' and holding that ``funds'' encompassed the
digital currency at issue); see also United States v. Harmon, 474 F.
Supp. 3d 76 (D.D.C. 2020).
\38\ Rider v. Uphold HQ Inc., 657 F. Supp. 3d 491, 498 (S.D.N.Y.
2023).
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3. ``Account'' and ``Other Consumer Asset Account''
Given the breadth of the term ``funds,'' the applicability of EFTA
and Regulation E will often turn on the definition of ``account'' in
EFTA and Regulation E.
EFTA section 903(2) defines ``account'' to mean ``a demand deposit,
savings deposit, or other asset account . . . as described in
regulations of the [CFPB], established primarily for personal, family,
or household purposes,'' subject to limited exceptions. The legislative
history confirms that Congress intended EFTA to cover more than
checking or savings accounts, noting that EFTA's definition of
``account'' is intended to be broad enough ``to assure that all persons
who offer equivalent EFT services involving any type of asset account
are subject to the same standards and consumers owning such accounts
are assured of uniform protections.'' \39\ The legislative history also
explained that the term ``account'' was intended to go beyond a
consumer's checking or savings account. It provided several examples of
nonbank asset accounts that were within EFTA's coverage because they
could potentially be used to make electronic payments from consumer
accounts.\40\
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\39\ S. Rept. 95-915 at 9.
\40\ Id. at 4, 9 (providing as examples mutual fund accounts
that provide an EFT card that can be used to make payments, money
market mutual fund accounts, and positive balances in margin
accounts at a stock brokerage).
Both EFTA and Regulation E generally define ``account'' to mean:
[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.\41\
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\41\ 12 CFR 1005.2(b)(1); see also 15 U.S.C. 1693a(2).
Essentially, ``other consumer asset accounts'' include prepaid
accounts,\42\ and other asset accounts established primarily for a
consumer's individual, family, or household use, that are not checking
accounts or savings accounts, but into which funds can be deposited by
the consumer or on their behalf and which have features of deposit or
savings accounts. Such features include, but are not limited to: paying
for goods or services from multiple merchants, ability to withdraw
funds or obtain cash, or conducting person-to-person transfers.\43\
Depending on the facts and circumstances, the following could be
considered ``accounts'' under EFTA: video game accounts used to
purchase virtual items from multiple game developers or players;
virtual currency wallets that can be used to buy goods and services or
make person-to-person transfers; and credit card rewards points
accounts that allow consumers to buy points that can be used to
purchase goods from multiple merchants.
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\42\ See 12 CFR 1005.2(b)(3). Whether a particular product meets
the definition of ``prepaid account'' in Regulation E depends on the
features of the product and is outside the scope of this
interpretive rule.
\43\ See 12 CFR 1005.2(b)(1). Whether a particular account
sufficiently resembles a checking or savings account, and thus
qualifies as an ``other consumer asset account'' for purposes of
Regulation E, will depend on the account's specific features.
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This interpretation of the term ``other consumer asset account'' is
consistent with the legislative history discussed above, and
longstanding provisions in both Regulation E's regulatory text and the
Official Staff Interpretations to Regulation E, where certain types of
accounts that are functionally similar to checking and savings accounts
are Regulation E ``accounts.'' Examples include club accounts,\44\
retail repurchase agreements,\45\ margin accounts,\46\ as well as any
securities and commodities accounts that are functionally similar to
checking or savings accounts.\47\
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\44\ Regulation E comment 2(b)-1.i.
\45\ Regulation E comment 2(b)-1.ii.
\46\ 12 CFR 1005.11(c)(2)(i)(B).
\47\ 12 CFR 1005.3(c)(4); Regulation E comment 3(c)(4)-3.i; see
also, 61 FR 19680 (May 2, 1996).
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4. Exceptions for Securities and Commodities
EFTA and Regulation E both contain specific securities and
commodities exceptions to the definition of EFT.\48\ As implemented in
Regulation E, these specific exceptions include any transfer
[[Page 3727]]
of funds the primary purpose of which is the purchase or sale of a
security or commodity if, among other things, the security or commodity
is regulated by the Securities and Exchange Commission (SEC) or the
Commodity Futures Trading Commission (CFTC) or purchased or sold
through a broker-dealer regulated by the SEC or through a futures
commissions merchant regulated by the CFTC.\49\ This exception is
limited to EFTs which have as their primary purpose the purchase or
sale of commodities or securities, and does not reach instances where
securities or commodities are used as ``funds'' in an ``account'' to
purchase goods or services.\50\
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\48\ EFTA section 903(7); 15 U.S.C. 1693a(7); 12 CFR 1005.3(c).
\49\ 12 CFR 1005.3(c)(4).
\50\ See S. Rept. 95-915 at 4 (explaining that EFTA would cover,
for example, instances where a mutual fund issues ``an EFT card
which would draw on the consumer's fund shares. Each time the card
would be used, the fund could instantaneously redeem shares
necessary to cover a payment and transfer the funds to the payee'').
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Put another way, EFTA generally does not apply to the purchase or
sale of a stock or bond.\51\ But it could apply if a stock, bond, or
other form of funds in an investment account--including funds and
accounts also regulated by the SEC or CFTC--is used to purchase goods
or services from a retailer. Indeed, the longstanding Official
Commentary to Regulation E makes clear that EFTs from a securities
account to purchase goods or services or obtain cash are regulated
under EFTA.\52\
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\51\ Nero v. Uphold HQ Inc., 688 F. Supp. 3d 134, 144 (S.D.N.Y.
2023). (``[P]ersonal asset accounts that are investment accounts
like the money market mutual fund accounts identified in the Senate
Report or [certain] cryptocurrency accounts . . . , are accounts
covered by the EFTA. This is true even though a transaction from
those accounts may not be subject to the EFTA in the event it is a
transaction for the purchase or sale of a security regulated by the
SEC.'')
\52\ Regulation E comment 3(c)(4)-3.i; see also, 61 FR 19680
(May 2, 1996). The SEC has authority to enforce EFTA against broker-
dealers that are subject to the Securities Exchange Act. 15 U.S.C.
1693o(a)(4). This interpretive rule is not intended to limit the
authority of the SEC under the Securities Exchange Act or the CFTC
under the Commodities Exchange Act.
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5. Consumer Protections Under EFTA and Regulation E
Financial institutions have a number of legal obligations under
EFTA and Regulation E. Among the most important are error resolution
and limits on consumers' liability for unauthorized EFTs, and well as
initial and ongoing disclosures. A financial institution has
investigation and error resolution obligations under Regulation E when
a consumer notifies the financial institution of an error, with limited
exceptions.\53\ EFTA and Regulation E define the term ``error'' to
include, among other things, ``an unauthorized electronic fund
transfer.'' \54\ Subject to certain exceptions, Regulation E defines an
unauthorized EFT to mean an EFT from a consumer's account initiated by
a person other than the consumer without actual authority to initiate
the transfer and from which the consumer receives no benefit.\55\
Unauthorized EFTs include transfers initiated by a person who obtained
a consumer's access device through fraud or robbery and consumer
transfers at an ATM that were induced by force. Another example of an
unauthorized EFT is when a bad actor obtains a consumer's account
credential through computer hacking or other forms of cyber theft and
uses that credential to steal funds.\56\ EFTA and Regulation E place
limits on a consumer's liability for unauthorized EFTs, based on a
number of factors.
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\53\ 15 U.S.C. 1693f(a); 12 CFR 1005.11(b). Regulation E also
tailored certain error resolution obligations for prepaid accounts.
12 CFR 1005.18(e).
\54\ 15 U.S.C. 1693f(f)(1); 12 CFR 1005.11(a)(1)(i).
\55\ However, the CFPB reiterates here that nothing in this
proposed interpretive rule would change the existing statutory or
regulatory exceptions to the definition of EFT.
\56\ 12 CFR 1005.2(m); Regulation E comments 2(m)-3 and 4; see
also CFPB, Electronic Fund Transfers FAQs, <a href="https://www.consumerfinance.gov/compliance/compliance-resources/deposit-accounts-resources/electronic-fund-transfers/electronic-fund-transfers-faqs/#unauthorized-eft">https://www.consumerfinance.gov/compliance/compliance-resources/deposit-accounts-resources/electronic-fund-transfers/electronic-fund-transfers-faqs/#unauthorized-eft</a> (last visited Dec. 2, 2024).
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A financial institution must provide initial disclosures of the
terms and conditions of EFT services before the first EFT is made or at
the time the consumer contracts for an EFT service.\57\ The disclosures
must include a summary of various consumer rights under Regulation E,
including the consumer's liability for unauthorized EFTs, the types of
EFTs the consumer may make, limits on the frequency or dollar amount,
fees charged by the financial institution, and the error-resolution
procedures. Regulation E also requires a financial institution to
provide regular, periodic statements, and change-in-terms notices.\58\
Regulation E contains model forms and clauses with respect to the
required disclosures.\59\ Note that accounts that separately meet the
definition of a gift card would have different obligations under the
Gift Card Rule and generally would not be subject to the remainder of
subpart A of Regulation E.\60\
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\57\ EFTA section 905; 15 U.S.C. 1693c; see generally 12 CFR
1005.7.
\58\ 12 CFR 1005.8 and 1005.9(b).
\59\ See generally 12 CFR part 1005, app. A.
\60\ See 12 CFR 1005.20; see also 81 FR 83934 at 83977
(discussing interaction of the Gift Card Rule and the Prepaid Rule).
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In sum, market participants offering new types of payment
mechanisms to facilitate electronic fund transfers should understand
whether their account meets the definition of ``other consumer asset
account,'' including whether it is established for ``personal, family,
or household purposes.''
III. Regulatory Matters
This is a proposed interpretive rule issued under the CFPB's
authority to interpret EFTA and Regulation E, including under section
1022(b)(1) of the Consumer Financial Protection Act of 2010, which
authorizes guidance as may be necessary or appropriate to enable the
CFPB to administer and carry out the purposes and objectives of Federal
consumer financial laws.\61\ While not required under the
Administrative Procedure Act (APA), the CFPB is soliciting comments on
the proposal and may make revisions when it issues a final interpretive
rule as appropriate in light of feedback received.
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\61\ 12 U.S.C. 5512(b)(1).
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By operation of EFTA section 916(d), no provision of EFTA sections
916 or 917 imposing liability would apply to any act done or omitted in
good faith in conformity with the final interpretive rule,
notwithstanding that after such act or omission has occurred, the final
interpretive rule is amended, rescinded, or determined by judicial or
other authority to be invalid for any reason.\62\
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\62\ 15 U.S.C. 1693m(d).
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The CFPB has determined that this proposed interpretive rule, if
finalized, would not impose any new or revise any existing
recordkeeping, reporting, or disclosure requirements on covered
entities or members of the public that would be collections of
information requiring approval by the Office of Management and Budget
under the Paperwork Reduction Act.\63\
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\63\ 44 U.S.C. 3501 through 3521.
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2025-00565 Filed 1-14-25; 8:45 am]
BILLING CODE 4810-AM-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.