Summary: Treatment of Pandemic Relief Payments under Regulation E and Application of the Compulsory Use Prohibition

Summary: Treatment of Pandemic Relief Payments under Regulation E and Application of the Compulsory Use Prohibition

12 CFR Part 1005

The Consumer Financial Protection Bureau (CFPB)

Prepared by the Legislative and Regulatory Affairs Department

April 2020

The Consumer Financial Protection Bureau (CFPB) is issuing this interpretive rule to provide guidance to government agencies distributing aid to consumers in response to the COVID-19 pandemic.

The interpretative rule became effective on April 27, 2020 and can be accessed here.

Summary:

Section 913 of the Electronic Fund Transfer Act (EFTA) provided 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 employment or receipt of a government benefit. This is usually referred to as the “compulsory use prohibition” and is implemented by Regulation E.  Government benefits covered under the rule include Federally administered government benefit programs and non-needs tested State and local government-benefit programs.  They do not include accounts for distributing needs-tested benefits in programs established under State of local law or administered by a State or local agency.

Under the interpretive rule, the Bureau excludes certain payments from Federal, State, or local governments from the definition of “government benefit.”  Those exclusions include payments made:

  1. To provide assistance to consumers in response to the COVID-19 pandemic or its economic impacts;
  2. Outside of an already established government benefit program;
  3. On a one-time or otherwise limited basis; and
  4. Without a general requirement that consumers apply to the agency to receive funds.

As such, the Bureau determined that COVID-19 assistance provided to consumers is not to be considered a “government benefit” and is not covered by the “compulsory use prohibition.”  As a result, a government agency (as well as persons acting on behalf of a government agency) may require consumers to establish an account with a particular financial institution as a condition of receiving pandemic relief payments that meet the conditions of the interpretive rule.