The CFPB has issued an interpretive rule addressing the application of the Electronic Fund Transfer Act/Regulation E compulsory use prohibition to COVID-19 relief payments made by federal, state, or local government agencies.

The prohibition makes it unlawful for any person to require a consumer to establish an account for the receipt of electronic funds with a particular financial institution as a condition of employment or receipt of a government benefit.

The CFPB explains in the rule that government agencies will be unable to disburse all pandemic relief payments via direct deposit to an existing account of the consumer’s choosing because the agencies do not have access to the account information or the consumer does not have a pre-existing account that can accept direct deposits.  In such cases, the use of alternative means to disburse funds, such as a newly-issued prepaid account, “may be faster, more secure, more convenient, and less expensive—for both the government agency and the consumer—than making disbursements through other methods such as paper check.”

In light of the “unique nature” of pandemic relief payments, the Bureau concludes that it is reasonable for it to interpret “government benefit,” as used in the compulsory use prohibition, to exclude payments from federal, state, or local governments if those payments are made:

  • To provide assistance to consumers in response to the COVID-19 pandemic or its economic impacts
  • Outside of an already-established government benefit program
  • On a one-time or otherwise limited basis
  • Without a general requirement for consumers to apply to the agency to receive funds

The CFPB notes that while accounts established to receive pandemic relief payments may not constitute government benefit accounts for purposes of the compulsory use prohibition, they may still be “prepaid accounts” for purposes of Regulation E.  As a result, they would be subject to the requirements of the CFPB’s Prepaid Accounts Rule such as pre-acquisition disclosure requirements.