The CFPB recently announced that it has issued a Compliance Assistance Statement of Terms Template (“CAST Template”) through its Compliance Assistance Sandbox Policy (“CAS Policy”) after receiving an application from Build Commonwealth, Inc. (“Commonwealth”).
The Commonwealth CAST Template can be used by employers as the basis for an application to the CFPB to obtain approval for an automatic savings program to assist employees in building emergency savings (“Autosave Program”). The CFPB instituted the CAS Policy in 2019 in an attempt to encourage innovation through the testing of financial products that could benefit consumers but might pose regulatory uncertainty. The CAS Policy includes CAST Templates, which allow third-parties (e.g., service providers, consumer groups, trade associations, etc.) to secure a template that can serve as the basis for approval applications to the CFPB from covered entities providing consumer financial products or services. An approved applicant that complies in good faith with the approval’s terms has a “safe harbor” from liability for specified conduct during the testing period.
An Autosave Program permits employees who elect to participate in the program to designate a certain amount of their paycheck to the employee’s already existing account at a financial institution. If the employee does not designate an account, the employer may create an Autosave account for the employee at a financial institution designated by the employer. In its application for a CAST Template, Commonwealth indicated that the template was needed for Autosave Programs because of regulatory uncertainty arising from the application of the “compulsory use” prohibition in the Electronic Fund Transfer Act and Regulation E to this default feature.
The prohibition makes it unlawful for any person to require a consumer to establish an account for the receipt of electronic fund transfers with a particular financial institution as a condition of employment or receipt of a government benefit. The Regulation E commentary indicates that, consistent with the prohibition, an employer can give employees the choice of having their salary deposited at an institution designated by the employer or receiving their salary by another means, such as by check or cash. In connection with its prepaid card rule, the CFPB indicated that while an employer must provide its employees with a choice regarding how to receive their salary, an employer, consistent with consumer choice, could give employees a choice between two or more payment alternatives but employ a default payment method if an employee fails to indicate his or her preference. In the CAST Template issued to Commonwealth, the CFPB indicated that Commonwealth stated in its application “that the Autosave Program is compliant with Regulation E because it embodies precisely this type of reasonable default enrollment method.”
If the CFPB grants an employer’s application for an approval based on the Commonwealth CAST Template, the employer would receive a CAST stating that, subject to the employer’s good faith compliance with the CAST, the Bureau approves the employer’s Autosave Program under the compulsory use provisions of the EFTA and Regulation E. Such approval would provide the employer with a safe harbor from liability for a violation of the compulsory use provisions pursuant to 15 U.S.C. 1693m(d). Section 1693m(d) states that the provisions of the EFTA “imposing any liability shall [not] apply to–(1) any act done or omitted in good faith … in conformity with any… approval by an official or employee of the [CFPB] or the Federal Reserve System duly authorized by the Bureau or the Board to issue such interpretations or approvals under such procedures as the Bureau or the Board may prescribe therefor.”
The Commonwealth CAST Template contains certifications that must be included in an employer’s application. Among other things, an employer must certify that employees will be given a notice that provides certain information such as that participation in the Autosave Program is not a condition of employment, the employee has the right to select the institution where Autosave earnings will be deposited, and if the employee does not identify an account to which such earnings should be directed, an Autosave Account will be created for the employer at an institution designated by the employer.