Read the compliance bulletin here and the press release here.
- Source: consumerfinance.gov
Treliant Takeaway:
Treliant knows payment cards and UDAAP . If your financial services institution needs assistance with assessing your prepaid, debit, or credit card programs for risks associated with UDAAP or Regulations E and Z, we can help.
Highlights:
In a recent Compliance Bulletin on the Electronic Fund Transfer Act’s Compulsory Use Prohibition and Government Benefit Accounts (Compliance Bulletin) , the Consumer Financial Protection Bureau (CFPB) reminded card issuers of the prohibition against offering prepaid cards as the sole method for distribution of government benefits. The Compliance Bulletin follows a fourth quarter consent order against a nonbank financial services company for unfair, deceptive, and abusive acts and practices (UDAAPs), as well as violations of Regulation E, related to issuance and processing of prepaid debit cards required for receipt of government benefits.
In the Compliance Bulletin, the CFPB reiterated that the compulsory use prohibition of the Electronic Funds Transfer Act (EFTA) prohibits requiring 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 government benefits and reminded the industry that this prohibition applies to government benefit accounts[1] and applies to all persons, including natural persons, organizations, estates, trusts, partnerships, and government agencies.
The 1994 Electronic Benefit Transfer (EBT) Rule amended Regulation E to extend consumer protections to accounts used for electronic distribution of government benefits. In 1996, Congress amended EFTA to exempt “needs-tested” state and local government EBT programs.[2] However, federally administered benefit programs and state and local benefit programs that are not needs-tested remain covered by Regulation E.
In addition, the CFPB’s 2016 “Prepaid Accounts Under the Electronic Fund Transfer Act (Regulation E) and the Truth In Lending Act (Regulation Z)” (Prepaid Accounts Rule) extended Regulation E coverage to prepaid accounts, including government benefits accounts. Coverage of prepaid accounts includes the right to receive account disclosures and payment options prior to acquiring a government benefits account; disclosures on the access device or entry point; and initial disclosures containing comprehensive fee information, an error resolution notice, financial institution contact information; and information on the types of transfers the consumer can make. Prepaid accountholders are also entitled to change=in-term notices, access to account history, and Regulation E’s error resolution rights and limitations on liability for unauthorized transfers.
With the Compliance Bulletin, the CFPB sent a stern reminder of its enforcement authority over covered persons providing government benefits accounts and of the consumer protections afforded to accountholders.
[1] 15 U.S.C. 1693k
[2] 44 FR 18468, 18480 (Mar. 28, 1979)