[Federal Register Volume 85, Number 81 (Monday, April 27, 2020)]
[Rules and Regulations]
[Pages 23217-23219]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08084]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1005


Treatment of Pandemic Relief Payments Under Regulation E and 
Application of the Compulsory Use Prohibition

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Interpretive rule.

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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is 
issuing this interpretive rule to provide guidance to government 
agencies distributing aid to consumers in response to the COVID-19 
pandemic. The Bureau concludes in this interpretive rule that certain 
pandemic-relief payments are not ``government benefits'' for purposes 
of Regulation E and the Electronic Fund Transfer Act (EFTA) and are 
therefore not subject to the compulsory use prohibition in EFTA, if 
certain conditions are met. Specifically, government benefits do not 
include 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; are not part of an 
already-established government benefit program; are made on a one-time 
or otherwise limited basis; and are distributed without a general 
requirement that consumers apply to the agency to receive funds.

DATES: This interpretive rule is effective on April 27, 2020.

FOR FURTHER INFORMATION CONTACT: Kristine M. Andreassen, Senior 
Counsel, Office of Regulations, at 202-435-7700 or https://reginquiries.consumerfinance.gov/. If you require this document in an 
alternative electronic format, please contact 
[email protected].

SUPPLEMENTARY INFORMATION: 

I. Discussion

A. Background

    Section 913 of the Electronic Fund Transfer Act (EFTA) provides, 
among other things, 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.\1\ This provision, often referred to as the 
compulsory use prohibition, is implemented in Sec.  1005.10(e)(2) of 
Regulation E.
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    \1\ 15 U.S.C. 1693k(2).
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    In the mid-1990s, the Board of Governors of the Federal Reserve 
System (Board) extended consumer protections under Regulation E to 
accounts established by government agencies for distributing benefits 
to consumers electronically (government benefit accounts).\2\ 
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 
or local law or administered by a State or local agency).\3\ Provisions 
specific to government benefit accounts were codified in Sec.  1005.15 
of Regulation E.
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    \2\ 59 FR 10678 (Mar. 7, 1994) and 62 FR 43467 (Aug. 14, 1997).
    \3\ See Sec.  1005.15(a)(2).
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    On October 5, 2016, the Bureau issued a final rule titled ``Prepaid 
Accounts Under the Electronic Fund Transfer Act (Regulation E) and the 
Truth In Lending Act (Regulation Z)'' (2016 Final Rule).\4\ The Bureau 
subsequently amended the 2016 Final Rule twice, in 2017 and 2018.\5\ 
The 2016 Final Rule, as subsequently amended, is referred to herein as 
the Prepaid Accounts Rule. The Prepaid Accounts Rule, among other 
things, extended Regulation E coverage to prepaid accounts and adopted 
provisions specific to such accounts. The definition of ``prepaid 
account'' in the Prepaid Accounts Rule includes government benefit 
accounts (as defined in Sec.  1005.15(a)(2)), which were already 
covered by Regulation E as described above. The Prepaid Accounts Rule 
generally maintained the existing provisions specific to government 
benefit accounts, while adding certain new requirements such as pre-
acquisition disclosures. The Prepaid Accounts Rule did not change the 
compulsory use prohibition in Sec.  1005.10(e) of Regulation E, but did 
add commentary to clarify the compulsory use prohibition's application 
to government benefits (comment 10(e)(2)-2), which is in line with pre-
existing commentary regarding payroll (comment 10(e)(2)-1).
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    \4\ 81 FR 83934 (Nov. 22, 2016).
    \5\ See 82 FR 18975 (Apr. 25, 2017) and 83 FR 6364 (Feb. 13, 
2018). These amendments, among other things, extended the effective 
date of the Prepaid Accounts Rule to April 1, 2019.
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    Federal, State, and local governments are considering a variety of 
approaches to providing consumers relief from the economic impacts of 
the COVID-19 pandemic. These approaches may include government 
distribution of funds directly to consumers, in some cases outside of 
existing government benefit programs. In some cases, the relevant 
governmental agencies may not have access to consumers' account 
information, such as account and routing numbers, and therefore may 
have difficulty disbursing funds via direct deposit in a timely manner; 
in other cases, consumers may not have a pre-existing account that is 
capable of receiving funds via direct deposit.

B. Use of Electronic Fund Transfers in Government Benefit Disbursement

    The Bureau notes that Regulation E provides significant flexibility 
to government agencies that wish to disburse government benefits via 
electronic fund transfers. As stated above, EFTA and Regulation E 
prohibit requiring consumers to establish accounts for receipt of 
electronic fund transfers with a particular financial institution as a 
condition of receipt of a government benefit.\6\ The compulsory use 
prohibition does not require the agency to also offer payment through 
any other method the consumer may prefer; it simply requires that 
government agencies provide the consumer a choice. Specifically, 
comment 10(e)(2)-2 to Regulation E states that a government agency may 
require direct deposit of benefits by electronic means if recipients 
are allowed to choose the institution that will receive the direct 
deposit.\7\
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    \6\ See EFTA section 913(a)(2) (15 U.S.C. 1693k(2)) and Sec.  
1005.10(e)(2).
    \7\ Government agencies are permitted to provide paper checks as 
an option for payment, but are not required to do so by EFTA or 
Regulation E. Similarly, government agencies may, but are not 
required to, offer direct deposit into an account of the consumer's 
choosing as an alternative method of payment.
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    In the preamble to the 2016 Final Rule, the Bureau recognized that 
in some cases, circumstances may require that financial institutions or 
other persons disburse funds to consumers within a certain period. 
Consumers may be presented with options of how to receive payment but 
fail to exercise a choice. In such cases, the Bureau noted

[[Page 23218]]

that, depending on the facts and circumstances, it may be reasonable 
for a financial institution or other person in this scenario to employ 
a reasonable default enrollment method.\8\
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    \8\ 81 FR 83934, 83985 (Nov. 22, 2016).
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C. Application of the Compulsory Use Prohibition to COVID-19 Pandemic 
Relief Payments

    The Bureau is aware of the extraordinary circumstances created by 
the COVID-19 pandemic and the impact the pandemic has had, and will 
continue to have, on consumers. Government agencies are responding to 
these impacts by disbursing funds directly to consumers, among other 
measures.
    In response to the pandemic and its effects, it is important for 
consumers to be able to receive economic stimulus payments in a fast, 
secure, and efficient manner. The Bureau believes that consumers, for 
many reasons, will typically prefer to receive these payments via 
direct deposit into an existing account of their choosing, if they have 
such an account. However, the Bureau appreciates that government 
agencies making these disbursements will not be able to make all of 
these payments via direct deposit to an account of the consumer's 
choice. Government agencies may be unable to do so either because they 
do not have access to the account information, such as account and 
routing numbers, for some consumers, or because some consumers 
receiving payments do not have a pre-existing account that can accept 
direct deposits. In such cases, the disbursement of funds via 
alternative means, 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.\9\
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    \9\ In addition, consumers without a pre-existing account will 
typically need to visit an in-person location, such as a check 
cashing outlet, to obtain cash from a paper check.
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    Given the unique nature of this type of pandemic relief payment, 
the Bureau believes it is reasonable to interpret the term ``government 
benefit,'' as used in EFTA section 913 and Regulation E Sec.  
1005.10(e)(2), to exclude certain of these payments. Specifically, the 
Bureau interprets the term ``government benefit'' to exclude payments 
from Federal, State, or local governments if those payments are 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: 
For example, payments made pursuant to an existing government benefit 
program would not qualify for this exclusion, even if the volume or 
dollar value of the program's payments is increased due to the COVID-19 
pandemic;
    3. On a one-time or otherwise limited basis: Thus, a limited series 
of related payments made to the same consumer could qualify for this 
exclusion; and
    4. Without a general requirement that consumers apply to the agency 
to receive funds: Filing a tax return, or consumer provision of 
information necessary to complete a consumer identification and 
verification process prior to activating an access device, does not by 
itself constitute an application to receive funds.
    The term ``government benefit'' is not defined in EFTA or 
Regulation E. However, the Bureau's interpretation herein is aligned 
with a common understanding of the scope of the term ``government 
benefit.'' In the preamble to its 2016 Final Rule, the Bureau 
identified examples of government benefit programs that were covered by 
the Board's 1994 and 1997 rulemakings.\10\ In contrast, the payments 
that would not be considered a government benefit under this 
interpretive rule are one-time or otherwise limited payments 
specifically in response to the COVID-19 pandemic, not part of any 
existing government benefit program. Further, for payments under this 
interpretation, consumers likely would not generally be required to 
apply to the government for these types of pandemic relief payments, 
which may make it difficult for government agencies to determine 
consumers' payment preferences while making payments in a timely 
manner.
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    \10\ See 81 FR 83934, 83995 (Nov. 22, 2016). This interpretive 
rule does not change the status of any existing government benefit 
program under Regulation E.
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    Direct deposit is generally the fastest, most efficient, and most 
secure way to disburse funds to consumers, but to make payments in that 
manner a government agency needs to have access to consumers' account 
information. However, given the unique circumstances due to the COVID-
19 pandemic, the Bureau recognizes that payments covered by this 
interpretive rule are different than government benefits referred to in 
Sec.  1005.10(e)(2). Thus, 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 above 
conditions under this interpretive rule.
    This interpretive rule is limited to the definition of ``government 
benefit'' under Regulation E and EFTA. Therefore, while accounts 
established to receive pandemic relief payments, as described above, do 
not constitute government benefit accounts as defined in Sec.  
1005.15(a)(2), the Bureau emphasizes that they may still be ``prepaid 
accounts'' under one of the other prongs of that definition in Sec.  
1005.2(b)(3).\11\ However, the Bureau notes Regulation E excludes from 
the definition of ``prepaid account'' (and therefore coverage under 
Regulation E) an account that is directly or indirectly established 
through a third party and loaded only with qualified disaster relief 
payments (i.e., funds made available through a qualified disaster 
relief program as defined in 26 U.S.C. 139(b)).\12\
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    \11\ To the extent that they are prepaid accounts, the 
requirements of the Prepaid Accounts Rule (including the rule's pre-
acquisition disclosure requirements) apply.
    \12\ See Sec.  1005.2(b)(3)(ii)(B) and comment 2(b)(3)(ii)-2.
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    The Bureau is issuing this interpretive rule based on its authority 
to interpret EFTA and Regulation E, including under section 1022(b)(1) 
of the Dodd-Frank Act, which authorizes guidance as may be necessary or 
appropriate to enable the Bureau to administer and carry out the 
purposes and objectives of the Federal consumer financial laws.\13\
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    \13\ 12 U.S.C. 5512(b)(1). The relevant provisions of EFTA and 
Regulation E form part of Federal consumer financial law. 12 U.S.C. 
5481(12)(C), (14).
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    By operation of EFTA section 916(d), no provision of EFTA sections 
916 or 917 imposing any liability applies to any act done or omitted in 
good faith in conformity with this interpretive rule, notwithstanding 
that after such act or omission has occurred, the interpretive rule is 
amended, rescinded, or determined by judicial or other authority to be 
invalid for any reason.\14\
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    \14\ 15 U.S.C. 1693m(d).
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II. Effective Date

    Because this rule is solely interpretive, it is not subject to the 
30-day delayed effective date for substantive rules under section 
553(d) of the Administrative Procedure Act.\15\ Therefore, this rule is 
effective on April 27, 2020, the same date that it is published in the 
Federal Register.
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    \15\ 5 U.S.C. 553(d).
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III. Regulatory Requirements

    This rule articulates the Bureau's interpretation of Regulation E 
and EFTA. As an interpretive rule, it is

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exempt from the notice-and-comment rulemaking requirements of the 
Administrative Procedure Act.\16\ Because no notice of proposed 
rulemaking is required, the Regulatory Flexibility Act does not require 
an initial or final regulatory flexibility analysis.\17\
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    \16\ 5 U.S.C. 553(b).
    \17\ 5 U.S.C. 603(a), 604(a).
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    The Bureau has determined that this interpretive rule does 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.\18\
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    \18\ 44 U.S.C. 3501-3521.
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IV. Congressional Review Act

    Pursuant to the Congressional Review Act,\19\ the Bureau will 
submit a report containing this interpretive rule and other required 
information to the U.S. Senate, the U.S. House of Representatives, and 
the Comptroller General of the United States prior to the rule's 
published effective date. The Office of Information and Regulatory 
Affairs has designated this interpretive rule as not a ``major rule'' 
as defined by 5 U.S.C. 804(2).
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    \19\ 5 U.S.C. 801 et seq.
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V. Signing Authority

    The Director of the Bureau, having reviewed and approved this 
document is delegating the authority to electronically sign this 
document to Laura Galban, a Bureau Federal Register Liaison, for 
purposes of publication in the Federal Register.

    Dated: April 13, 2020.
Laura Galban,
Federal Register Liaison, Bureau of Consumer Financial Protection.
[FR Doc. 2020-08084 Filed 4-23-20; 11:15 am]
 BILLING CODE 4810-AM-P