[Federal Register Volume 87, Number 37 (Thursday, February 24, 2022)]
[Rules and Regulations]
[Pages 10297-10299]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-03587]



 ========================================================================
 Rules and Regulations
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains regulatory documents 
 having general applicability and legal effect, most of which are keyed 
 to and codified in the Code of Federal Regulations, which is published 
 under 50 titles pursuant to 44 U.S.C. 1510.
 
 The Code of Federal Regulations is sold by the Superintendent of Documents. 
 
 ========================================================================
 

  Federal Register / Vol. 87, No. 37 / Thursday, February 24, 2022 / 
Rules and Regulations  

[[Page 10297]]



BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1005


Bulletin 2022-02: Compliance Bulletin on the Electronic Fund 
Transfer Act's Compulsory Use Prohibition and Government Benefit 
Accounts

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Compliance bulletin.

-----------------------------------------------------------------------

SUMMARY: 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 receipt of a government benefit. The 
Bureau of Consumer Financial Protection (Bureau) is issuing this 
Compliance Bulletin to reiterate that this prohibition in EFTA applies 
to government benefit accounts.

DATES: This bulletin is applicable on February 24, 2022.

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

SUPPLEMENTARY INFORMATION:

I. Discussion

    Section 913 of EFTA provides, among other things, that no person 
may require a consumer to establish an account for receipt of 
electronic fund transfers (EFTs) 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. The 
Bureau is issuing this Compliance Bulletin to reiterate that the 
compulsory use prohibition in EFTA applies to government benefit 
accounts.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 1693k.
---------------------------------------------------------------------------

A. Background

    Congress enacted EFTA in 1978 with the purpose of ``provid[ing] a 
basic framework establishing the rights, liabilities, and 
responsibilities of participants in electronic fund transfer systems.'' 
\2\ EFTA's primary objective is ``the provision of individual consumer 
rights.'' \3\ Congress also empowered the Board of Governors of the 
Federal Reserve System (Board) to promulgate regulations implementing 
EFTA. With the adoption of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Dodd-Frank Act), authority to implement most 
of EFTA transferred to the Bureau.\4\
---------------------------------------------------------------------------

    \2\ Public Law 95-630, 92 Stat. 3728 (1978).
    \3\ 15 U.S.C. 1693b.
    \4\ Public Law 111-203, tit. X, section 1084, 124 Stat. 1376, 
2081 (2010) (codified at 15 U.S.C. 1693a et seq.). See also Dodd-
Frank Act section 1061(b), 124 Stat. 2036 (codified at 12 U.S.C. 
5581(b)).
---------------------------------------------------------------------------

    The regulations first promulgated by the Board to implement EFTA 
now reside in subpart A of Regulation E.\5\ These rules provide a broad 
suite of protections to consumers who make EFTs, and for accounts from 
which consumers can make EFTs. An EFT is any transfer of funds 
initiated through an electronic terminal, telephone, computer, or 
magnetic tape for the purpose of ordering, instructing, or authorizing 
a financial institution to debit or credit a consumer's account.\6\ In 
its initial rulemaking to implement EFTA, the Board developed a broad 
definition of ``account,'' which closely mirrored the definition of 
``account'' in EFTA.\7\ The definition provides that, subject to 
certain specific exceptions, an account is a demand deposit (checking), 
savings, or other consumer asset account (other than an occasional or 
incidental credit balance in a credit plan) held directly or indirectly 
by a financial institution and established primarily for personal, 
family, or household purposes.\8\
---------------------------------------------------------------------------

    \5\ These provisions were originally adopted as 12 CFR part 205 
but, upon transfer of authority in the Dodd-Frank Act to implement 
Regulation E to the Bureau, were renumbered as 12 CFR part 1005. 76 
FR 81020 (Dec. 27, 2011).
    \6\ 12 CFR 1005.3(b)(1).
    \7\ 44 FR 18468, 18480 (Mar. 28, 1979).
    \8\ 12 CFR 1005.2(b)(1).
---------------------------------------------------------------------------

    In 1994, the Board amended Regulation E to extend Regulation E's 
protections to accounts used for the electronic distribution of 
government benefits (1994 EBT Rule).\9\ After the Board finalized the 
1994 EBT Rule, Congress amended EFTA to exempt ``needs-tested'' State 
and local electronic benefit transfer (EBT) programs.\10\ The Board 
subsequently adopted a rule exempting EBT programs established or 
administered by State or local government agencies from Regulation E. 
However, all accounts used to distribute benefits for federally 
administered programs (including Federal needs-tested programs) as well 
as non-needs tested State and local government benefit programs 
remained covered by Regulation E.\11\
---------------------------------------------------------------------------

    \9\ 59 FR 10678 (Mar. 7, 1994).
    \10\ Public Law 104-193, 110 Stat. 2105 (1996).
    \11\ 62 FR 43467 (Aug. 14, 1997).
---------------------------------------------------------------------------

    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).\12\ The 2016 
Final Rule, as subsequently amended,\13\ 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 since the mid-1990s. 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 card accounts (comment 10(e)(2)-
1).
---------------------------------------------------------------------------

    \12\ 81 FR 83934 (Nov. 22, 2016).
    \13\ 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.
---------------------------------------------------------------------------

B. Compulsory Use Prohibition

    As mentioned above, the compulsory use prohibition of EFTA, as 
implemented by Regulation E, provides that no person may require a 
consumer

[[Page 10298]]

to establish an account for receipt of EFT with a particular financial 
institution as a condition of receipt of a government benefit.\14\ 
Person, for the purposes of Regulation E and the compulsory use 
prohibition, means a natural person or an organization, including a 
corporation, government agency, estate, trust, partnership, 
proprietorship, cooperative, or association.\15\ The compulsory use 
prohibition applies to all persons, not just financial institutions as 
defined in Regulation E.\16\ The compulsory use prohibition applies to 
``government benefit accounts,'' which is defined as an account 
established by a government agency for distributing government benefits 
to a consumer electronically. However, for purposes of Regulation E, 
including the compulsory use prohibition, a government benefit account 
does not include an account for distributing needs-tested benefits in a 
program established under State or local law or administered by a State 
or local agency.\17\
---------------------------------------------------------------------------

    \14\ 12 CFR 1005.10(e).
    \15\ 12 CFR 1005.2(j).
    \16\ 12 CFR 1005.3(a).
    \17\ 12 CFR 1005.15(a)(2).
---------------------------------------------------------------------------

    The term ``needs-tested'' is not defined in EFTA or Regulation E. 
In the preamble to its 2016 Final Rule, the Bureau identified examples 
of needs-tested government benefit programs that are not ``government 
benefit accounts'' subject to the compulsory use prohibition, such as 
those used to distribute funds related to Temporary Assistance for 
Needy Families (TANF), Special Supplemental Nutrition Program for 
Women, Infants, and Children (WIC), and the Supplemental Nutrition 
Assistance Program (SNAP).\18\ Accounts established under programs 
administered by State or local agencies for benefits that are not 
needs-tested are ``government benefit accounts'' subject to the 
compulsory use prohibition. Examples of government benefit accounts 
administered by State or local agencies that are subject to the 
compulsory use prohibition because they are not needs-tested include 
accounts used to distribute unemployment insurance, child support, 
certain prison and jail ``gate money'' benefits, and pension plan 
payments.\19\
---------------------------------------------------------------------------

    \18\ See 81 FR 83934, 83942 (Nov. 22, 2016). While these 
accounts do not constitute ``government benefit accounts'' as 
defined in Sec.  1005.15(a)(2), the Bureau notes that they may still 
be ``prepaid accounts'' under one of the other prongs of that 
definition in Sec.  1005.2(b)(3). To the extent that they are 
prepaid accounts, the requirements of the Prepaid Accounts Rule 
apply.
    \19\ See 81 FR 83934, 83995 (Nov. 22, 2016); In re JPay, LLC, 
File No. 2021-CFPB-0006 (Oct. 19, 2021), www.consumerfinance.gov/enforcement/actions/jpay-llc/.
---------------------------------------------------------------------------

    In addition, all accounts used to distribute funds under federally 
administered benefits programs (even if those benefits are needs-
tested) are ``government benefit accounts'' subject to the compulsory 
use prohibition; for example, accounts used to distribute Social 
Security, Social Security Disability Insurance, and Supplemental 
Security Income (SSI) payments; or Federal tax credits like the Earned 
Income Tax Credit (EITC) or the Child Tax Credit (CTC) are subject to 
the compulsory use prohibition.\20\
---------------------------------------------------------------------------

    \20\ See id. at 83995, 84320.
---------------------------------------------------------------------------

    The compulsory use prohibition ensures that consumers receiving the 
government benefits described above have a choice with respect to how 
they receive their funds. Government agencies, financial institutions, 
and other persons have several options available to them to ensure 
consumers are provided a choice.\21\ For example, a government agency 
that requires consumers to receive benefits through direct deposit will 
not violate the compulsory use prohibition if it allows consumers to 
choose the financial institution they want to use in receiving the 
direct deposit.\22\ Alternatively, a government agency may give a 
consumer the choice of having their benefits deposited at a particular 
institution (designated by the government agency) so long as the 
consumer is able to receive their benefits by another means.\23\
---------------------------------------------------------------------------

    \21\ In 2013, the Bureau issued a Compliance Bulletin on Payroll 
Card Accounts (Payroll Card Bulletin) to, among other things, 
reiterate that the compulsory use provision of EFTA and Regulation E 
prohibits employers, financial institutions, and other persons from 
mandating that employees receive wages only on a payroll card at a 
particular institution. As explained in the Payroll Card Bulletin, 
payroll card accounts are accounts that are established directly or 
indirectly through an employer, and to which transfers of the 
consumer's salary, wages, or other employee compensation are made on 
a recurring basis. See CFPB Bulletin 2013-10 (Sept. 12, 2013), 
www.consumerfinance.gov/compliance/supervisory-guidance/bulletin-payroll-card-accounts/.
    \22\ 12 CFR 1005.10(e)(2) and comment 10(e)(2)-2.
    \23\ See id.
---------------------------------------------------------------------------

    As the Bureau explained in the 2016 Final Rule, the Bureau believes 
that consumers are not provided a choice when a consumer is required to 
receive the first payment of government benefits on a prepaid card (or 
otherwise at a particular institution), even if the consumer can later 
re-direct the payment to an account of their choice.\24\ In such a 
scenario, the consumer does not have a choice with respect to how to 
receive the first payment of the government benefit; rather, with 
respect to that first payment, the consumer was required to establish 
an account with the financial institution that issued the prepaid card 
as a condition of receiving the funds.\25\
---------------------------------------------------------------------------

    \24\ 81 FR 83934, 83985 (Nov. 22, 2016).
    \25\ Id.
---------------------------------------------------------------------------

    In addition to having a choice with respect to how consumers 
receive their government benefits, Regulation E requires that a 
statement of the consumer's payment options be included in disclosures 
provided before a consumer acquires a government benefit account. 
Specifically, that statement must disclose that (1) the consumer has 
several options to receive benefit payments, followed by a list of the 
options available to the consumer, and a statement directing the 
consumer to tell the agency which option the consumer chooses; or (2) 
the consumer does not have to accept the government benefit account and 
directing the consumer to ask about other ways to receive government 
benefit payments.\26\ As discussed more below, government benefit 
accounts are entitled to additional protections and disclosures under 
Regulation E.
---------------------------------------------------------------------------

    \26\ 12 CFR 1005.15(c)(2)(i).
---------------------------------------------------------------------------

C. Additional Regulation E Protections for Government Benefit Accounts

    As mentioned above, government benefit accounts are entitled to the 
protections of EFTA generally, and Regulation E's provisions applicable 
to prepaid accounts specifically. The protections in Regulation E for 
consumers who receive government benefits include the following:
     Disclosures. Under Regulation E, consumers are entitled to 
three types of disclosures for government benefit accounts: Pre-
acquisition disclosures, disclosures on the access device or entry 
point, and initial disclosures.
    Pre-acquisition disclosures for a government benefit account must 
set forth key information about the account that includes, as mentioned 
above, a statement regarding the consumer's payment options.\27\ A 
government agency must provide the consumer with pre-acquisition 
disclosures before the consumer acquires a government benefit 
account.\28\
---------------------------------------------------------------------------

    \27\ 12 CFR 1005.15(c)(2).
    \28\ 12 CFR 1005.15(c)(1).
---------------------------------------------------------------------------

    Disclosures on the access device or entry point for a government 
benefit account must contain the name of the financial institution that 
directly holds the account or issues the access device as well as a 
website and phone number that the consumer can use to contact that 
financial institution about the

[[Page 10299]]

government benefit account.\29\ These disclosures must be included on 
the access device or, if there is no physical access device, on a 
website, mobile application, or other entry point a consumer must visit 
to access the government benefit account electronically.\30\
---------------------------------------------------------------------------

    \29\ 12 CFR 1005.15(f), 1005.18(f).
    \30\ 12 CFR 1005.15(f), 1005.18(f)(3).
---------------------------------------------------------------------------

    Initial disclosures must set forth comprehensive fee information 
that may be imposed in connection with the account as well as the 
information required to be included in the initial disclosures for 
other accounts subject to Regulation E, which include, among other 
things, disclosures regarding a consumer's liability for unauthorized 
EFTs, an error resolution notice, contact information for the financial 
institution providing the account, the types of transfers a consumer 
may make and any limitations on the frequency and dollar amount of 
transfers, and the fees associated with making.\31\ Initial disclosures 
must be made at account opening or before the first EFT occurs.\32\
---------------------------------------------------------------------------

    \31\ 12 CFR 1005.15(e)(1) and (f), 1005.18(h)(2)(ii)(A) and 
(iv). See generally 12 CFR 1005.7(b).
    \32\ 12 CFR 1005.7(a).
---------------------------------------------------------------------------

     Change-in-Terms Notices. Change-in-terms notices are 
required when a term or condition required to be disclosed in the 
initial disclosures changes or the change results in an increased fee, 
increased liability for the consumer, fewer types of available EFTs, or 
stricter limitations on the frequency or dollar amount of EFTs.\33\
---------------------------------------------------------------------------

    \33\ 12 CFR 1005.8(a)(1); 1005.15(f); 1005.18(f), (h)(2)(ii)(A), 
(iii), and (iv).
---------------------------------------------------------------------------

     Access to Account History. Government agencies must either 
provide a periodic statement as required by Regulation E generally, or 
must make available to the consumer (1) the consumer's account balance, 
by telephone; (2) an electronic history, such as through an website, of 
the consumer's account transactions covering at least 12 months 
preceding the date the consumer electronically accesses the account; 
and (3) written account transaction histories provided upon request 
must cover at least the 24 months preceding the date on which the 
government agency receives the consumer's request for the account 
transaction history.\34\
---------------------------------------------------------------------------

    \34\ 12 CFR 1005.9(b); 1005.15(d)(1); and 1005.18(h)(3)(i).
---------------------------------------------------------------------------

     Limited Liability for Unauthorized Transfers and Error 
Resolution Rights. With limited modifications regarding the period 
within which an unauthorized transfer must be reported, Regulation E's 
limited liability protections and error resolution rights fully apply 
to government benefit accounts.

II. Conclusion

    The Bureau is issuing this Compliance Bulletin to reiterate that 
the compulsory use prohibition in EFTA applies to government benefit 
accounts, as defined in Regulation E. The Bureau notes that it is 
authorized, subject to certain exceptions, to enforce EFTA and 
Regulation E against any person subject to EFTA and Regulation E, 
including financial institutions.\35\ In addition, subject to certain 
exceptions, the Bureau has enforcement authority over covered persons 
offering or providing certain consumer financial products or services--
including government benefit accounts--under the Consumer Financial 
Protection Act of 2010.\36\
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 1693o(a)(5).
    \36\ Public Law 111-203, tit. X, 124 Stat. 1955 (2010) (12 
U.S.C. 5561 through 5567).

Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2022-03587 Filed 2-23-22; 8:45 am]
BILLING CODE 4810-AM-P