On April 13, the Consumer Financial Protection Bureau announced a new interpretive rule that makes it possible for consumers to receive certain pandemic-relief payments through newly-issued prepaid accounts rather than paper checks. According to CFPB Director Kathleen Kraninger, the interpretive rule is designed to “ensure that consumers can receive these payments in a fast, secure, and efficient manner.”
The new interpretive rule is available here, and the CFPB’s accompanying announcement is available on its website, here.
Under the Electronic Fund Transfer Act and its implementing regulation, Regulation E, government agencies may not require consumers to establish accounts for receipt of electronic fund transfers as a condition of receiving a government benefit. This is known as the “compulsory use provision.”
However, the CFPB’s newly promulgated interpretive rule concludes that, if certain conditions are met, certain pandemic-relief payments are not “government benefits” subject to the compulsory use prohibition. Because these payments are not subject to the compulsory use prohibition, government agencies will be allowed to disburse them through newly-issued prepaid accounts.
Specifically exempted from the definition of “government benefits” under the new interpretive rule are:
payments from federal, state, or local governments if those payments: (1) are made to provide assistance to consumers in response to the coronavirus (“COVID-19”) pandemic or its economic impacts; (2) are not part of an already-established government benefit program; (3) are made on a one-time or otherwise limited basis; and (4) are distributed without a general requirement that consumers apply to the agency to receive funds.
The interpretive rule comes at a time when many Americans are waiting to receive an Economic Impact Payment from the Internal Revenue Service. Under the Coronavirus Aid, Relief, and Economic Security Act, many Americans are entitled to a one-time Economic Impact Payment of about $1,200, which the IRS began disbursing on April 11. However, receipt of the Economic Impact Payments is expected to take longer for individuals and families who have not previously provided the IRS with direct deposit information and will need to receive their payments through another means, like paper checks. The CFPB believes that the new interpretive rule clears the way for the IRS to get money to these consumers as soon as possible.
In announcing this new interpretive rule, the CFPB acknowledged that payments disbursed through new, prepaid accounts “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.”