The CFPB recently issued an interpretive rule explaining that certain pandemic relief payments are not considered government relief payments for purposes of ECOA and its implementing regulation, Regulation E. The interpretive rule is effective upon its publication in the Federal Register.
The compulsory use provision under ECOA prohibits government agencies from requiring consumers to establish an account with a particular financial institution as a condition of receipt of a government benefit. Although the term government benefit is not defined in ECOA or Regulation E, the CFPB explained its interpretation is consistent with the common understanding of the scope of the term as used in prior rulemakings. According to the interpretive rule, the term government benefit excludes payments from Federal, State, or local governments that are:
- provided to assist consumers in response to the COVID-19 pandemic or its economic impacts;
- offered outside established government benefit programs;
- provided on a one-time or limited basis; and
- distributed without a general requirement that consumers apply to the agency to receive funds.
The CFPB explained that it is important for consumers to receive the government disbursement in a fast, secure and efficient manner; however, this process will be hindered when government agencies do not have access to consumers’ account information or when consumers’ lack a pre-existing account able to receive direct deposits. The CFPB believes, in such cases, the disbursement of funds through 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.”
Although the CFPB has interpreted the definition of government benefit to permit a government agency to require consumers to establish an account with a particular financial institution as a condition of receipt of a government benefit, the CFPB emphasized that the accounts may still be subject to the prepaid accounts rule. The CFPB noted, however, that Regulation E excludes from the definition of prepaid account “an account that is directly or indirectly established through a third party and loaded only with qualified disaster relief payments.”