Client Alert

CFPB Facilitates CARES Act Payments to Individuals

15 Apr 2020

Update:  According to April 29, 2020 press reports, the U.S. Department of the Treasury has entered into contracts with two prepaid card issuers to issue prepaid cards loaded with COVID-19 economic impact payments to individuals who do not have bank account information on file with the IRS for direct deposit. The contracts allow Treasury to operationalize the CFPB’s April 13, 2020 waiver of the Regulation E compulsory use prohibition, outlined below, for government agencies providing COVID-19-related relief payments to individuals. Timing of the payments via prepaid card remains to be determined.

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On April 13, 2020, the Consumer Financial Protection Bureau (CFPB) issued an interpretive rule to provide guidance to government agencies, including the U.S. Department of the Treasury (“Treasury”), to make COVID-19-related relief payments to individuals, including the payments authorized in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).  Among other things, the CARES Act, Pub. L. No. 116-136, provides for one-time direct payments to individuals, so-called “recovery rebates” or economic impact payments (EIPs), of up to $1,200 per adult and $500 per child, subject to certain income thresholds and eligibility restrictions.

According to a press release, the CFPB is loosening its existing rules to make it easier to provide EIPs and other government pandemic-relief payments via prepaid account to individuals without access to direct deposit.  Currently, the Electronic Fund Transfer Act (EFTA) and its implementing Regulation E prohibit government agencies from requiring a consumer to establish an account with a financial institution to receive electronic fund transfers in order to collect a government benefit (the “compulsory use prohibition”).

The interpretive rule provides that, under particular circumstances, certain pandemic-relief payments will not be considered government benefits for purposes of Regulation E, and, thus, the payments will not be subject to the compulsory use prohibition.  Specifically, under the interpretive rule, the term “government benefit” in Regulation E § 1005.10(e)(2) will exclude payments from federal, state, or local governments if the payments are made:  (1) to provide assistance to consumers in response to the COVID-19 pandemic or its economic impacts; (2) apart from an already-established government benefit program; (3) on a one-time or limited basis; and (4) with no requirement that consumers apply to the agency to receive funds.

The CFPB also notes in its interpretive rule that 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.

The interpretive rule will be effective as of the date it is published in the Federal Register, which is anticipated shortly.  To date, Treasury has not made any official statements regarding operationalizing this flexibility provided by the CFPB.

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