The CFPB recently issued a Compliance Bulletin reminding providers of the Regulation E prohibitions against requiring prepaid cards as the sole method for distributing government benefits. The Electronic Fund Transfer Act and its implementing Regulation E, state that people cannot be forced to receive government benefits at a specific financial institution as a condition of receiving the benefits. The rule ensures people have choices and prohibits exclusive deals that undermine competition and fair market prices.
“The bulletin issued today confirms that EFTA’s consumer protections apply to government benefit accounts, and financial institutions may be held liable for violations of this requirement. The bulletin also confirms that it is a violation of law when people are not provided a choice on where to receive their first payment, even if they can redirect subsequent payments to an account of their choice.”
This reminded us of another Regulation E prohibition, that institutions may encounter more often – which is requiring automatic loan repayments.
No financial institution or other person may condition an extension of credit to a consumer on the consumer’s repayment by preauthorized electronic fund transfers, except for credit extended under an overdraft credit plan or extended to maintain a specified minimum balance in the consumer’s account. [§1005.10(e)(1)]
Except in the case of overdraft plans, institutions cannot require automatic payments on loans. Institutions can provide incentives, such as a reduced annual percentage rate, if there are other options for repayment.
If you have questions on Regulation E’s prohibitions, or any other consumer protection regulation, contact us – we can help!
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