Regulation E Prohibitions

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!

 

Please be advised that CSG provides financial services compliance audit and consulting services to our clients.  The services that we provide include certain tasks that may be characterized as “law-related services” under Rule 5.7 of the Rules of Professional Conduct governing lawyers.  Since some of our employees are lawyers with an active bar license but are NOT engaged in the private practice of law, that Rule requires us to make disclosures clarifying that the services we perform may be law-related services, but they are not legal services.  Because they are not legal services, those services and our relationship will not be governed by the Rules of Professional Conduct that guide the client-lawyer relationship, such as rules applicable to privileged communications and prohibitions of conflicts of interest.  Notwithstanding this disclaimer, we will continue to govern our relationship with you using reasonable ethical and professional standards that are expected to meet your expectations.

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