On February 15, the CFPB released Bulletin 2022-02 to reiterate the prohibition in the Electronic Fund Transfer Act (EFTA) that financial companies with government benefit contracts may not require consumers to establish an account at a particular financial institution as a condition of receipt of a government benefit. The bulletin notes that the prohibition under the EFTA ensures that consumers receiving the government benefits, such as Social Security payments, veterans’ benefits, and unemployment insurance have a choice with respect to how they receive their funds.
The CFPB cites to prepaid card providers in particular for making prepaid cards the sole method to distribute government benefits, and extracting illegal fees from consumers in the process. We previously discussed a recent CFPB action against a prepaid card provider in an earlier Consumer Finance & FinTech Blog post here. In a statement accompanying the bulletin, Director Chopra stated that, “[w]hen companies act as gatekeepers for government benefits, they often abuse that power to extract unavoidable fees. Barriers to choice kill competition and can harm families who need every dollar to make ends meet.”
Putting It Into Practice: This latest guidance serves as a reminder to companies that the CFPB is hyper-focused on EFTA and Regulation E enforcement, and has the rulemaking authority to protect market competition and consumer choice.