Stimulus dollars will be very important to consumers’ ability to make ends meet in the coming weeks. While many are getting their funds this week, others who do not have updated checking account information on file with the IRS will receive a check. I have written previously that I thought that checks were the likely payment type for all non-direct deposit payments as it was unlikely that a new payment type would be introduced. A new process could bring on new operational risks, even though alternative payment solutions like P2P or prepaid cards could be faster and more secure and definitely less expensive
But then the CFPB made an interesting announcement. In a press release, they announced that they are making a change to the prepaid rules which would stipulate that these economic impact payments are not subject to the compulsory use prohibition that prevents government entities from requiring an individual to have an account with a specific financial institution in order to receive a government benefit payment.
This makes it possible from a regulatory perspective for a new payment type to be used. We still don’t know if it will happen in practicality.
More background from the CFPB:
Today (April 13th) the Consumer Financial Protection Bureau (Bureau) took steps to make it easier for consumers to receive pandemic-relief payments, including the economic impact payments authorized in the CARES Act, through prepaid accounts. Federal, State, and local governments are considering a variety of approaches to providing consumers relief from the economic impacts of the COVID-19 pandemic.
Government agencies are prohibited by the Electronic Fund Transfer Act (EFTA) and its implementing regulation, Regulation E, from requiring consumers to establish accounts for receipt of electronic fund transfers with a particular financial institution as a condition of receipt of a government benefit (known as the compulsory use prohibition).
To get pandemic relief payments to consumers in a fast, secure, and efficient manner if direct deposit is unavailable, the interpretive rule the Bureau is issuing today concludes that, if certain conditions are met, certain pandemic-relief payments are not “government benefits” for purposes of Regulation E and thus these payments are not subject to the compulsory use prohibition in EFTA and Regulation E.
Specifically, government benefits do not include payments from federal, state, or local governments if those payments: (1) are made to provide assistance to consumers in response to the COVID-19 pandemic or its economic impacts; (2) are not part of an already-established government benefit program; (3) are made on a one-time or otherwise limited basis; and (4) are distributed without a general requirement that consumers apply to the agency to receive funds.
The Interpretive Rule on Treatment of Pandemic Relief Payments under Regulation E and Application of the Compulsory Use Prohibition is available at: https://files.consumerfinance.gov/f/documents/cfpb_interpretive-rule_pandemic-relief-payments-reg-e.pdf
Overview provided by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group.
