The CFPB issued a compliance bulletin today outlining the existing prohibitions against prepaid cards being the sole method for distributing government benefits.
The bulletin underscores rules intended to protect market competition and to protect people’s right to have a choice in how they receive their money under the Electronic Fund Transfer Act. Enacted in 1978, EFTA and its implementing Regulation E apply to government benefit accounts, and financial institutions may be held liable for violations of this requirement.
The bulletin reiterates 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.
In October, the CFPB fined the prison financial services company JPay $6 million for charging consumers fees to access their own money on prepaid debit cards that they were forced to use.
“When companies act as gatekeepers for government benefits, they often abuse that power to extract unavoidable fees,” said CFPB Director Rohit Chopra. “Barriers to choice kill competition and can harm families who need every dollar to make ends meet.”
President Biden has placed an increased emphasis on market competition, issuing an executive order promoting competition last summer. “Excessive market concentration threatens basic economic liberties, democratic accountability, and the welfare of workers, farmers, small businesses, startups, and consumers,” Biden said in the order.
The CFPB has since cited the negative impacts a lack of such competition has on consumer choice in recent actions, including recent signals it would turn its regulatory eye on the “criminal justice financial ecosystem,” scrutinize “junk fees” and other credit card fees, and emphasize federal anti-discrimination requirements in appraser training.