Government contractors that illegally harvest fees from government benefits provided through prepaid cards will face enforcement actions, the federal consumer financial protection agency said Tuesday in issuing a compliance bulletin.
In a release, the Consumer Financial Protection Bureau (CFPB) said the bulletin confirms that the Electronic Funds Transfer Act’s (EFTA) consumer protection provisions apply to government benefits. It said that financial institutions may be held liable for violations of the requirement.
The bureau added that 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.”
The bulletin notes that, typically, people receive their government funds (including Social Security payments and veterans’ benefits) through direct deposit into their bank account, by prepaid card, or by check. “Existing laws, specifically EFTA and its implementing Regulation E, say that people cannot be forced to receive government benefits at a specific financial institution as a condition of receiving government benefits,” the agency said. “The rule ensures people have choices and prohibits exclusive deals that undermine competition and fair market prices.”
However, the CFPB indicated, some companies hired to distribute government payments abuse their exclusive contracts and extract illegal fees. In October, bureau said, it fined a 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.
“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,” the agency said.