The Consumer Financial Protection Bureau (CFPB) says it is taking action to keep prepaid card providers from illegally taking money from people receiving benefits from the government.
The CFPB issued a compliance bulletin Tuesday (Feb. 15) that outlines prohibitions that prevent prepaid cards being the sole method for distributing government benefits and underscores the rules designed to promote market competition and to protect people’s right to choose how they receive their money under the Electronic Fund Transfer Act (EFTA).
“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.”
The benefits in question include Social Security payments and veterans’ benefits, as well as money from state and local programs such as unemployment insurance, child support and pension plan payments.
People normally get this money through direct deposit to a bank account, via check, or with a prepaid card. The EFTA and other laws say people cannot be forced to receive government benefits at a specific financial institution to receive benefits. The rule ensures people have choices and blocks exclusive deals that hinder competition and fair market prices.
“Companies hired to distribute government payments can abuse their exclusive contracts to extract illegal fees,” the bureau said. “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.”
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The CFPB eased EFTA rules in 2020 to help people access government benefits during the early months of the COVID pandemic.
Banks or other government agencies typically can’t get direct deposits right to consumers if the banks don’t have the consumer’s account information. While it might be quicker to open a fresh prepaid account through which the intended funds can be disbursed, the EFTA prevents that from happening, not allowing banks to require people to open accounts just to receive government benefits.
The bureau said it would loosen those rules to make it easier for people to access their share of the $2 trillion stimulus.
