Q: Does the limitation in § 232.8(e) on a creditor using a check or other method of access to a deposit, savings, or other financial account maintained by the covered borrower prohibit the borrower from repaying a credit transaction by check or electronic fund transfer?
A: No. As a general proposition the prohibition of a creditor’s use of a check or other method of access in § 232.8(e) does not in any way imply that a creditor cannot be paid. In no case does paragraph (e) prevent covered borrowers from tendering a check or authorizing access to a deposit, savings, or other financial account to repay a creditor. Section 232.8(e) also does not prohibit a covered borrower from authorizing automatically recurring payments, provided that such recurring payments comply with other laws, such as the Electronic Fund Transfer Act and its implementing regulations, including 12 CFR 1005.10, as applicable. In contrast, § 232.8(e) prohibits a creditor from using the borrower’s account information to create a remotely created check or remotely created payment order in order to collect payments on consumer credit from a covered borrower. Similarly, a creditor may not use a post-dated check provided at or around the time credit is extended that deprives the borrower of control over payment decisions, as is common in certain payday lending transactions.
Section 232.8(e)(1) and (2) further clarify that covered borrowers may tender checks and authorize electronic fund transfers by specifying permissible actions creditors may take to secure repayment by covered borrowers. The exceptions address cases where a creditor requires a covered borrower to provide repayment in a certain way. Specifically, under § 232.8(e)(1), a creditor may require an electronic fund transfer to repay a consumer credit transaction, unless otherwise prohibited by law. The Department notes that 12 CFR 1005.10(e)(1) prohibits anyone from conditioning an extension of credit to a consumer on the consumer’s repayment by preauthorized electronic fund transfers (except for credit extended under an overdraft credit plan or extended to maintain a specified minimum balance in the consumer’s account). However, a preauthorized electronic fund transfer is defined under 12 CFR 1005.2(k) as an electronic fund transfer authorized in advance to recur at substantially regular intervals. In addition, § 232.8(e)(2) clarifies that a creditor is permitted to require direct deposit of the consumer’s salary as a condition of eligibility for consumer credit, unless otherwise prohibited by law. While § 232.8(g) prohibits a creditor from requiring as a condition for the extension of consumer credit that the covered borrower establish an allotment to repay an obligation, the regulation does not apply this restriction to a ‘‘military welfare society’’ or a ‘‘service relief society’’ as defined in 37 U.S.C. 1007(h)(4).