Q: Under Regulation E, what is NOT a prepaid account?
A: Certain types of products are not accounts under Regulation E and, therefore, are not prepaid accounts. For example, an account subject to Regulation E must be established primarily for personal, family, or household purposes. 12 CFR 1005.2(b)(1). Therefore, if an account is established primarily for a business or commercial purpose, it is not an account under Regulation E or a prepaid account under the Prepaid Rule. Similarly, an account held by a financial institution under a bona fide trust agreement2 is not an account under Regulation E and is not a prepaid account under the Prepaid Rule. 12 CFR 1005.2(b)(2). For example, profit-sharing and pension accounts established under a trust agreement are not accounts under Regulation E and cannot be prepaid accounts under the Prepaid Rule. Comment 1005.2(b)-3.
2 “Bona fide trust agreement” is not defined by the Electronic Fund Transfer Act, Regulation E, or the Prepaid Rule. Therefore, financial institutions must look to state or other applicable law for an interpretation of this phrase. Comment 1005.2(b)(2)-1. However, an account held under a custodial agreement that qualifies as a trust under the Internal Revenue Code, such as an individual retirement account, is considered to be held under a trust agreement for purposes of Regulation E. Comment 1005.2(b)(2)-2