Q: If a consumer uses a non-bank P2P payment provider to initiate a debit card “pass-through” payment from the consumer’s account held by a depository institution, is the depository institution considered a financial institution under Regulation E, even though the transfer was initiated through the non-bank P2P payment provider?
A: Yes. As discussed in Electronic Fund Transfers Coverage: Financial Institutions Question 1
, the definition of financial institution includes a bank, savings association, credit union, or any other person that directly or indirectly holds an account belonging to a consumer, or that issues an access device and agrees with a consumer to provide EFT services. 12 CFR 1005.2(i). Here, because the depository institution holds the consumer’s deposit account, it is considered a financial institution under Regulation E with full error resolution obligations. 12 CFR 1005.11. See Electronic Fund Transfers Error Resolution Question 2
for more information about these error resolution obligations.
Electronic Fund Transfers Coverage: Financial Institutions Question 1
discusses a narrow circumstance where a non-account-holding financial institution is considered a “service provider” and any account-holding financial institution has more limited error resolution responsibilities; however that provision does not apply when there is an agreement between the non-account-holding financial institution (the non-bank P2P payment provider) and the account-holding financial institution (the consumer’s depository institution). 12 CFR 1005.14(a). An ACH agreement combined with another agreement to process payment transfers – such as an ACH agreement under which members specifically agree to honor each other's debit cards – is an “agreement,” and thus this section does not apply. Comment 14(a)-2. Thus, where, as here, an EFT is initiated through a non-bank P2P payment provider using a consumer’s debit card information, the P2P provider and the account-holding financial institution are parties to an agreement to honor each other’s debit cards – the debit card network rules – and the service provider provision in 12 CFR 1005.14, discussed in Electronic Fund Transfers Coverage: Financial Institutions Question 1
, does not apply. Accordingly the account-holding financial institution has full error resolution responsibilities.