CFPB EFT FAQ Coverage Fin Inst 4 – If a consumer uses a non-bank P2P payment provider to initiate a debit card “pass-through” payment…is the depository institution considered a financial institution …?

Compliance > Regulation E - EFTA
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.
 
 
This Q&A was contained in the CFPB’s Electronic Fund Transfers FAQs that were updated in December 2021 (which may be updated from time to time).  This may be found on the CFPB’s website here:  https://www.consumerfinance.gov/compliance/compliance-resources/deposit-accounts-resources/electronic-fund-transfers/electronic-fund-transfers-faqs/
 

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