The Government Updateis issued by the Innovative Payments Association twenty times a year as a service to members. Editors: Brian Tate, President and CEO, IPA; Ben Jackson, COO, IPA; Eli Rosenberg, Partner, Baird Holm LLP; and Gray Derrick, Partner, Baird Holm LLP. Please address comments and suggestions to: gr@ipa.org.  HFSC Schedules Fintech Hearing The House Financial Services Committee, Subcommittee on Digital Assets, Financial Technology and Inclusion has scheduled a hearing on October 25th at 10:00am, entitled “Modernizing Financial Services Through Innovation and Competition. It is our expectation that Rep. Steil’s EWA regulatory bill will be introduced ahead of, or concurrently with, the hearing. A livestream for the hearing can be found here, and additional information such as committee memo, relevant legislation, and a witness list will be updated as the hearing date approaches. CFPB Proposes Section 1033 Rulemaking The CFPB announced rulemaking to implement section 1033 of the Consumer Financial Protection Act. The proposed rule would require depository and nondepository entities to make available certain data relating to consumers’ transactions and accounts; establish obligations for third parties accessing a consumer’s data; provide basic standards for data access; and promote fair, open, and inclusive industry standards. The IPA is requesting member feedback as it prepares to submit comments in response to the proposal. Comments are due to the CFPB before December 29th. Please send any feedback to Brian (btate@ipa.org). More information can be found in the proposed rule. Federal Reserve Board to Discuss Interchange at Board Meeting The Federal Reserve Board announced that at its October 25th Board Meeting it will discuss proposed revisions to the Board’s debit interchange fee cap. We do not yet have an indication of what revisions they will be proposing. The meeting will be open to the public, both in-person and via livestream. More information on the attending the meeting can be found here and we will keep members informed as we learn more. House, Senate Pass 45-day Government Funding Measure Only hours before federal government funding expired, the House and Senate voted to approve a Continuing Resolution to fund the government for the next 45 days, averting a shutdown that had seemed inevitable. The agreement included natural disaster funding, a priority for the white house and democratic party, but did not include funding for stricter boarder security, which was a priority for the freedom caucus of the republican party. The bill also did not include additional funding for Ukraine. Government funding negotiations immediately resumed, as Congress now has until November 17th to reach an agreement on which provisions to include in a long-term spending bill. Invitation to Join NV EWA Regulation Workshop The Nevada Financial Institution Division will be holding a workshop on Friday, November 3rd at 10:00am PST/1:00pm EST to solicit comments from interested parties on proposed regulations to implement SB 290, the EWA bill which was signed by the Governor in June. The agenda will include an open workshop, public comment, and a presentation of proposed regulations. More information, including a draft regulation, small business impact statement, and other information, can be found workshop notice here. CFPB Issues Supervisory Highlights on Fees in Banking The CFPB released a Supervisory Highlights focused on the Bureau’s efforts to combat “junk fees.” Specifically, the report noted excessive fees for fake paper statements, add-on products for paid-off auto loans, and international remittances. At the same time, the CFPB released a data spotlight highlighting increased supervision of banks that charge non-sufficient fund fees. As a result of the CFPB’s work in these areas, they noted refunds of $140 million to consumers, $120 million of which is for surprise overdraft fees and double-dipping on non-sufficient fund fees. More information can be found in the press release here. CFPB Issues "Junk Fee" Guidance The CFPB issued an advisory opinion detailing how the CFPB will administer the legal requirements of Section 1034(c) of the Consumer Financial Protection Act. Section 1034(c), enacted as a result of the 2008 financial crisis, requires large banks and credit unions with more than $10 billion in assets to provide account information that is in their control or possession when it is requested by customers. Today’s advisory opinion clarifies that banks and credit unions must provide that information without unreasonable obstacles such as charging excessive fees. The CFPB does not intends to seek monetary relief for potential violations that occur before February 1, 2024. More information can be found in the press release here. California Gift Card Ban Vetoed California Governor Newson issued a veto of CA SB 728, which would have banned plastic gift cards in the state. The bill has been returned to the legislature where, in theory, the veto may be overridden by a 2/3rd majority vote in both chambers. In practice, however, vetoes from the California governor have almost never been overturned in recent decades. As is standard practice, Governor Newsom issued a veto message, available here. He notes that: While I support the author's goal to reduce our reliance on single-use plastic materials, I am concerned that an outright ban without any incentives for compliance will disproportionately impact the state's small business community, as digital gift cards may not be a feasible option for many businesses or consumers. California has successfully implemented many programs to reduce our reliance on single-use plastic while incentivizing businesses to transition towards more sustainable products and materials. I encourage the Legislature to consider alternatives to a statutory, single-product ban to help meet the state's plastic waste reduction goals. The IPA was active in lobbying against the bill in the Assembly and Senate, and we appreciate the assistance we received from members as we prepared comment letters to the committees and legislative leaders who considered the bill. CFPB Issues Guidance on Credit Denials by Lenders Using Artificial Intelligence The CFPB issued guidance about legal requirements that lenders must adhere to when using artificial intelligence. Specifically, the guidance states that lenders must use specific and accurate reasons when taking adverse actions against consumers, and may not simply point to a “broad bucket” of reasons. This guidance is the most recent of the CFPB’s guidance on the use of artificial intelligence in financial services. More information can be found in the press release here. FDIC Chairman Gruenberg Delivers Remarks on the Financial Stability Risks of Nonbank Financial Institutions FDIC Chairman Martin Gruenberg delivered remarks in Washington, D.C. on the financial stability of non-bank financial institutions. He noted that non-bank institutions are a critical part of the U.S. financial system, but expressed concern at the regulatory landscape in which they operate. According to Chair Gruenberg, non-banks are not subject to the same degree of regulation and supervision as banks, and as a result, have less transparency and rely on excessive leverage and volatile funding sources. Decreased regulatory oversight combined with market stress can result in risk being transmitted to other parts of the financial system, including the banking organizations which provide funding to support nonbank activity. Chair Gruenberg’s full remarks can be found here. IPA Drafts Responses to Connecticut and Maryland EWA Guidance In response to Maryland and Connecticut’s recently released guidance on EWA, the IPA has drafted comment letters as a first step at engaging with the Maryland Office of Financial Regulation and Connecticut Department of Banking. The letters were successful in beginning a dialogue and we have a call scheduled with the Maryland OFR on Thursday morning. We appreciate everyone’s feedback as we drafted our letters. Since the initial publication of the guidance, the Connecticut Department of Banking published a No-Action Position stating the Department of Banking will not take enforcement action alleging violations of the EWA guidance before January 1, 2024. The IPA also held a meeting with the Connecticut Department of Banking to discuss the guidance. While it was helpful to establish this line of communication, they were clear that they would prefer to meet with EWA providers to discuss the applicability of the guidance to their specific products. Please reach out to the IPA if you would like their contact information.  New Federal Bills
H.R. 1163, The Protecting Taxpayers and Victims of Unemployment Fraud Act This bill, sponsored by Rep. Jason Smith (R-MO-08), would provide financial incentives for states to recover fraudulently paid Federal and State unemployment compensation. The bill was marked up and reported favorably from the House Ways and Means Committee on 2/28/23 by a vote of 20-17. The bill was placed on the floor calendar for consideration on 4/6/23 and passed the House on 5/11/23 by a vote of 230-200. H.R. 1165, Data Privacy Act of 2023 This bill, sponsored by Rep. Patrick McHenry (R-NC-10) would create a federal data privacy standard, and would preempt preexisting state frameworks. This bill was marked up and reported favorably by the House Financial Services Committee on 2/28/23 by a vote of 26-21.
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The Government Updateis issued by the Innovative Payments Association twenty times a year as a service to members. Editors: Brian Tate, President and CEO, IPA; Ben Jackson, COO, IPA; Eli Rosenberg, Partner, Baird Holm LLP; and Gray Derrick, Partner, Baird Holm LLP. Please address comments and suggestions to: gr@ipa.org.  The IPA Holds Compliance Boot Camp and FBI Chicago Field Office Meeting IPA members recently gathered in Chicago for two days of timely and impactful events, hosted by Discover Financial Services. During the Compliance Bootcamp, attendees heard from compliance experts and received updates on Reg E, EWA, artificial intelligence, BNPL, crypto and stablecoins, and third-party risk oversight. The following day was filled with briefings from our partners at the FBI Chicago Field Office on such topics as cyber threats, human trafficking, money laundering, and financial crimes. Attendees also had the opportunity to network with industry peers. We appreciate Discover Financial Services for hosting us for another successful event! IPA Mentions in the Media In addition to our work advocating on behalf of members before state and federal policymakers, the Innovative Payments Association has been active supporting the payments community in the media. Below is a list of media mentions of the IPA, editorials, and IPA podcasts published this year. Feel free to share these internally or on social media. IPA in the News
Editorials
Podcasts All podcasts can be accessed at ipa.org/podcast
California Passes Plastic Gift Card Ban The California Assembly passed SB728 by a vote of 53-18-9, followed by a vote in the California Senate of 30-9-1. The bill now heads to the governor’s desk for his signature. The bill will ban the sale or distribution of plastic gift cards in the state beginning on January 1, 2027, but will allow retailers to continue to sell or distribute existing stock of plastic cards until January 1, 2028. A new provision added to the bill will exempt plastic cards used to pay public transit fares. The IPA was active in the California Assembly and Senate and advocated for the extension of the implementation date and the inclusion of the “sell-through” period. Connecticut Issues EWA Guidance The Connecticut Department of Banking issued guidance on Earned Wage Access which makes the determination that EWA transactions are credit or “small loans” which may require state licensure if the APR is over 12 percent. In addition, they take an expansive view of the definition of “APR” to include fees or tips. The most relevant part of the guidance reads: "Accordingly, transactions where monies are advanced to consumers for future wages or salary that have been earned but not yet paid, are within the statutory definition of “small loan” when the amount is $50,000 or less and the APR exceeds 12% when taking into account any amounts paid deemed to be finance charges pursuant to P.A. 23-126. The Department understands that there are a variety of business models related to “earned wage access” products and invites providers to contact the Department with any fact specific questions." We are still reviewing the guidance, but our initial reading seems to indicate the Department is targeting tips. The full guidance can be found here. CFPB Ombudsman's Office Releases Mid-Year Update The CFPB’s Ombudsman’s Office released their 2023 Mid-Year Update. In this update, they highlight their efforts to standardize and streamline the consumer complaint process timeline and share an update on their post-examination survey of supervised entities. The update also describes opportunities to meet with the Ombudsman’s Office in person or virtually. American Banker Article on EWA American Banker published an article entitled “Five innovations in earned wage access.” The article features statements from IPA President Brian Tate, and highlights recent product developments from IPA members DailyPay, ZayZoon, and Instant, in addition to other innovations in the EWA industry. CFPB Issues Report Highlights Role of Big Tech Firms in Mobile Payments The CFPB published an issue spotlight highlighting the increasing role of Big Tech companies’ policies governing tap-to-pay on mobile devices. The spotlight notes the rapid growth of tap-to-pay usage, and found that Apple forbids banks and payment apps from accessing the tap-to-pay functionality on their mobile devices, while Google does not. According to the issue spotlight, regulations imposed by mobile operating systems can have an impact on innovation, consumer choice, and the growth of open and decentralized banking in the U.S. IPA Op-Ed on Brokered Deposits The American Banker published an op-ed by IPA President Brian Tate entitled “There is no need for the FDIC to tinker with its brokered deposits rule.” In the op-ed, Brian reviews the history of the FDIC’s brokered deposits rule and recent statements from the FDIC indicating brokered deposits may have played a role in recent bank collapses. Brian encourages the FDIC, and all bank regulators, to base regulatory solutions on facts and data, rather than the fear of new technology such as fintech debit deposits. Lastly, if the FDIC were to make changes to their brokered deposits rules it could potentially harm the consumers they are trying to protect by increasing costs, stifle innovation, and limit consumer access. As a reminder, the IPA was very active during discussions and negotiations on the FDIC’s Brokered Deposits rule. FMI/NACS Letter to Federal Reserve on Interchange We were recently made aware of a December 2022 letter by the Food Industry Association and National Association of Convenience Stores to the Federal Reserve Board petitioning the Fed to open a rulemaking under Section 920 of the Electronic Funds Transfer Act to review the debit interchange rate. Although the letter is from last year, we were only made aware of it, and it was posted online, after the Bank Policy Institute filed a FOIA request. Additional meetings and letters that the Federal Reserve Board have received on interchange can be found here. New Federal Bills
H.R. 1163, The Protecting Taxpayers and Victims of Unemployment Fraud Act This bill, sponsored by Rep. Jason Smith (R-MO-08), would provide financial incentives for states to recover fraudulently paid Federal and State unemployment compensation. The bill was marked up and reported favorably from the House Ways and Means Committee on 2/28/23 by a vote of 20-17. The bill was placed on the floor calendar for consideration on 4/6/23 and passed the House on 5/11/23 by a vote of 230-200. H.R. 1165, Data Privacy Act of 2023 This bill, sponsored by Rep. Patrick McHenry (R-NC-10) would create a federal data privacy standard, and would preempt preexisting state frameworks. This bill was marked up and reported favorably by the House Financial Services Committee on 2/28/23 by a vote of 26-21. The Government Updateis issued by the Innovative Payments Association twenty times a year as a service to members. Editors: Brian Tate, President and CEO, IPA; Ben Jackson, COO, IPA; Eli Rosenberg, Partner, Baird Holm LLP; and Gray Derrick, Partner, Baird Holm LLP. Please address comments and suggestions to: gr@ipa.org. The IPA Compliance Boot Camp Will Be Held in Chicago in September Mark your calendars to join us at the IPA's Compliance Boot Camp on September 12th to ensure you don't miss out. To register please visit the IPA’s website at: We will have sessions on Regulation E, Earned Wage Access, Artificial Intelligence, Third-Party Risk, Buy Now Pay Later, and Stablecoins. Some attendees may be eligible to receive CLE credits through their attendance. The following day participants will have an opportunity to hear from agents and analysts from the FBI Chicago Field Office on financial and cyber-crime threats. This event is free and open to anyone in the payments community interested in fighting fraud. Registration information for that event can be found here. Center for Responsible Lending Releases Survey of DtC EWA Users The Center for Responsible Learning (CLR) released a survey of direct-to-consumer (DtC) EWA users. The survey asked 300 EWA users about their experiences with DtC EWA and cash advance companies, specifically MoneyLion, Earnin, Brigit, and Dave. The survey focused on the uses of funds from DtC EWA transactions and the frequency of EWA cash advances by company and found the top uses of funds include food, transportation, and housing costs; and bill or utility payments. In addition, two-thirds of DtC EWA users access their wages 1-2 times per week. More information can be found in the press release and full survey. CA DFPI EWA Proposal Comments The California Department of Financial Protection and Innovation (DFPI) has published the full list of comment letters they received this spring in response to their EWA proposal. The list includes letters from various federal and state advocacy organizations, consumer advocacy organizations, EWA providers, academics, and business groups. Maryland Issues EWA Guidance The Maryland Office of Financial Regulation (OFR) issued regulatory guidance on Earned Wage Access Products to provide clarity on how OFR views EWA products and to describe the requirements EWA providers must adhere to. Notably, and contrary to the CFPB’s 2020 Advisory Opinion, the guidance seems to assume that all EWA products are extensions of credit and assigns varying levels of regulation based on how that credit is classified. If it is a loan, it would be subject to the Maryland Consumer Loan Law (MCLL). However, Maryland Commercial Law also stipulates that MCLL does not apply to advances between an employer and an employee. To make the determination between “loan” and “advance”, the OFR will consider factors such as who bears the economic risk, who has contact with the consumer, and who benefits from fees or “tips.” A more detailed analysis of these factors is outlined in the regulatory guidance linked above. CFPB Reaches Settlement with Credit Repair Conglomerate The CFPB entered into a proposed settlement with a credit repair conglomerate which operates some of the largest credit repair companies in the country, including Lexington Law and CreditRepair.com. If approved, the settlement would impose a $2.7 billion judgement against the companies, and would ban them from telemarketing credit repair services for 10 years. According to the proposed settlement and a recent court ruling, the credit repair companies collected illegal advance fees for credit repair services through telemarketing in violation of the advance fee provision of the Telemarketing Sales Rule. More information can be found here or in the CFPB’s press release. FDIC Publishes 2023 Risk Review Earlier this month, the FDIC published its 2023 Risks Review, summarizing conditions in the U.S. economy, financial markets, and the banking industry. In Section 4 (page 57) of the report, the FDIC discusses brokered deposits, and community banks’ increasing reliance on brokered deposits. More information can be found in the FDIC press release. CFPB Announces Rulemaking on Data Privacy, Artificial Intelligence CFPB Director Rohit Chopra announced at a White House event that the CFPB will begin developing rules addressing data brokers that track, collect, and monetize personal financial information, and in some cases use personal data to train artificial intelligence systems. Notably, in his remarks, Dir. Chopra said it is their intention to define data brokers that sell certain types of consumer data as a “consumer reporting agency” and subject them to the Fair Credit Reporting Act. More information can be found in Director Chopra’s remarks. CFPB Sues Installment Lending Conglomerate Height Finance Holding Company The CFPB announced that it is suing Heights Finance Holding Company, as well as several of Height’s subsidiaries. The complaint alleges that the company identifies borrowers who are struggling to repay their existing loans, and then aggressively pushes them to refinance. According to the press release below, borrowers become trapped in a “loan churning scheme” and are forced to refinance multiple times. The CFPB is seeking an end to this practice, redress for harmed consumers, and a civil money penalty. More information can be found in the complaint, or in the press release. New Federal Bills
H.R. 1163, The Protecting Taxpayers and Victims of Unemployment Fraud Act This bill, sponsored by Rep. Jason Smith (R-MO-08), would provide financial incentives for states to recover fraudulently paid Federal and State unemployment compensation. The bill was marked up and reported favorably from the House Ways and Means Committee on 2/28/23 by a vote of 20-17. The bill was placed on the floor calendar for consideration on 4/6/23 and passed the House on 5/11/23 by a vote of 230-200. H.R. 1165, Data Privacy Act of 2023 This bill, sponsored by Rep. Patrick McHenry (R-NC-10) would create a federal data privacy standard, and would preempt preexisting state frameworks. This bill was marked up and reported favorably by the House Financial Services Committee on 2/28/23 by a vote of 26-21. The Government Updateis issued by the Innovative Payments Association twenty times a year as a service to members. Editors: Brian Tate, President and CEO, IPA; Ben Jackson, COO, IPA; Eli Rosenberg, Partner, Baird Holm LLP; and Gray Derrick, Partner, Baird Holm LLP. Please address comments and suggestions to: gr@ipa.org. The IPA Compliance Boot Camp Will Be Held in Chicago in September Mark your calendars to join us at the IPA's Compliance Boot Camp on September 12th to ensure you don't miss out. To register please visit the IPA’s website at: We will have sessions on Regulation E, Earned Wage Access, Artificial Intelligence, Third-Party Risk, Buy Now Pay Later, and Stablecoins. Some attendees may be eligible to receive CLE credits through their attendance. The following day participants will have an opportunity to hear from agents and analysts from the FBI Chicago Field Office on financial and cyber-crime threats. Registration information for that event can be found here. Credit Card Competition Act of 2023 Sens. Richard Durbin (D-IL) and Roger Marshall (R-KS) introduced their bipartisan Credit Card Competition Act of 2023, which would allow merchants to route credit transactions through unaffiliated networks rather than the network of the card used. Specifically, the bill would call on the Federal Reserve to issue regulations within one year that ensures banks that have assets of over $100 billion cannot restrict the number of networks on which an electronic card transaction can be processed to less than two unaffiliated networks, at least one of which must be outside the top two largest networks. While the bill has little chance of advancing as a standalone bill, Durbin and Marshall are working to find a legislative vehicle to attach it to. Most recently, their attempts to attach it to the FY2024 NDAA were unsuccessful. Brokered Deposits Assistant Secretary for Financial Institutions Graham Steele gave a speech in late July to the Americans for Financial Reform Education Fund. He focused his remarks on recent turbulence in the banking sector that began in early March which led to some of the bank failures. In his speech, Asst. Sec. Steele provided some observations and offered some considerations that may be relevant for any future steps that may be taken to help prevent future banking system issues. In the section of his speech entitled, “Observations and Preliminary Lessons Learned,” the Assistant Secretary made the following statements regarding brokered deposits and the changes to the FDIC regulations related to brokered deposits that were approved by the FDIC in December 2020. “Recent changes to FDIC rules and the agencies’ LCR rule have also made it easier for banks to accept reciprocal deposits and effectively excluded some bank-fintech partnerships from the brokered deposits rule.[25] Reciprocal and brokered deposits may warrant greater attention now that they are playing an increasingly important role in bank funding structures in light of the recent events.[26] This recent episode can help to inform a broader consideration of how well the standardized liquidity frameworks are performing and if further refinements would be appropriate.” To review the full speech please visit: Remarks By Assistant Secretary for Financial Institutions Graham Steele at the Americans for Financial Reform Education Fund | U.S. Department of the Treasury The IPA supported the changes to the FDIC’s brokered deposit regulations in 2020 and will continue to be engaged in this issue moving forward. CA DFPI EWA Proposal In March, the CA Dept. of Financial Protection and Innovation filed a Notice of Proposed Rulemaking on their EWA registration proposal. With input from our members, the IPA filed a comment letter with the CA DFPI in response to this proposal which outlined our support for the employer-based EWA model and the CFPB’s 2020 Advisory Opinion on EWA. Rep. Bryan Steil (R-WI) Prepares Federal EWA Legislation Rep. Bryan Steil (R-WI) is currently drafting legislation which would create a federal regulatory framework for EWA providers. We received a copy of the discussion draft and were able to meet with his office to relay our comments and a few concerns, mostly technical changes, with the bill. Staff specifically noted that the IPA was unique compared to others they’ve heard from in that we provided actual suggestions and changes. As far as timing for the bill’s introduction, they are still working on generating bipartisan support and are hoping to have something ready for a fall markup on fintech-related legislation. We’ll continue to be a resource to Steil’s office in the coming weeks and months as they prepare to introduce their bill. California Legislature Considers Plastic Gift Card Ban This spring, CA State Senator Monique Limon introduced a bill, SB728, which would ban plastic gift cards in the state. We’ve been active in engaging both in the Senate, with members of the Senator’s staff, and in the Assembly, with staff from the Natural Resources Committee, where the bill was first considered before passing in June and being referred to the Assembly Appropriations Committee. The bill has since passed the Appropriations Committee and will be awaiting consideration on the Assembly floor when they reconvene on August 14th. Several of the changes we advocated for have been included in subsequent versions of the bill. Specifically, the implementation date was pushed back one year, from January 2026 to January 2027, and a sell-through period of an additional one year, to January 2028 was included, during which retailers may continue to sell or distribute plastic gift cards that they have already acquired. Again, these were changes that we specifically lobbied for, so we’re pleased to see them included in what will likely be the final version of the bill. Nevada and Missouri Pass EWA bills State legislatures have been busy considering EWA regulatory frameworks this year. Two states, Nevada and Missouri, have enacted state-level EWA registration requirements so far this year. Nevada SB290 provides new licensing and regulatory requirements for both employer-integrated and direct-to-consumer EWA providers. According to the bill, all EWA providers in Nevada will be required to be licensed to operate and will be subject to oversight by the Commissioner of Financial Institutions and the Attorney General. The bill will also require EWA transactions to be non-recourse and fee-free, and have no impact on a user’s credit score. Missouri SB103 requires EWA providers to register with the Division of Finance and pay a $1,000 registration fee. The bill outlines obligations and restrictions on how an EWA provider may operate in the state, including requiring the development of customer complaint procedures, specifying how services may be provided and which notices are required to be given consumers, and regulating the types of fees and the manner in which repayment may be pursued. New Federal Bills
H.R. 1163, The Protecting Taxpayers and Victims of Unemployment Fraud Act This bill, sponsored by Rep. Jason Smith (R-MO-08), would provide financial incentives for states to recover fraudulently paid Federal and State unemployment compensation. The bill was marked up and reported favorably from the House Ways and Means Committee on 2/28/23 by a vote of 20-17. The bill was placed on the floor calendar for consideration on 4/6/23 and passed the House on 5/11/23 by a vote of 230-200. H.R. 1165, Data Privacy Act of 2023 This bill, sponsored by Rep. Patrick McHenry (R-NC-10) would create a federal data privacy standard, and would preempt preexisting state frameworks. This bill was marked up and reported favorably by the House Financial Services Committee on 2/28/23 by a vote of 26-21. The Government Updateis issued by the Innovative Payments Association twenty times a year as a service to members. Editors: Brian Tate, President and CEO, IPA; Ben Jackson, COO, IPA; Eli Rosenberg, Partner, Baird Holm LLP; and Gray Derrick, Partner, Baird Holm LLP. Please address comments and suggestions to: gr@ipa.org. The IPA Compliance Boot Camp Will Be Held in Chicago in September Mark your calendars to join us at the IPA's Compliance Boot Camp on September 12th to ensure you don't miss out. We will have sessions on Regulation E, Earned Wage Access, Artificial Intelligence, court cases impacting the payments sector, Buy Now Pay Later, and Stablecoins. Some attendees may be eligible to receive CLE credits through their attendance. The following day participants will have an opportunity to hear from agents and analysts from the FBI Chicago Field Office on financial and cyber-crime threats. Registration information for that event can be found here. IPA Continues Advocacy on Rep. Steil’s EWA Draft Bill This month the IPA continued advocating on behalf of members in meetings with the office of Rep. Bryan Steil (R-WI) related to his EWA regulatory draft bill. The Congressman’s staff have been grateful for the concrete suggestions we have been able to provide. They specifically noted that the IPA was unique compared to others they’ve heard from in that we provided actual suggestions and changes. While we have mostly focused our advocacy on technical changes, we did bring up the issue of the IRS EWA proposal and the tax issues involved. We have been told that adding a provision on tax issues would trigger joint jurisdiction with the Ways and Means Committee, something they’d like to avoid at all costs. Rep. Steil is still working on generating bipartisan support and is hoping to have something ready for a fall markup on fintech-related legislation. We’ll continue to be a resource to Steil’s office in the coming weeks and months as they finalize the legislation. Rhode Island Gift Card Scam Warning Bill Signed by Governor Rhode Island Senate Bill 759 has passed and was recently signed by Governor Daniel McKee. The bill requires sellers of gift cards to post conspicuous warnings near where the gift cards are displayed and at or near the physical location where the sale occurs, and instructs the purchase on what to do if they suspect they might be a potential victim of such a scam. The bill went into effect immediately upon signing. More information can be found at the Rhode Island Department of Business Regulation. According to unofficial guidance from the RI DPR, the signage does not need to be both in Spanish and English, and can be a version similar to the recommended signage that RI DPR provided here, as long as it is consistent with the intent of the law. In addition, the RI DPR stated that enforcement will begin slowly, with letters sent to businesses that are not in compliance. If there is no response, or if the business does not comply after a second warning letter is sent, only then will fines be assessed. U.S. District Court Hearing on PayPal v. CFPB Judge Richard Leon of the U.S. District Court for the District of Columbia held a motion hearing in the case of PayPal v. CFPB, in which PayPal is challenging the CFPB’s model disclosures that companies could use to comply with the Bureau’s prepaid account rule. The case is before Judge Leon on remand after the U.S. Court of Appeals for the D.C. Circuit ruled in February that the prepaid account rule does not mandate specific fee disclosures for digital wallets, and only provides a model that companies can use while give them the option to develop their own similar disclosures. Judge Leon ruled on summary judgment in December 2020 that the Bureau’s short-form model disclosures violated EFTA’s ban on mandatory disclosure, and today heard oral arguments for PayPal and CFPB’s motions for summary judgments which were filed in late May (available here and here, respectively). During their oral argument, attorneys for PayPal highlighted the differences between digital wallets such as PayPal and prepaid cards, and argued the prepaid accounts rule should not apply to digital wallets. Specifically, they demonstrated that digital wallets generate revenue based on fees to merchants, not fees to consumers, and that the CFPB found no evidence that digital wallets harm consumers in ways that are similar to prepaid cards. According to PayPal, the CFPB simply determined that digital wallets were “close enough” to prepaid cards in form and function, and in the interest of regulatory uniformity chose to apply the prepaid account rule to digital wallets. In closing, PayPal argued that the particularities of prepaid cards make them significantly different from mobile wallets and necessitates a heightened regulatory standard above and beyond Reg E, and the new standard via the Prepaid Account Rule should not apply to digital wallets. In their rebuttal, PayPal stressed that they have always followed the baseline Reg E disclosure requirements, and the issue is not whether or not PayPal will continue to discloses fees, but rather whether or not they are permitted to disclose those fees in a sensible way that makes sense for the products they offer, and in a way their users can understand. In CFPB’s oral arguments, attorneys compared the short-form disclosure form to a simple nutritional label and said the prepaid account rule was intended to apply not only to general purpose reloadable cards, but a wide range of asset accounts, and noted that at the time of the rulemaking, many asset accounts were moving to an online-only function. He noted a risk of harm to consumers from fees across the entire financial services market, and said that consumers are entitled to disclosures that outline what fees they can expect. Attorneys for the CFPB said that similar to prepaid cards, consumer funds in digital wallets are subject to fees, they have a right to receive disclosures about those fees, and the existence of fees is enough for digital wallets to be regulated under the same framework as prepaid cards. In direct response to PayPal’s argument, the CFPB acknowledged there was no evidence of consumer harm from digital wallets fees but said this the lack of evidence is not a reason not to regulate fee disclosures of digital wallets. In their rebuttal, the CFPB said that if digital wallets are able to escape prepaid account rule requirements, new products would classify themselves as digital wallets in an effort to receive less regulatory scrutiny. Judge Leon asked clarifying questions of both sides but seemed to reserve his most probing and direct questions for the CFPB. Due to the complexities of the arguments, Judge Leon is allowing PayPal and CFPB to submit supplemental pleadings covering only items covered in the oral arguments, due two weeks from the day they receive the transcripts. FDIC Consumer News: Is My Money Insured by the FDIC? The FDIC published an FDIC Consumer News article entitled “Is My Money Insured by the FDIC?” which explains FDIC deposit insurance coverage and review how consumers can avoid fake banks and apps. Considering the recent events surrounding FDIC deposit insurance, marketing of FDIC deposit insurance coverage, and the potential for reform of the FDIC deposit insurance system, we encourage members to keep up to date on relevant information coming from the FDIC. CFPB Fines Bank of America for Illegally Charging Fees, Withholding Credit Card Rewards, and Opening Fake Accounts The CFPB announced fines against Bank of America for illegally double-charging insufficient fund fees, withholding credit card reward bonuses, and using sensitive personal information to open accounts with customer knowledge or authorization. Bank of America has been ordered to stop it repeat offenses, pay approximately $80.4 million in customer redress, and pay a total of $90 million in penalties to into the CFPB’s victims relief fund. Separately, Bank of America will also pay a $60 million fine to the OCC. More information can be found in the press release here. Sens. Lummis and Gillibrand Reintroduce Cryptocurrency Bill Sens. Cynthia Lummis (R-WY) and Kristen Gillibrand (D-NY) reintroduced their cryptocurrency regulatory proposal, entitled the Responsible Financial Innovation Act of 2023. The legislation expands on the bill the senators introduced last year and adds consumer protections and safeguards against fraud and bad actors. According to a press release from the office of Sen. Lummis: This legislation places crypto assets within the regulatory perimeter, requires all crypto asset exchanges to register, addresses decentralized finance, safeguards consumers through enhanced disclosures and limits on crypto asset lending, closes the wash sale loophole and codifies the criteria to determine which crypto assets are securities or commodities. The legislation also combats the use of crypto assets in illicit finance, imposes new penalties for willfully violating money laundering laws, requires stablecoins to be issued by depository institutions and provides appropriations to federal agencies to implement the policies within the bill. A section-by-section summary of the bill can be found here, and a comparison of this bill to their previous bill can be found here. CA Assembly Appropriations Committee Passes CA SB728 In the final days of the session before summer recess, the California Assembly Appropriations Committee passed CA SB728, which would ban the sale and distribution of plastic gift cards. The bill now heads to the Assembly floor for consideration. The Assembly will reconvene on August 14th for one month until the end of the 2023 legislative session on September 14th. CFPB Sues Snap Finance for Hiding Terms and Conditions and Illegal Debt Collection The CFPB announced a lawsuit against lease-to-own company Snap Finance for obscuring the terms of its financing agreements and making false threats. Specifically, the CFPB alleges that Snap Finance locked consumers into expensive agreements using deceptive advertising, confused customers about payment obligations by obscuring the terms and conditions, misrepresented consumers’ rights in the finance agreements, and made false threats and deceptive statements to struggling borrowers. The CFPB is seeking monetary relieve for consumers, an end to Snap Finance practices outlined above, and a civil money penalty. Joint Statement by CFPB and European Commission on Consumer Protection Issues CFPB Director Rohit Chopra and Didier Reynders, Commissioner for Justice and Consumer Protection of the European Commission, issued a joint statement and announced the start of an informal dialogue on a range of consumer protection issues. According to the statement, the dialogue will cover issues such as automated decision making in financial services, new forms of credit such as BNPL, strategies to prevent consumer over-indebtedness, digital transformations to ensure fair choice and credit access, and implications for competition, privacy, security, and financial stability of Big Tech companies. New Federal Bills
H.R. 1163, The Protecting Taxpayers and Victims of Unemployment Fraud Act This bill, sponsored by Rep. Jason Smith (R-MO-08), would provide financial incentives for states to recover fraudulently paid Federal and State unemployment compensation. The bill was marked up and reported favorably from the House Ways and Means Committee on 2/28/23 by a vote of 20-17. The bill was placed on the floor calendar for consideration on 4/6/23 and passed the House on 5/11/23 by a vote of 230-200. H.R. 1165, Data Privacy Act of 2023 This bill, sponsored by Rep. Patrick McHenry (R-NC-10) would create a federal data privacy standard, and would preempt preexisting state frameworks. This bill was marked up and reported favorably by the House Financial Services Committee on 2/28/23 by a vote of 26-21. The Government Updateis issued by the Innovative Payments Association twenty times a year as a service to members. Editors: Brian Tate, President and CEO, IPA; Ben Jackson, COO, IPA; Eli Rosenberg, Partner, Baird Holm LLP; and Gray Derrick, Partner, Baird Holm LLP. Please address comments and suggestions to: gr@ipa.org. The IPA Compliance Book Camp Will Be Held in Chicago in September Mark your calendars to join us at the IPA's Compliance Boot Camp on September 12th to ensure you don't miss out. The $199 IPA Member Early Bird Rate expires on June 30th. We will have sessions on Regulation E, Earned Wage Access, Artificial Intelligence, court cases impacting the payments sector, Buy Now Pay Later, and Stablecoins. Some attendees may be eligible to receive CLE credits through their attendance. IPA Continues Its Series of Meetings with the FBI Building on earlier meetings in Atlanta and New York, the IPA plans to host future meetings with FBI field offices in Minneapolis on July 19 and Chicago on September 13, immediately following our Compliance Boot Camp. The meetings will give members of the payments community the opportunity to meet the agents in their local field offices and learn about trends in financial crimes. The IPA would like to thank our members Sunrise Banks and Discover for hosting these events in Minneapolis and Chicago, respectively. Registration for the Minneapolis event can be found here. Registration for the Chicago event will open closer to September. Sens. Durbin, Marshall Reintroduce Interchange Legislation Sens. Richard Durbin (D-IL) and Roger Marshall (R-KS) reintroduced the Credit Card Competition Act. The bill would call on the Federal Reserve to issue regulations within one year that ensures banks that have assets of over $100 billion cannot restrict the number of networks on which an electronic card transaction can be processed to less than two unaffiliated networks, at least one of which must be outside the top two largest networks. The bill appears to be identical to previous versions of the bill. While the bill has little chance of passing as a standalone bill, there is always the possibility of it being included in a larger legislative package. More information can be found in Sen. Marshall’s press release, or in an article published in the Wall Street Journal. CFPB Release Fall 2022 Semi-Annual Report The CFPB has released the Fall 2022 Semi-Annual Report of the Consumer Financial Protection Bureau. The report highlights recent rules and orders, complaints, and supervisory and enforcement actions. It also gives updates on the Bureau’s work in the areas of state consumer financial law, fair lending, and workplace and contracting diversity. The Semi-Annual Report typically provides a preview of areas in which the Bureau plans on regulating in the near future. Notably, there is no mention of earned wage access in the report, although the report reviews the September 2022 Buy Now, Pay Later report, and their December 2021 inquiry into BNPL providers Affirm, Afterpay, Klarna, PayPal, and Zip. CFPB Publishes Blog on Open Banking The CFPB published a blog post by Director Rohit Chopra on the potential for open banking to improve market access for American consumers and emerging businesses. The blog post highlighted the Bureau’s rulemaking to implement Dodd Frank Section 1033, which would give consumers the right to control their personal financial data, and said they expect the rule to be finalized in 2024. Notably, the proposal will recognize that while the CFPB should resolve certain core issues related to the ownership of personal financial data, many of the details and standards should be set outside of the agency to allow open banking to evolve as new technologies and new products are brought to the market. CFPB Regulatory Agenda The CFPB has published an updated regulatory agenda, which is an agenda identifying rules that the Bureau expects to consider over the course of the next year, and notes in which stage of the rulemaking process the Bureau is in. Among other regulatory actions, the agenda highlights upcoming rules on overdraft fees, Fair Credit Reporting Act, and NSF fees, all in the pre-rule stage. The Bureau is also in the Proposed Rule Stage on personal financial data rights, and the Supervision of Larger Participants in Consumer Payments Markets; and the Final Rule Stage for credit card penalty fees. Although the CFPB is known to regulate outside of the normal rulemaking process, the published regulatory agenda gives the industry a good idea of the topics they are focusing their attention on. CFPB Director Chopra Testifies at Senate Banking, House Financial Services Committees Last week, CFPB Director Rohit Chopra appeared before both the Senate Banking and House Financial Services Committees to deliver the Semi-Annual Report of the CFPB. The hearings proceeded as expected, with Democrats praising the Bureau and administration and for their work at reducing so-called “junk fees,” and defending their funding mechanism; and Republicans criticizing Dir. Chopra for using compliance bulletins, circulars, advisory opinions, and blog posts to regulate in place of the normal regulatory rulemaking process. Earned wage access was not discussed in either hearing. On Tuesday in the Senate Banking Committee, Ranking Member Tim Scott (R-SC), now a candidate for the Republican presidential primary, questioned Dir. Chopra on the CFPB proposal to cap credit card late fees at $8. According to Ranking Member Scott, late fees incentivize on-time payments, and capping late fees would force banks to charge higher interest rates on all customers or cut access to credit for certain borrowers. Dir. Chopra disagreed with Ranking Member Scott’s conclusion and said that banks would still be able recapture costs even at a lower late fee. Sen. Elizabeth Warren (D-MA) later noted that credit card late fees make up a relatively small revenue stream for credit card issuers. Democrats on the Committee, led by Chairman Sherrod Brown (D-OH) also questioned Dir. Chopra on the potential effect if the Supreme Court upholds a Fifth Circuit Appeals Court decision which found the CFPB’s funding structure is unconstitutional. Dir. Chopra responded that depending on how the ruling is written, it could complicate current and future rulemakings, and would create major uncertainty in financial markets. Sen. Mark Warner (D-VA) said the results of such a decision would be “chaos.” On Wednesday in the House Financial Services Committee, Republicans, led by Rep. Andy Barr (R-KY), Chairman of the Subcommittee on Financial Institutions and Monetary Policy, criticized Dir. Chopra for regulating outside the normal regulatory rulemaking process, and echoed the comments of his Senate colleagues that capping credit card late fees would increase rates on all borrowers. In her opening remarks, Ranking Member Maxine Waters (D-CA) praised the CFPB and defended the constitutionality of their funding mechanism. During questioning from both sides of the aisle on recent bank runs, Dir. Chopra said that the bank runs were accelerated by digital media and social media, and have brought the risks of uninsured deposits in the public view. FDIC Demands Three Companies Cease False Representations about Deposit Insurance The FDIC has issued letters to three companies demanding they cease and desist from making false representations and misleading statements about FDIC deposit insurance coverage of their products. The FDIC found that representatives from Bodega Importadora de Pallets, Money Avenue, LLC, and OKCoin USA, Inc. made statements that suggested the companies are FDIC-insured, which is false. No fines were assessed as part of the demands. According to the press release, the FDIC has observed an increasing number of instances where firms or individuals misused the FDIC’s name or logo, or made false misrepresentations about deposit insurance. FDIC Updates Guidance Regarding Multiple Re-Presentment NSF Fees Last August, the FDIC issued guidance to supervised institutions addressing compliance risks associated with assessing multiple non-sufficient funds (NSF) fees as a result of the re-representment of the same unpaid transaction. Last week, the FDIC updated that guidance and issued a Financial Institution Letter to clarify its supervisory approach for corrective action when a violation of law is identified. According to the FIL, based on additional data and experience gained since the original guidance, the FDIC is updating and reissuing its guidance to reflect their current supervisory approach to not request an institution to conduct a lookback review absent a likelihood of substantial consumer harm. The updated guidance can be found here. CFPB Publishes Report on Servicemember Use of Digital Payment Apps The CFPB issued its annual report on the top financial concerns facing military families. Notably, the report highlighted the growth of digital payment app usage in the servicemember community; and focused on several risks to military families, including financial harm from fraud and scams, identity theft and unauthorized account access, and lack of timely and substantive resolutions servicemember complaints. The report offered a number of recommendations, including increasing the network security to prevent fraud, improve responsiveness in the event fraud does occur, and tailoring refund and fraud policies to recognize the unique experiences of military families. More information can be found in the CFPB’s press release. FY24 FSGG Bill Text and Summary With Appropriations season in full swing, House Republicans have another platform to address disagreements with the Administration and financial regulators. Unlike in the Senate where appropriators are working across the aisle, the prospect of bipartisanship in the House is non-existent. In the FY24 Financial Services and General Government appropriations bill, Republicans are aggressively pursuing funding limitations, policy riders, and report language designed to inject Congress into executive branch operations. We anticipated the FSGG bill will be marked up by the full committee on July 13th. While the Senate Appropriations Committee is kicking off its markup process this week, it has yet to unveil its FSGG bill. A detailed summary of the full bill can be found here. Federal Reserve Survey on Demand for Faster Payments The Federal Reserve has released the results of two surveys highlighting an increased appetite for faster payment options, covering both business and consumer demand. The business survey found that slow payments was the top challenge identified by business, and that nearly half of businesses believe faster payments will lower their costs, mainly through more efficient processing. The consumer survey found that consumers ages 35-54 use smartphones more often than younger consumers (21-34) for activities such as checking account balances, making bill payments and account-to-account transfers, and that nearly 7 in 10 customers think it’s important for their financial institutions to offer faster payment services. More information can be found in a Federal Reserve blog post here. New Federal Bills
H.R. 1163, The Protecting Taxpayers and Victims of Unemployment Fraud Act This bill, sponsored by Rep. Jason Smith (R-MO-08), would provide financial incentives for states to recover fraudulently paid Federal and State unemployment compensation. The bill was marked up and reported favorably from the House Ways and Means Committee on 2/28/23 by a vote of 20-17. The bill was placed on the floor calendar for consideration on 4/6/23. H.R. 1165, Data Privacy Act of 2023 This bill, sponsored by Rep. Patrick McHenry (R-NC-10) would create a federal data privacy standard, and would preempt preexisting state frameworks. This bill was marked up and reported favorably by the House Financial Services Committee on 2/28/23 by a vote of 26-21. The Government Updateis issued by the Innovative Payments Association twenty times a year as a service to members. Editors: Brian Tate, President and CEO, IPA; Ben Jackson, COO, IPA; Eli Rosenberg, Partner, Baird Holm LLP; and Gray Derrick, Partner, Baird Holm LLP. Please address comments and suggestions to: gr@ipa.org. The IPA Compliance Book Camp Will Be Held in Chicago in September Mark your calendars to join us at the IPA's Compliance Boot Camp on September 12th to ensure you don't miss out. The $199 IPA Member Early Bird Rate expires on June 30th. We will have sessions on Regulation E, Earned Wage Access, Artificial Intelligence, court cases impacting the payments sector, Buy Now Pay Later, and Stablecoins. CLE credits have been applied for the Complaince Boot Camp, ensuring that attendees can earn valuable continuing legal education credits. IPA Conference Wrap Up If you were not able to join us for the Innovative Payments Conference last month, then make sure to check out the highlights from our conference at the IPA Website. Our MC, Tim Sloane, shared highlights on our blog, and Tim and Brian Tate also recorded a podcast to talk about lessons learned from the event. IPA Continues Its Series of Meetings with the FBI Building on earlier meetings in Atlanta and New York, the IPA plans to host future meetings with FBI field offices in Minneapolis on July 19 and Chicago on September 13, immediately following our Compliance Boot Camp. The meetings will give members of the payments community the opportunity to meet the agents in their local field offices and learn about trends in financial crimes. The IPA would like to thank our members Sunrise Banks and Discover for hosting these events in Minneapolis and Chicago, respectively. HFSC and House Agriculture Chairmen Release Digital Market Structure Proposal HFSC Chairman Patrick McHenry (R-NC) and House Agriculture Committee Chairman Glenn Thompson (R-PA) released a discussion draft of legislation which would create a statutory framework for digital asset regulation. The bill would allow digital assets to be traded on more conventional trading platforms, and introduces a division of authority between the SEC and CFTC. Specifically, the proposal grants regulatory authority over digital-asset securities to the SEC, while granting the CFTC spot market authority over crypto commodities. This proposal is just a starting point in negotiations that are likely to occur in the coming weeks and months between members of both the House Financial Services and House Agriculture Committees. More information, including a section-by-section summary, can be found here. PayPal and CFPB Files Motions in Prepaid Account Rule Case PayPal filed a renewed motion for summary judgment in the United States District Court for the District of Columbia in their remanded case challenging the CFPB’s prepaid account rule as it applies to providers of digital wallets. In their memo, PayPal argued that the rule’s heightened regulatory requirements are arbitrary and capricious as applied to digital wallets, the CFPB failed to perform appropriate cost-benefit analysis regarding the application of the rule to digital wallets, and that the rule violates the First Amendment by compelling PayPal to disclose information that is largely inapplicable to its products and likely to confuse its customers, while also prohibiting PayPal from presenting clarifications to dispel that confusion. Simultaneously, the CFPB filed its own motion for summary judgement, arguing that the rule is not arbitrary and capricious with respect to digital wallets, the CFPB appropriately considered the costs and benefits of the rule, and the short-form disclosure requirements do not violate the First Amendment. Oral arguments in the case are currently scheduled for July 6th. CFPB Publishes Statement on Payment App Deposit Insurance The CFPB published an issue spotlight on popular digital payment apps and reminded consumers that funds stored on these apps may not be held in accounts with federal deposit insurance coverage. Specifically, the spotlight found that more than three-quarters of adults in the U.S. have used payment apps, nonbanks can earn money when users store funds on their platforms, funds sitting in payment app accounts often lack deposit insurance, and user agreements often lack specific information on where funds are invested and under what situations they may be insured. Perhaps not surprisingly, the CFPB failed to mention the fact that many of these apps are regulated as money transmitters and as such, consumer funds are protected under state regulations. CFPB Fines OneMain $20 Million for Deceptive Sales Practices The CFPB announced a $20 million fine against installment lender OneMain Financial for failing to refund interest charged to customers who cancelled purchases within the full refund period. OneMain will pay $10 million in refunds to affected consumers, and an additional $10 million penalty to the CFPB’s victims relief fund. Additionally, the order requires OneMain to adjust their cancellation policies to make cancellation of add-on products easier, increase from 30-60 days the period in which a consumer can cancel an unused add-on product, and include interest in refunds after cancellations at any time. More information can be found here. Chairman Brown Introduces Forced Arbitration Bill Senators Sherrod Brown (D-OH) and Richard Blumenthal (D-CT) and Rep. Hank Johnson (D-GA) introduced The FAIR (Forced Arbitration Injustice Repeal) Act, a bill which would ban pre-dispute arbitration clauses in consumer, antitrust, employment, and civil rights cases. CFPB Issues Guidance to Rein in Creation of Fake Accounts to Harvest Fees The CFPB released guidance that affirms it would be a violation of federal law if a bank were to unilaterally reopen a deposit account to process transactions after a customer has already closed it. According to the press release, some customers have complained that even after they have completed all the necessary steps to close their accounts, banks have reopened the closed account and assessed overdraft and NSF fees. The guidance confirms that this practice may violate the Consumer Financial Protection Act’s prohibition on unfair acts or practices. More information can be found here. Rep. Luetkemeyer Introduces Small Business Stability Act Rep. Blaine Luetkemeyer (R-MO), introduced the Small Business Stability Act, which would give the FDIC the ability to guarantee all non interest-bearing transaction accounts for up to 60 days if a systemic exemption is declared. An exemption declaration would require a 2/3rds vote by the FDIC and Federal Reserve Boards, and approval by Treasury. Update on May 18th HFSC Stablecoin Hearing The House Financial Services Committee, Subcommittee on Digital Assets, Financial Technology and Inclusion, held a hearing entitled “Putting the ‘Stable’ in ‘Stablecoins:’ How Legislation Will Help Stablecoins Achieve Their Promise.” During his opening statement, Subcommittee Chairman French Hill (R-AR) noted that although they were discussing separate proposals from both the majority and minority members (available at the links below), there were many similarities between the two, and expressed confidence an agreement could be reached, although Subcommittee Ranking Member Bill Foster (D-IL) and Committee Ranking Member Maxine Waters (D-CA) were less optimistic. One notable difference in the bills is the relationship between state and federal stablecoin regulation. The Republican bill would allow stablecoin issuers to choose which state they register in without going through the Federal Reserve. Supporters of this approach say it would prevent a “race to the bottom” and would mirror the two-tiered federal/state banking regulatory system. The Democratic bill, on the other hand, would preserve access to regulation at the appropriate federal regulator. Drawing comparisons to the recent collapse of FTX, Ranking Member Maxine Waters (D-CA) highlighted that a central point of the Democratic bill is strong protection for digital wallets when it comes to preventing the comingling of customer assets from crypto exchanges. CFPB Fines Citizens Bank $9 Million for Unlawful Credit Card Servicing The CFPB announced a settlement with Citizens Bank to resolve allegations the bank violated consumer protection laws. Specifically, the CFPB alleges that Citizens Bank violated the Truth in Lending Act by improperly denying customer reports of fraud and errors and failing to provide refunds, and failing to provide required documents and referrals. As part of the settlement, Citizens Bank is required to pay a $9 million fine to the CFPB’s victims relief fund, and fix its credit card practices related to billing error notices and unauthorized use claims. More information can be found here. New Federal Bills
H.R. 1163, The Protecting Taxpayers and Victims of Unemployment Fraud Act This bill, sponsored by Rep. Jason Smith (R-MO-08), would provide financial incentives for states to recover fraudulently paid Federal and State unemployment compensation. The bill was marked up and reported favorably from the House Ways and Means Committee on 2/28/23 by a vote of 20-17. The bill was placed on the floor calendar for consideration on 4/6/23. H.R. 1165, Data Privacy Act of 2023 This bill, sponsored by Rep. Patrick McHenry (R-NC-10) would create a federal data privacy standard, and would preempt preexisting state frameworks. This bill was marked up and reported favorably by the House Financial Services Committee on 2/28/23 by a vote of 26-21. The Government Updateis issued by the Innovative Payments Association twenty times a year as a service to members. Editors: Brian Tate, President and CEO, IPA; Ben Jackson, COO, IPA; Eli Rosenberg, Partner, Baird Holm LLP; and Gray Derrick, Partner, Baird Holm LLP. Please address comments and suggestions to: gr@ipa.org.  2023 Innovative Payments Conference The 2023 Innovative Payments Conference will be held on May 7-9th. The IPA’s IPC is the must-attend annual event for the payments community attracting the attention and support of the industry’s most influential players. Benefit from two days of cutting-edge content, discussions and enhanced networking as you engage directly with those leading the way in payments compliance, legislation, regulation and innovation. Here are some highlights of the agenda:
 CA Senate Considers Plastic Gift Card Ban California State Senator Cynthia Limón has introduced SB728, a bill which would ban the sale or distribution of plastic gift cards. The bill passed the Environmental Quality Committee on April 27, 2023, and was amended to define “gift cards” using the statutory definition of “gift certificates” and to exclude open loop gift cards. The bill is eligible to be considered on the Senate floor immediately, but the Senator’s staff has committed to hearing from industry stakeholders, and have met with IPA staff to hear our concerns. We are in the process of drafting a letter in opposition to the bill, and will continue to engage with the bill author’s staff. CFPB Employee Breaches Data of Over 250,000 Consumers News broke that a now-former employee of the CFPB forwarded the personal information of more than a quarter-million consumers to a personal email account in March. The employee sent over 50 emails containing personal information on approximately 256,000 consumers at one institution, as well as confidential supervisory information on 45 institutions. A CFPB spokesperson said that there is no evidence the records were shared beyond that former employee’s personal email account. In a statement about the breach, House Financial Services Committee Chair Patrick McHenry said “This breach raises concerns with how the CFPB safeguards consumers’ personally identifiable information. Republicans will ensure any bad actors are held accountable.” Senate Banking Committee Ranking Member Tim Scott and House Financial Services Committee, Subcommittee on Oversight and Investigations Chairman Bill Huizenga have both sent letters to Director Chopra and called for a briefing on the breach and the CFPB’s response. Financial Services Committee Hold Legislative Markup The House Financial Services Committee held a markup and reported 14 bills out the Committee. The focus of the bills was strengthening public markets, helping small businesses and entrepreneurs, and creating opportunities for investors. Additionally, the Committee passed by party-line vote the CFPB Transparency and Accountability Reform Act, which would reform the Bureau’s leadership structure, subject the agency to regular appropriations, and create an independent Inspector General for the CFPB. The bill is likely to be considered by the House later this year, but will not be taken up by the Senate. Federal Reserve Board and FDIC Release Reports on Bank Failures Both the FDIC and Federal Reserve released the results of their reviews into the failures of Signature Bank, and Silicon Valley bank. The FDIC’s review of Signature Bank found that the collapse was due to poor management, and said bank management did not always heed FDIC examiners concerns, and was not always responsive or timely in addressing their supervisory recommendations. In particular, the report stated that bank management did not fully understand the risks associated with accepting crypto deposits, which comprised more than 20% of its total deposits. In the Federal Reserve’s report on the failure of Silicon Valley Bank, the Fed outlined serious management errors by SVB executives, while also admitting the Fed failed to take sufficient actions to prevent the collapse. Specifically, the report said that “Regulatory standards for SVB were too low, the supervision of SVB did not work with sufficient force and urgency, and contagion from the firm’s failure posed systemic consequences not contemplated by the Federal Reserve’s tailoring framework,” These reports will be considered by Congress as they continue their investigation of the bank failures and determine what, if any, their legislative response should be. The Senate Banking Committee will hold a hearing this Thursday with academic witnesses to discuss the failures, and we can expect these reports to widely discussed. Federal Reserve and FHN Reports The Federal Reserve released its 2022 Federal Reserve Payments Study, which studied noncash payment methods used in the United States by consumers, businesses, and governments. The report found that The value of core noncash payments in the United States grew faster from 2018 to 2021 than in any previous FRPS measurement period since 2000. The Financial Health Network released a report using their Financial Health Pulse panel survey, and found that four out of five Americans were financially unhealthy at least once over the last five years. CFPB Statement on Bias in Automated Systems and Advanced Technology The CFPB, Department of Justice, Federal Trade Commission, and the Equal Employment Opportunity Commission released a joint statement last week expressing their concerns with discrimination and bias in automated systems. The agencies said in the statement that private and public entities use automated systems to make critical decisions that impact individuals’ rights and opportunities, including fair access to jobs, housing, credit opportunities, and other goods and services. the statement also focuses on their potential to perpetuate unlawful bias, automate unlawful discrimination, and produce other harmful outcomes. The agencies reiterated their intention to monitor the development and use of automated systems and promote responsible innovation, and also to use their collective efforts to protect individual rights regardless of whether legal violations occur through traditional means or advanced technologies. FDIC Supervisory Guidance on Charging Overdraft Fees for Authorize Positive, Settle Negative Transactions The FDIC issued a Financial Institution Letter (FIL) to supervised institutions to reiterate the consumer compliance risks associated with assessing overdraft fees on a transaction that was authorized against a positive balance, but settled against a negative balance (APSN). Specifically, the FIL noted that APSN transaction overdraft fees may violate Section 1036(a)(1)(B) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and Section 5 of the Federal Trade Commission (FTC) Act, and that unanticipated overdraft fees can cause substantial injury to consumers. The FIL also stated that institutions should ensure third party overdraft programs are compliant with all applicable laws and recommendations. More information can be found here.  New Federal Bills
H.R. 1163, The Protecting Taxpayers and Victims of Unemployment Fraud Act This bill, sponsored by Rep. Jason Smith (R-MO-08), would provide financial incentives for states to recover fraudulently paid Federal and State unemployment compensation. The bill was marked up and reported favorably from the House Ways and Means Committee on 2/28/23 by a vote of 20-17. The bill was placed on the floor calendar for consideration on 4/6/23. H.R. 1165, Data Privacy Act of 2023 This bill, sponsored by Rep. Patrick McHenry (R-NC-10) would create a federal data privacy standard, and would preempt preexisting state frameworks. This bill was marked up and reported favorably by the House Financial Services Committee on 2/28/23 by a vote of 26-21. The Government Updateis issued by the Innovative Payments Association twenty times a year as a service to members. Editors: Brian Tate, President and CEO, IPA; Ben Jackson, COO, IPA; Eli Rosenberg, Partner, Baird Holm LLP; and Gray Derrick, Partner, Baird Holm LLP. Please address comments and suggestions to: gr@ipa.org. Upcoming IPA/FBI Events Webinar: The Value of SARs -- In a Webinar on April 20th the FBI will present on how the information that industry provides in SARs helps law enforcement with their investigations. They will also discuss how the Internet Crime Complaint Center can be a resource for helping your customers affected by cyber-crimes. Learn more and register here. 2023 Innovative Payments Conference The 2023 Innovative Payments Conference will be held on May 7-9th. The IPA’s IPC is the must-attend annual event for the payments community attracting the attention and support of the industry’s most influential players. Benefit from two days of cutting-edge content, discussions and enhanced networking as you engage directly with those leading the way in payments compliance, legislation, regulation and innovation. Here are some highlights of the agenda:
SBC Republicans Send Letter to CFPB on Overdraft and Credit Card Late Fees Senate Banking Committee Ranking Member Tim Scott joined every Republican member of the Senate Banking Committee with the exception of Sens. John Kennedy and J.D. Vance, and sent a letter to CFPB Director Rohit Chopra criticizing efforts to further regulate overdraft fees and credit card late fees. The Senators state in the letter that the efforts are misguided and will cause harm particularly to low- and middle-income consumers with limited credit history. The letter specifically criticizes the Director’s statements concerning so-called “junk fees” and said CFPB efforts to ban responsible financial incentives such as overdraft and credit card late fees by labeling them “junk fees” is deceptive. CA DFPI Extends Comment Deadline for EWA Proposal The California Department of Financial Protection and Innovation has extended the public comment deadline for its proposal to create a regulatory framework for Earned Wage Access services. The original deadline of May 2nd has been extended to May 17th. The IPA is in the process of drafting our response and we appreciate our members’ participation and feedback in this effort. CFPB Fines Portfolio Recovery Associates for Continued Illegal Debt Collection Practices The CFPB announced that it is fining Portfolio Recovery Associates, one of the largest debt collectors in the nation, more than $24 million for violating a 2015 CFPB order. Specifically, the fine would require Portfolio Recovery Associates to pay more than $12 million to consumers and a $12 million penalty to be deposited into the CFPB’s victim relief fund. According to the CFPB, Portfolio Recovery Associates collected on unsubstantiated debt, collected on debt without providing required documentation and disclosures to consumers, sued or threatened legal action against consumers without offering or possessing required documentation, and sued to collect on debt outside the statute of limitations. Congressional Hearings on Bank Failures The House Financial Services Committee and Senate Banking Committee held the first of what will likely be many oversight/investigative hearings into the failures of Silicon Valley Bank and Signature Bank, and the federal regulatory response. Witnesses at both hearings included FDIC Chair Martin Gruenberg, Fed Vice Chair for Supervision Michael Barr, and Treasury Under Secretary for Domestic Finance Nellie Liang. Senate Banking Committee was up first, and there was bipartisan frustration with financial regulators and their apparent inaction leading up to the bank failures. Chairman Brown and Ranking Member Scott were in agreement on many points, and blamed executives at SVB and Signature, who they say will be testifying before the Committee at some point in the future. Chairman Brown, in particular, criticized the venture capitalists who were SVB’s key clientele and helped drive the run when they encouraged companies to pull their money. Senators also laid blame at the feet of regulators, particularly the Federal Reserve, and asked why the Fed was unable to see the crisis coming. There was partisan disagreement, however, on who was more to blame, the current board of Trump-era leaders. In his opening statement, Chairman Brown also took aim at brokered deposits, saying “The officials sitting before us today know that their predecessors rolled back protections like capital and liquidity standards, stress tests, broker deposit limits, and even basic supervision. They greenlighted those banks to grow and grow and grow, too big, too fast.” The issue of CFPB funding was not discussed at all during the hearing, except in Chairman Brown’s final remarks: “It’s interesting, many of my Republican colleagues are now so eager for bank regulators to crack down on banks for taking on too many risks. I hope they remember that when it comes time to empower regulators and strengthen guardrails including protecting the independent funding of financial regulators. The events of last month have shown why we need independent regulators funding and stability for all our financial watchdogs, but now as the Supreme Court considers whether the CFPB’s funding is constitutional, these independent watchdogs’ ability to keep our financial system stable faces an existential threat. U.S financial regulators, as we know, are independently funded so they can quickly respond when crises happen. On this and every issue I’ll continue to fight to protect American workers from Wall street arrogance and greed.” During the HFSC hearing the following day, members from both sides of the aisle questioned the regulators’ competency and said examiners were asleep at the wheel. Ranking Member Waters questioned regulators’ actions leading up to the crisis and said the repeated warnings delivered to SVB about their balance sheet and long-term interest risks were insufficient. Fed Vice Chair Barr did not disagree with this opinion and said he expects changes to how supervisors use the tools they have more promplty at banks under their supervision. Chair McHenry slammed the witnesses for a lack of transparency over the initial weekend, noting there are no publicly-available notes from the emergency meetings. In another notable exchange, Rep. Brad Sherman asked “Are there any banks out there, and roughly how many, that have capital of under 5% if you subtract from their stated capital their unhedged, unrealized losses on long-term debt?” FDIC Chair Gruenberg was unable to answer the question. This was the first of many hearings on SVB and Signature Bank. Members on both committees have expressed interest in hearing from former-bank CEOs, and Republicans said they’d like to hear from California regulators. Both the Fed and FDIC are expected to publish reports on the failures of SVB and Signature Bank by May 1st. These reports will not doubt affect the direction of future Congressional inquiries into the failures and regulatory responses. Second Circuit Rules CFPB Funding is Constitutional In a decision issued on March 23, the Second Circuit ruled that the CFPB’s independent funding through the Federal Reserve is constitutional. The plaintiff in the case is a New York debt collection firm attempting to escape a civil subpoena the CFPB issued in June 2017. This decision comes ahead of the Supreme Court oral arguments of CFSA v. CFPB, to be held later this year, in which the CFPB is appealing an October 2022 ruling in the Fifth Circuit that held the CFPB’s funding violates the constitution. Democratic Senators Press CFPB on BNPL Senate Banking Committee Chairman Sherrod Brown (D-OH), and Senators Jack Reed (D-RI) and Tammy Duckworth (D-IL) have sent a letter to the CFPB urging the Bureau to bring the largest BNPL providers under more direct federal supervision. Specifically, the three Senators remind CFPB Director Rohit Chopra that, in spite of the widespread popularity of BNPL products, it remains subject only to a patchwork of state regulations. The letter suggests on-site examinations to review lenders’ books and recommendations and evaluation of compliance systems; issuing related reports and compliance ratings; and the aggressive enforcement of consumer financial protection laws. New Federal Bills
H.R. 1163, The Protecting Taxpayers and Victims of Unemployment Fraud Act This bill, sponsored by Rep. Jason Smith (R-MO-08), would provide financial incentives for states to recover fraudulently paid Federal and State unemployment compensation. The bill was marked up and reported favorably from the House Ways and Means Committee on 2/28/23 by a vote of 20-17. H.R. 1165, Data Privacy Act of 2023 This bill, sponsored by Rep. Patrick McHenry (R-NC-10) would create a federal data privacy standard, and would preempt preexisting state frameworks. This bill was marked up and reported favorably by the House Financial Services Committee on 2/28/23 by a vote of 26-21. The Government Updateis issued by the Innovative Payments Association twenty times a year as a service to members. Editors: Brian Tate, President and CEO, IPA; Ben Jackson, COO, IPA; Eli Rosenberg, Partner, Baird Holm LLP; and Gray Derrick, Partner, Baird Holm LLP. Please address comments and suggestions to: gr@ipa.org. Upcoming IPA/FBI Events Webinar: The Value of SARs -- In a Webinar on April 20th the FBI will present on how the information that industry provides in SARs helps law enforcement with their investigations. They will also discuss how the Internet Crime Complaint Center can be a resource for helping your customers affected by cyber-crimes. Learn more and register here. 2023 Innovative Payments Conference The 2023 Innovative Payments Conference will be held on May 7-9th. The IPA’s IPC is the must-attend annual event for the payments community attracting the attention and support of the industry’s most influential players. Benefit from two days of cutting-edge content, discussions and enhanced networking as you engage directly with those leading the way in payments compliance, legislation, regulation and innovation. Here are some highlights of the agenda:
GAO Publishes Report on Fintech Products/EWA The GAO published a report entitled “Financial Technology: Products Have Benefits and Risks to Underserved Consumers, and Regulatory Clarity is Needed.” In the report, the GAO studied fintech products such as digital deposit accounts, credit builder products, small-dollar fintech loans, and earned wage access. Notably, on the very first page of the report, the GAO recommended that “CFPB issue clarification on the application of the Truth in Lending Act’s definition of “credit” for earned wage access products not covered by its November 2020 advisory opinion. CFPB agreed with this recommendation.” The full GAO report can be found here, and a one-pager can be found here. FDIC Press Releases, Financial Institution Letters on Silicon Valley Bank and Signature Bank With the failures and subsequent resolutions of Silicon Valley Bank and Signature Bank, the Federal Deposit Insurance Corporation (FDIC) has issued a number of press releases and Financial Institution Letters (FILs) that IPA members should take note of, regardless of their exposure to recent events. On the morning of Monday, March 13th, the first business day after the failure of Silicon Valley Bank, the FDIC released a press release announcing that all deposits of Silicon Valley Bank-both insured and uninsured- would be transferred to a “bridge bank,” and that depositors would have full access to their funds. This historic action is a departure from traditional federally-backed deposit insurance in which only deposits up to $250,000 would be insured. A similar press release was issued in regards to Signature Bank. The following day, Tuesday, March 14th, the FDIC issued a Financial Institution Letterinforming all vendors and counterparties with contracts with the bridge banks of both Silicon Valley Bank and Signature Bank that they are legally obligated to perform under those contracts, and that the bridge banks have the full ability to make timely payments to vendors and counterparties and otherwise to perform its obligations under the contracts. Biden FY24 Budget Proposal- EWA The Biden Administration released its FY24 Budget Proposal, and the Treasury released its General Explanations. Both documents contained the same proposal that was included in the FY23 Budget Proposal on “clarifying the tax treatment of on-demand pay arrangements.” The Treasury’s General Explanations, specifically, contained a word-for-word repetition of the FY23 explanation. The IPA held a call with Treasury staff about this proposal last year and was told the proposal only applied to wholly-integrated providers (i.e. providers that do not work with a third party). Treasury stressed at the time that they would prefer legislation, but also said they could technically regulate on their own. California DFPI Proposes EWA Regulation The California Department of Financial Protection and Innovation (CA DFPI) filed a Notice of Proposed Rulemaking and invited public comments on an EWA registration proposal. We are still working through the proposal itself and encourage our members to do the same. Note that the press release includes three links for a Notice of Proposed Action, Text of Proposed Rulemaking, and Initial Statement of Reasons. The press release gives a deadline of May 2, 2023 (45 days) for public comments. The IPA will be submitting a comment, and we ask our members to review all three linked documents and send any feedback to Brian Tate (btate@ipa.org) or Chris Stromberg (cstromberg@ipa.org). HFSC and SBC Announce First Hearings on Silicon Valley Bank and Signature Bank Failures The House Financial Services Committee and Senate Banking Committee have announced their first hearings on the Silicon Valley Bank and Signature Bank failures. On Tuesday, March 28th, the Senate Banking Committee will hold its hearing, and on Wednesday, March 29th, the House Financial Services Committee will hold theirs. Both hearings will feature testimonies from FDIC Chairman Martin Gruenberg, Vice Chair for Supervision of the Federal Reserve Michael Barr, and Undersecretary for Domestic Finance, U.S. Treasury, Nellie Lang. Joint Regulator Statement on Actions to Stabilize First Republic Bank. The Department of the Treasury, Federal Reserve, FDIC, and OCC issued a press releaseon an influx of bank deposits to stabilize First Republic Bank. Other media sources are reporting that JPMorgan Chase, Bank of America, and Citigroup will each contribute $5 billion in deposits, along with smaller deposits from other institutions. CFPB Issues Supervisory Highlight on Junk Fees The CFPB released a Supervisory Highlight that reports on “unlawful junk fees uncovered in deposit accounts and in multiple loan servicing markets, including in mortgage, student, and payday lending.” More information can be found in this press release. New Federal Bills
H.R. 1163, The Protecting Taxpayers and Victims of Unemployment Fraud Act This bill, sponsored by Rep. Jason Smith (R-MO-08), would provide financial incentives for states to recover fraudulently paid Federal and State unemployment compensation. The bill was marked up and reported favorably from the House Ways and Means Committee on 2/28/23 by a vote of 20-17. H.R. 1165, Data Privacy Act of 2023 This bill, sponsored by Rep. Patrick McHenry (R-NC-10) would create a federal data privacy standard, and would preempt preexisting state frameworks. This bill bway marked up and reported favorably by the House Financial Services Committee on 2/28/23 by a vote of 26-21. |
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