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: [email protected].  Dear IPA Member: As we start wrapping up an eventful year, we are proud to share the Innovative Payments Association’s 2024 Annual Report. This year, we’ve made significant strides in advocacy, regulatory engagement, and industry leadership to support the growth and innovation of the payments industry. From driving meaningful discussions on regulatory changes to expanding educational initiatives like the Summer of Learning and Compliance Boot Camp, 2024 has been a year of impactful achievements made possible by your continued support. We'd like to invite you to explore our Annual Report, highlighting key milestones and sharing insights into 2025. Read the report here. Thank you for being an essential part of our community. We look forward to working together in the year ahead to continue driving innovation and success in the payments industry. Sincerely, Brian C. Tate President & CEO Innovative Payments Association  President Trump Reelected On November 5, 2024, former President Trump was reelected President of the United States. Trump will be inaugurated on January 20, 2025. One week after the election the IPA held a post-election review with IPA members. The review was accompanied by a post-election analysis conducted by OGR. President-elect Trump has started the process of nominating people for Cabinet positions and other key national level posts, such as: Scott Bessent for Treasury Secretary, David Sacks for AI & Crypto Czar , and Paul Atkins for SEC Director. As of this writing, the incoming President has not nominated any one to fill positions at the Consumer Financial Protection Bureau, Federal Deposit Insurance Corporations, of the Office of the Comptroller of the Currency. Nominees for the prudential regulators and the CFPB will likely be made prior to Inauguration Day in January. French Hill Named Chair of the House Financial Services Committee Last week U.S. Representative French Hill (R-Arkansas) was named the next Chairman of the House Financial Services Committee. You can learn more about the new Chairman by visiting his website at: https://hill.house.gov/ Chairman Hill has an extensive financial services background. In the 118th Congress he serves as the Vice Chairman of the House Financial Services Committee and as Chairman of the new subcommittee tasked with overseeing all areas related to digital assets and financial technology. Prior to his congressional service, Congressman Hill was founder, Chairman, and Chief Executive Officer of Delta Trust & Banking Corporation. From 1989 to 1991, he also served as Deputy Assistant Secretary of the Treasury for Corporate Finance. After the fall of the Berlin Wall, Rep. Hill led the design of U.S. technical assistance to the emerging economies of eastern and central Europe in the areas of banking and securities. In 1991, President Bush appointed Rep. Hill to be Executive Secretary to the President’s Economic Policy Council (EPC), where he coordinated all White House economic policy. The IPA has a long-standing relationship with Chairman Hill and his staff. Please note that Chairman Hill spoke at the IPA’s 2019 Innovative Payments Conference. We wish Chairman Hill good luck in his new role. IPA Responds to FDIC Proposed Rule on Brokered Deposits At the end of July the FDIC released a Proposed Rule on Brokered Deposits. The FDIC also released a statement regarding the proposal you can read here. The FDIC’s proposal makes significant changes to current regulation, including the “Enabling Transactions” exception to the brokered deposit regulations for third party relationships that was included in the 2020 Brokered Deposits Final Rule. (This exemption came about through efforts led by the IPA and its members.) As expected, Chairman Martin Gruenberg’s remarks at the FDIC’s Board Meeting referenced the failed business arrangements connected to Synapse, SVB, Voyager, and others as reasons for the changes. Below are some key changes the proposal makes to the current brokered deposit regulations:
IPA Files Comment Response to Bank-Fintech Ledger The IPA has finalized and filed our comments responding to the FDIC’s proposed rule entitled, “Recordkeeping for Custodial Accounts.” In brief, the proposal would require all banks partnered with a third party to either maintain a ledger of FBO accounts via third-party fintechs or have direct access to a ledger maintained by a fintech so they can reconcile the accounts each day. The deadline for the public to submit comments to the FDIC is January 16, 2025. The IPA’s comments outline our concerns with the proposal, including concerns regarding the scope of the proposal which we believe would extend to products the FDIC did not intend to cover, including gift cards, corporate cards, savings accounts, and wealth management accounts. Lastly, the IPA believes the FDIC needs to sync up their proposed changes to FDIC section 370 and the current 370 requirements, so banks aren’t subject to two sets of requirements that are similar in certain respects but different in other respects. FDIC Releases 2023 Unbanked and Underbanked Study On November 12, 2024, the FDIC released its biannual national survey on the unbanked and underbanked. The 2023 FDIC National Survey of Unbanked and Underbanked Households found that nearly 96 percent of all U.S. households were banked in 2023, In addition, the FDIC survey found two-thirds (66.2 percent) of unbanked households relied entirely on cash while a third (33.8 percent) of unbanked households relied upon a combination of prepaid cards or nonbank online payment services such as PayPal, Venmo or Cash App to conduct transactions. Other key findings include:
CFPB Issues Overdraft Final Rule On December 12th the CFPB issued a final rule amending their current rules, Regulations E and Z, in part, to treat overdraft products as credit, unless the overdraft fee is capped at $5 or an amount that covers a financial institution’s costs and losses. Banks and credit unions over $10 billion will need to comply with Regulation Z’s requirements for loans, including providing consumers with a choice on whether to open a line credit. In addition, financial institutions will have to give consumers disclosures, periodic statements, and allowing consumers to decide whether to pay automatically or manually. The final rule will go into effect on October 1, 2025. FEC Seeks Feedback on Payment Forms The Federal Election Commission recently published a notice in the Federal Register entitled, “Contributions Through Untraceable Electronic Payment Methods.” The FEC is seeking public comment on whether it should proceed with such a full rulemaking. In brief, Texas Attorney General Ken Paxton wrote the FEC petitioning it “to amend its regulations concerning the use of credit cards to make contributions, to address the potential use of prepaid cards to circumvent contribution amount limitations and source prohibitions.” The Petition asks the Commission to adopt two amendments to its regulations which would require that when contributions are made by credit, debit, prepaid or gift card, the campaign committee must “cross-check” the donor’s name and address with that information held by the issuer and contributions cannot be accepted from prepaid or gift cards unless the information from those prepaid or gift cards has been cross-checked. Comments are due to the FEC by January 27, 2025. The IPA will continue to review the FEC’s request and is planning to draft a response. In the interim, please send any questions to Brian Tate ([email protected]). Shield Act Passes House U.S. Representative Bryan Steil (R-WI), Chairman of the House Committee on House Administration, and sponsor of the Secure Handling of Internet Electronic Donations (SHIELD) Act released a press release announcing the bills passage in the House of Representative by Voice Vote. In brief, The SHIELD Act prohibits political committees from accepting online contributions from debit or credit cards without the disclosure of the card verification value, or CVV, and the billing address associated with the card. The IPA has had several conversations with Chairman Steil’s office and remains concerned about additional regulation being layered on already heavily regulated prepaid account products.  Key 2025 Election Dates
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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: [email protected]. IPA Releases Bank-Fintech Guide On September 17, 2024, the IPA released a game-changing resource: "IPA's Guide to Developing a Bank-Fintech Regulatory Compliance Plan." As financial institutions work more with fintech companies, regulatory compliance is more important than ever. This guide offers a detailed look at the critical legal and regulatory issues that banks and fintechs must address. It is an essential resource for any organization looking to innovate in the financial sector while meeting strict regulatory requirements. The guide covers vital topics, including:
The guide is not meant to replace legal advice but to offer a framework to help companies develop comprehensive compliance programs, which protect both their interests and those of their partners and customers. IPA members can download a copy of the guide in the “Members Only” section of the IPA’s website: www.ipa.org. IPA’s 2024 Compliance Boot Camp is a Success On September 11, 2024, the IPA held its annual Compliance Boot Camp in Chicago. This year’s event was the IPA’s largest compliance event to date. First, the IPA would like to thank everyone who traveled to Chicago to participate, including attendees and presenters. Next, the IPA would like to thank our gracious hosts at Discover. We look forward to hosting additional compliance events in the future, but in the meantime, please review IPA COO Ben Jackson’s recap of the event on the IPA’s Blog.  Congress in Recess – Lame Duck Session After Election At the end of September, the House and Senate went into a month-long recess. Congress is expected to return to conduct a lame-duck session after the elections on November 5th. The post-election session of Congress is expected to run into early December. Major issues Congress is likely to address will focus on must pass legislative issues such as funding for the federal government. In addition, Committees may hold hearings while Congress is in session. At the time of this writing, the House Financial Services Committee and Senate Banking Committee, respectively, are expected to hold hearings featuring the prudential regulators (FDIC, OCC, the Federal Reserve), and the CFPB. Additional details will be provided as developments occur. IPA Files Comment on CFPB Proposed Interpretive Rule for EWA On July 18th the CFPB released their “Proposed Interpretive Rule” on EWA. The CFPB also published a report examining employer-sponsored paycheck advance loans. In brief, the proposal identifies two primary types of EWA products: employer-partnered and direct-to-consumer. Further, the proposal addresses the application of certain Regulation Z and TILA provisions. Other key points from the proposal include:
Accordingly, the IPA responded to the proposal by filing a comprehensive comment which outlines our concern with how EWA does not resemble credit, the benefits of EWA, and a request for the CFPB to conduct additional study before finalizing their proposal. In addition, the IPA met with the CFPB in September to seek out additional details and to inform the agency that implementation will require more clarification since the proposal was limited in its requirements. Prudential Regulator RFI on Fintechs In late July, the Federal Deposit Insurance Corporation, Federal Reserve Board, and Office of the Comptroller of the Currency released a statement on the potential risks associated with third-party bank relationships and the responsibilities of financial institutions to take note of all applicable laws, rules, and guidance. In addition, the agencies also issued a Request for Information to learn more about bank-fintech arrangements, including deposits, payments, lending services and risk management. Please note the IPA believes this RFI is the first step in additional requests and rulemakings for the payments community. The IPA has recently filed our comments responding to the prudential regulators. In brief, the IPA’s comment letter discusses the current responsibilities of financial institutions who partner with third parties, including the laws and regulations in place today that extend to payment products overseen and enforced by the prudential regulators and the CFPB. If you are planning to file your own comment in response to the proposal, please note that the deadline for submissions to the prudential regulators is October 30th. FDIC Rolls Back Exceptions to Brokered Deposits At the end of July the FDIC released a Proposed Rule on Brokered Deposits. The FDIC also released a statement regarding the proposal you can read here. The FDIC’s proposal makes significant changes to current regulation, including the “Enabling Transactions” exception to the brokered deposit regulations for third party relationships that was included in the 2020 Brokered Deposits Final Rule. (This exemption came about through efforts led by the IPA and its members.) Accordingly, Chairman Martin Gruenberg’s remarks at the FDIC’s Board Meeting referenced the failed business arrangements connected to Synapse, SVB, Voyager, and others as reasons for the changes. Below are some key changes the proposal makes to the current brokered deposit regulations:
At the time of this writing the IPA is preparing a response to the FDIC that will focus on several key points, including, but not limited to, treating fintech-bank accounts as de facto “brokered” is not consistent with Federal Deposit Insurance Act or the history and intent of the brokered deposits regulatory framework based off of FIRREA. In addition, the FDIC’s proposed classification of fintech-bank accounts as de facto “brokered” is not supported by the FDIC’s own rationale which is grounded in unrelated bank failures. Comments are due to the FDIC by October 22, 2024. 
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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: [email protected]. The IPA's Compliance Boot Camp is coming to Chicago, Illinois, and act fast—37% of the seats have already sold! Register now to secure your spot at this one-day, in-person event packed with valuable sessions tailored to the payments community. This is the lowest rate you will find for earning up to 6 CLEs. Here's a glimpse of what awaits you:
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On May 16, 2024, the U.S. Supreme Court released its opinion in CFSA v. CFPB. The case focused on whether the CFPB’s current funding structure is constitutional. You can read a copy of the Court’s Opinion here. Below is the Court’s holding in the case:
(1) The Bureau’s funding is “drawn from the Treasury” and is therefore subject to the requirements of the Appropriations Clause. The issue is whether the Bureau’s funding mechanism constitutes an “Appropriatio[n] made by Law.” The Court concludes that the answer is yes based on the Constitution’s text, the history against which that text was enacted, and congressional practice immediately following ratification. Pp. 5–15 To learn more about the decision and its impact on the payment’s community please listen to the IPA’s Podcast episode entitled, “The CFPB is Here to Stay.”  Text of California EWA Regulation Released
In May, the California DFPI released the text of its EWA Final Rule. A copy of the final rule can be found here (see section on Income Based Advances). At first glance, similar to the proposed rule, the final rule continues to categorize EWA services as loans. In addition, the final rule still requires EWA providers to register with the state. However, if an EWA provider registers with the state, the EWA provider is exempt from the fee restrictions and rate caps normally imposed on lenders in the state of California. DFPI also posted a Final Statement of Reasons in which the agency outlines their reasoning for removing the fee restrictions and fee cap restrictions. However, it is important to keep in mind the DFPI does not foreclose the possibility of the imposition of fee caps and/or fee restrictions in the future. You may recall that the State of California Office of Administrative Law rejected the California Department of Financial Protection and Innovation’s submission of the agency’s EWA final rule. Please note that DFPI will have to address the issues raised by the OAL when it rejected the DFPI’s submission. Thus, it is still possible parts of the final rule could change after DFPI makes amendments. Lastly, as a reminder, the IPA filed three comments in response to the proposed rule (and amendments). You can find a copy of the letters the IPA filed with DFPI in response to their EWA proposals here: https://www.ipa.org/ewa.html CFPB Finalizes Rules for BNPL Just before Memorial Day 2024 the CFPB issued an interpretive rule that confirms that Buy Now, Pay Later providers are credit card providers. Thus, BNPL providers must follow the regulations that apply to conventional credit cards. These include a right to dispute charges and demand a refund from the lender after returning a product purchased with BNPL. Today’s release outlines how BNPL products meet the criteria for credit card providers, under TILA. As a result, BNPL providers must:
The CFPB is collecting comments on this interpretive rule. Comments are due 60 days after the rule is published in the Federal Register. CFPB Issues Final Rule on Industry Standard-Setting for Open Banking This morning the CFPB released a rule finalizing in part its proposed rule on consumer data rights under section 1033 of the Consumer Financial Protection Act. This final rule establishes minimum attributes a standard-setting body must possess to receive CFPB recognition and to issue consensus standards when the full rule is finalized. In its October 2023 proposed rule the CFPB proposed that standards adopted by CFPB-recognized standard setters might be used to facilitate implementation of a final Personal Financial Data Rights rule. The rule will go into effect 30-days after publication in the Federal Register. According to today’s final rule, standard setters must apply to the CFPB and display the following attributes:
The IPA will continue to review and analyze the final rule. If you have any questions, please contact Brian Tate ([email protected]). FDIC Consumer New - Banking with Third-Party Apps On the last day of May the FDIC posted a newsletter focused on consumer’s who use banking apps to conduct their retail banking. In brief, the newsletter outlines the differences between banking directly with a financial institution and utilizing banking services through a third party fintech program manager, including when FDIC insurance applies, how to navigate nonbank companies, and how to avoid scams or fake apps. FDIC Chair to Step Down When Replacement Confirmed Statement by FDIC Chairman Martin J. Gruenberg It has been my honor to serve at the FDIC as Chairman, Vice Chairman, and Director since August of 2005. Throughout that time I have faithfully carried out the critically important mission of the FDIC to maintain public confidence and stability in the banking system. In light of recent events, I am prepared to step down from my responsibilities once a successor is confirmed. Until that time, I will continue to fulfill my responsibilities as Chairman of the FDIC, including the transformation of the FDIC’s workplace culture. Prudential Regulators Issue Third Party Risk Guide for Community Banks In May, the FDIC, OCC, and the Federal Reserve Board issued the following press release announcing their new compliance guide entitled, “Third-Party Risk Management A Guide for Community Banks.” The guide outlines each stage of the third-party relationship and is targeted at community financial institutions. In addition, the guide reinforces the third-party risk management guidance issued by the agencies in June 2023, and please note that the guidance is not a substitute for the agencies’ prior guidance. If you have any questions, please contact Brian Tate ([email protected]). IPA Responds to FinCEN RFI In late May the IPA filed a comment responding to FinCEN’s CIP RFI. The deadline to file comments responding to the RFI is TODAY. As a reminder, FinCEN is seeking comments on the Bank Secrecy Act’s (“BSA”) customer identification program (“CIP”) rule. The CIP rule requires U.S. banks to collect a taxpayer identification number (“TIN”) from a U.S. person before opening a new account for that person. The RFI requests comments about the potential risks, benefits, and safeguards related to partial collection of SSNs directly from customers and the use of third-party sources to collect customers’ full SSNs. The IPA thanks the working group for their feedback during the comment drafting process. A copy of the IPA’s comment can be found here: https://www.ipa.org/fraud.html IPA Comments on IRS Green Book Proposal on EWA Shortly after the release of the President’s proposed Budget for FY 2025 , the U.S. Department of Treasury released the "General Explanations of the Administration’s Revenue Proposals" (also known as the “Green Book). The Green Book provides an explanation of the Administration's revenue proposals for that specific fiscal year. Similar to the last two years, this year’s Greenbook again contains a proposal from the Internal Revenue Service (IRS) on the tax treatment of EWA related products (See. p. 232). Further, the language of this year’s proposal appears to be very similar to the proposals released in prior years. The IPA responded to the Treasury’s IRS proposal by submitting an unsolicited comment letter to the U.S. Treasury outlining our concerns, including the agency’s mischaracterization of the structure and form of EWA products, and how earned wages are accessed by employees who utilize EWA services. The IPA is currently engaged in a dialogue with the U.S. Treasury and looks forward to sharing information with the agency regarding the benefits of EWA to millions of American. A copy of the IPA’s letter can be found here. Interchange State Law Update Yesterday Gov. Pritzker signed the 2025 IL state budget into law. The new state budget included interchange related provisions to prohibiting interchange on sales or excise taxes and voluntary gratuities in Section 150. The provision, if enacted, would be the first of its kind in the country. The provision was included in the state budget as part of a deal made between leaders in the state legislature and the retailers. It is not clear at all that this potential change in law will result in any discernable benefit to consumers in the state of IL. EWA State Law Update On May 21, 2024, South Carolina Governor McMaster signed into law the Earned Wage Access Services Act which will require EWA providers operating in the state to register with the state’s Department of Consumer Affairs. The new law also provides exemptions from state lending and other requirements for providers. South Carolina now joins Kansas, Wisconsin, Nevada, and Missouri in establishing a distinct statutory framework for EWAs. 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: [email protected]. Register Now for the IPA’s 2024 Innovative Payments Conference – Unlocking the Future of Payments The IPA’s 2024 annual conference, the Innovative Payments Conference is just two short months away! All members of the IPA are welcome to attend. The IPC, scheduled May 5-7, 2024, will take play at the Grand Hyatt in Washington, DC. The PIC is the place to immerse yourself in three days of groundbreaking insights, cutting-edge technology, and networking opportunities for payments leaders. Headliners include:
Get your tickets now. To register for the conference, please click here.  IPA Files Interchange Comment On January 22nd the Federal Reserve Board of Governors issued a press release announcing they have extended the comment period for their Regulation II proposal until May 12, 2024. As previously reported the proposal would amend the current debit interchange fee cap downward. In response to the proposal the IPA filed a comment letter outlining our concerns with the proposal. Specifically, the IPA stated that although the proposal directly applies to financial institutions over $10 billion, the Association is concerned that downward pressure will eventually be placed on financial institutions under $10 billion. The IPA urges other institutions concerned with the proposal to consider filing comments ahead of the comment period deadline. IPA Files 3rd Comment with DPFI On February 2nd, the IPA filed our third comment with the California Department of Financial Protection and Innovation. The IPA’s letter was in response to the DFPI’s Second Modification to its proposed registration requirements for EWA which were initially released in March 2023. The IPA remains concerned that despite three versions of the proposed rule DFPI continues to categorize all EWA products as loans. In addition, the IPA is concerned that DFPI’s proposal appears to be asserting that fees from disbursement devices, such as a prepaid card, may be counted as fees associated with EWA. The deadline to submit comments to the DFPI was Feb. 6th. IPA Shares Draft Comment(s) Responding to CFPB’s Proposals on Overdraft and NSF Fees. As previously noticed, on January 17th the Consumer Financial Protection Bureau released its proposed rule on Overdraft Protection services. In brief, the proposed rule would apply credit protections via TILA to overdraft services offered by covered financial institutions. A covered financial institution is a bank with assets of $10 billion or more. Consumers receiving covered overdraft credit from a covered financial institution would receive the loan disclosures required under TILA. Moreover, the protections that apply to traditional credit cards would apply to a covered overdraft credit issued by a covered financial institution that is accessed by debit cards or routing/checking account numbers. Comments are due to the CFPB by April 1st. Accordingly, later in January the CFPB released a proposal on Non-Sufficient Fund Fees (NSF). In short, the proposal would cover NSF fees when a consumer tries to make a payment but does not have enough money in their account at the point of sale. Further, the proposal would apply to debit card and prepaid card purchases, ATM withdrawals, as well as some declined peer-to-peer payments. Comments are due to the CFPB on or before March 25, 2024. The IPA has drafted responses to each proposal. The Association also held a conference to review each comment and urges members to review the drafts and send in their comments as soon as possible due to the upcoming deadlines. Steil Introduces EWA Bill U.S. Representative Bryan Steil (R-WI) has formally introduced his EWA bill, H.R. 7428. It is important to note that H.R. 7428 has been cosponsored by the U.S. Representative French Hill (R-AR). Hill is also the Chairman of the House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion. Steil released a discussion draft last fall before the House Financial Services Committee’s October hearing on fintech. Accordingly, similar to the discussion draft sought to regulate EWA (Employer and D2C Models), including disclosure requirements, dispute resolution policies, and limitations related to fees. In addition, the bill also has a new section requiring providers who may charge fees (for instance, expedited services) to also make a free version available. H.R. 7428 was expected to be included in the list of bills marked up by the House Financial Services Committee on February 29th. However, due to a scheduling change in the House of Representatives, the markup proceeded without reviewing H.R. 7428. The IPA will share with members when the Committee schedules a markup which includes H.R. 7428. Hosted by the IPA, the Payments Podcast is designed to keep you ahead of an ever-changing industry and position you to succeed in tomorrow’s payments environment. Join us for thought-provoking discussions on the most pressing issues of the day. Listen to recent episodes below and subscribe using the app of your choice.
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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: [email protected]. Register Now for the IPA’s 2024 Innovative Payments Conference – Unlocking the Future of Payments Our annual Innovative Payments Conference is around the corner, and we invite you to attend. The IPC, scheduled May 5-7, 2024, in Washington, DC, is the place to immerse yourself in three days of groundbreaking insights, cutting-edge technology, and networking opportunities for payments leaders. To learn more about the conference, please visit: www.ipa.org.
Federal Reserve Extends Interchange Comment Period On January 22nd the Federal Reserve Board of Governors issued a press release announcing they have extended the comment period for their Regulation II proposal issued last year. The initial comment period was scheduled to close on February 12th. The new deadline to submit comments to the Federal Reserve is now May 12, 2024. Next, the Federal Reserve has released additional data related to the interchange fee cap. According to the Federal Reserve, the agency published the data to give the public additional information as they consider the proposal. The additional data are available here. The IPA will review the new information released today and will amend our draft comment accordingly. In the interim, please contact Brian Tate ([email protected]) if you have any questions. CFPB Releases Proposed Rule on Overdraft On January 17th the Consumer Financial Protection Bureau released its proposed rule on Overdraft Protection services. In brief, the proposed rule would apply credit protections via TILA to overdraft loans offered by covered financial institutions. A covered financial institution is a bank with assets of $10 billion or more. Consumers receiving covered overdraft credit from a covered financial institution would receive the loan disclosures required under TILA. Moreover, the protections that apply to traditional credit cards would apply to a covered overdraft credit issued by a covered financial institution that is accessed by debit cards or routing/checking account numbers. The proposed rule would provide for an exception that would permit covered institutions to be able to offer overdraft as a courtesy service where fees do not exceed the institution’s costs, or as a line of credit. The proposal would provide two options for covered financial institutions to operate within this exception—calculating their own costs using a “breakeven standard” or relying on a “benchmark fee” set by the CFPB. Financial institutions may determine the amount of the fee they need to charge to break even using the breakeven standard. Alternatively, financial institutions may charge a benchmark fee, which could be set as low as $3. The CFPB has proposed several options for the benchmark fee, including $3, $6, $7, or $14. CFPB Proposes Regulation for NFS Fees On January 24th the CFPB released a proposal on Non-Sufficient Fund Fees (NSF). In brief, today’s proposal would cover NSF fees when a consumer tries to make a payment but does not have enough money in their account at the point of sale. Further, the proposal would apply to debit card and prepaid card purchases, ATM withdrawals, as well as some declined peer-to-peer payments. Comments are due to the CFPB on or before March 25, 2024. The IPA is currently analyzing the proposal and plans to discuss the proposal in more detail during our next GRWG weekly call on Monday, January 29th. Please contact Brian Tate ([email protected]) if you have any questions. IPA Meets with CFPB Regarding EWA In November 2023, in an extraordinarily rare move, the CFPB submitted a comment to the California Department of Financial Protection and Innovation in response to the agency’s modified Earned Wage Access registration proposal. In brief, the CFPB’s letter attempts to compare EWA to payday loans, and also alludes to the fact that the Truth in Lending Act (TILA) may apply to some EWA products. In addition, the letter said the CFPB may seek to issue additional guidance to clarify their 2020 EWA Advisory Opinion (AO). In response to the CFPB’s letter, the IPA requested and received the opportunity to meet with the CFPB staff to discuss issues related to the AO. The IPA met with the CFPB on January 11th and shared our continuing concern regarding the CFPB’s public comments which appear to be inconsistent with the language of the AO. Additionally, the IPA stressed that the AO itself outlines how TILA does not apply to EWA products and how employees have a right to their earned, but not yet received wages, which should not be converted into credit simply because they were accessed before the payday set by their employer. CA DFPI - Notice of Second Modification to Proposed Regulations (EWA) The California Department of Financial Protection and Innovation has released a Second Modificationto their proposed rule to require earned wage access providers to register with the state. The initial proposal was released in March 2023, and their second proposal was released in November 2023. As with the first two proposals, today’s amended proposal addresses a wide variety of issues, including EWA. In brief, DFPI’s release amends and seeks to clarify some of the language that was in the previous two versions. The deadline to submit comments in response to the Second Modification is February 6, 2024. Unfortunately, it does not appear that the DFPI has amended their proposed regulation to reflect IPA’s concerns with the proposal’s classification of EWA products as loans. The IPA will continue to review the DFPI’s proposal to learn if the modifications made to some of the definitions differ in substance from the March 2023 or November 2023 proposals. Due to the extremely tight timeline the IPA requests that the working group review this new version of the proposed rule and send any feedback to Brian Tate ([email protected]) or Eli Rosenberg ([email protected]) as soon as possible. Montana Opinion on EWA Just before Christmas, the Montana Attorney General, Austin Knudsen issued an Opinion on EWA in response to a question posed by Matt Reiger, the Montana Speaker of the House. The questions present to the AG is as follows:
In brief, the AG’s Opinion is as follows:
The Montana AG’s opinion is consistent with the views other states have expressed regarding EWA, including Neveda, Missouri, and Arizona. EWA in Maryland Maryland House Bill 246 has been recently introduced in the Maryland General Assembly. In short, HB 246 is generally consistent with the EWA Guidance released by the Maryland Office of Financial Regulation last fall and is now in effect. In enacted, HB 246 would also require Direct to Consumer providers to be licensed as lenders, employer-based providers to register with the state. Additionally, HB 246 seeks to limit fees, tips, and other similar costs associated with some EWA models. Please note that HB 246 has the support of the MD Department of Labor. The MD House Economic Matters Committee held a hearing on Tuesday, January 23, 2024 at 1 pm ESTto review a number of bills, including HB 246. The Committee also released their Fiscal and Policy Note on HB 246 which you can find here. The IPA members and the association testified at the hearing. During the hearing the Committee recognized the need for EWA for Marylanders and appeared to be receptive to continued engagement with all stakeholders, including industry representatives, moving forward. Washington State Introduces EWA Bills
Hosted by the IPA, the Payments Podcast is designed to keep you ahead of an ever-changing industry and position you to succeed in tomorrow’s payments environment. Join us for thought-provoking discussions on the most pressing issues of the day. Listen to recent episodes below and subscribe using the app of your choice.
Upcoming GRWG Calls
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: [email protected]. 2024 IPA’s Innovative Payments Conference – Unlocking the Future of Payments Mark your calendar and get ready for an unforgettable experience at the upcoming Innovative Payments Conference. We are thrilled to invite you to this must-attend annual event for the payments community, taking place on May 5-7, 2024, in Washington, DC. Get ready to immerse yourself in three days of groundbreaking insights, cutting-edge technology, and networking opportunities that will change the way you think about payments. To learn more about the conference please visit: www.ipa.org. Introducing Our Keynote Speaker: Amy Walter Prepare to be inspired, informed, and engaged by one of the most influential voices in American politics - Amy Walter. As a popular TV panelist who has graced the screens of Meet the Press, Face the Nation, and PBS NewsHour, Amy has a unique knack for explaining the intricacies of politics and the 'why' behind political decisions. Her expertise in the electoral process, congressional culture, and the D.C. political scene is unmatched. Named one of Washingtonian magazine's "Most Powerful Women" and "Top 50 Journalists," Amy Walter is truly a leader in political analysis and forecasting. Federal Reserve Board Proposes Changes to Regulation II On October 25th, the Federal Reserve Board proposed revisions to the Board’s debit interchange fee cap. The proposed rule would lower the cap on debit interchange fees from the total of: 21 cents, 5 basis points multiplied by the value of the debit transaction, and a 1 cent fraud prevention adjustment, to a sum of 14.4 cents, 4 basis points multiplied by the value of the debit transaction, and a 1.3 cent fraud prevention adjustment. As part of the proposed rule, the Fed is also looking to adopt an approach for future adjustments to the interchange fee cap, which would occur every other year based on issuer cost data gathered by the Board from large debit card issuers. The IPA is currently working with members of the GRWG to develop a response to the Federal Reserve. The IPA is concerned because although the primary focus of the proposed rule is on banks over $10 billion, the proposed change to the current interchange formula may result in institutions below the $10 billion threshold being negatively impacted once the final rule is implemented. The deadline to submit comments to the Federal Reserve is February 12th. If you have any questions regarding the Fed’s Regulation II or the IPA’s draft comment, please contact Brian Tate at [email protected]. Open Banking In late October the CFPB publicly issued a long-awaited proposed rulemaking on open banking entitled, Required Rulemaking on Personal Financial Data Rights, which was designed to implement section 1033 of the Consumer Financial Protection Act. In brief, the proposed rule would require depository and non-depository entities, amongst other things, to make available certain data relating to consumers’ transactions and accounts; establish obligations for third parties accessing a consumer’s data; and provide basic standards for data access. The current deadline for public comment is December 29, 2023. Please note that in the proposed rule from the CFPB the agency makes it clear they are seeking public feedback on their proposal by posing a number of questions regarding the implementation of the rule. The IPA is currently working with our members in an attempt to identify, highlight, and address key questions in the proposal. If you have any questions regarding the CFPB’s proposal on open banking before the comment deadline, please contact Brian Tate ([email protected]). CA DFPI - Notice of Modification to Proposed Regulations (EWA) On November 6th, the California Department of Financial Protection and Innovation released a proposal which seeks to amend the agency’s March 2023 proposal to require earned wage access providers to register with the state. Please note, similar to DFPI’s initial proposal, the agency’s release covers a number of issue areas beyond EWA, including Debt Settlement Services, Student Debt Relief Services, and Education Financing. In brief, DFPI’s proposal appears to amend or modify some of the definitions from the proposal released in March 2023. The IPA remains concerned that despite the DFPI’s willingness to make changes to their March 2023 proposal, the agency is still classifying all EWA products as loans. In brief, the IPA’s response submitted on November 27th expresses our concern with the continued classification of all EWA products as loans and urges the DFPI to reconsider this classification before issuing a final rule. The deadline to submit comments to DFPI was November 27, 2023. CFPB Submits Comment to DFPI In a rare move, the CFPB submitted a comment to the CA DFPI in response to the agency’s modified EWA registration proposal. In brief, the letter includes the following points:
It’s important to note that the CFPB did not issue an announcement after their letter was filed with DFPI. The agency simply posted the letter on their website at: https://www.consumerfinance.gov/about-us/blog/state-regulatory-developments-on-income-based-advances/. At the time of this writing the IPA has requested a meeting with CFPB General Counsel Seth Frotman to discuss the CFPB’s comment and EWA issues in more detail. OMB Fall 2023 Unified Regulatory Agenda The U.S. Office of Management and Budget (OMB) has released its Fall 2023 Unified Agendaof Regulatory Actions. In brief, the Unified Agenda is a list of regulatory actions federal agencies are planning to take in the next 3-6 months. Please note the Unified Agenda includes actions the Consumer Financial Protection Bureau, the FDIC, and other federal agencies plan to take in the in the short-term. Amongst the expected actions listed the CFPBis planning includes:
Please keep in mind that the CFPB, as well as other agencies, is not limited to just the regulatory activity listed in the Unified Agenda. The Unified Agenda should be viewed as an outline of expected regulatory actions the agency may take in the near-term. The CFPB, as well as other agencies, may deviate from the items and timelines listed. FSOC Annual Report Late last week the Financial Stability Oversight Council (FSOC) released its annual report, which outlines the risks it sees to the financial system. In November 2023, the Financial Stability Oversight Council (FSOC) amended its framework for designating nonbank financial firms as systemically significant. It is important to note that firms designated by the FSOC as systemically significant would be regulated by the Federal Reserve and likely face heightened capital/liquidity requirements. While the FSOC’s report covers a wide range of issues that may cause instability in the financial services marketplace, it is notable that the report includes discreet sections on artificial intelligence (AI) and third-party relationships. Accordingly, the report lists concerns FSOC has regarding AI, including, general safety and soundness, compliance, and data controls. With respect to third-party bank relationships, FSOC focused on compliance and liquidity related issues. While FSOC did not recommend taking action on either issue, it is important to keep in mind that FSOC will likely continue to monitor activity in the AI and fintech space in the future to learn if these areas pose a threat to financial stability in the US. CongressSenator Warren Leads Dem Letter to PayPal and Block Democratic U.S. Senator(s) Elizabeth Warren (D-MA, Sherrod Brown (D-OH), Jack Reed (D-RI) signed a letter addressed to PayPal and Block in mid-December putting them on notice that they remain unsatisfied with the companies’ responses to inquiries regarding how the companies reimburse customers involved in scams on their Venmo and Cash App payments apps. In brief, the Senators collectively urged PayPal and Block to follow Zelle’s lead in reimbursing victims of scams perpetrated using their tools. A copy of the full letter can be found here. Senator Brown Introduces the Close the Shadow Banking Loophole Act Before the Christmas break, U.S. Senator Sherrod Brown, Chair of the Senate Banking Committee, introduced the Close the Shadow Banking Loophole Act. In short, the new legislation, if enacted, would require nonbank companies that own an industrial loan company (ILC) to be subject to the same rules as traditional banks. Chairman Brown has been consistent in his concerns regarding regulators permitting large tech companies to own ILCs. While the bill is unlikely to become law in the current political environment, it does place certain fintech companies who have ILCs, or are considering utilizing ILCs, on notice that the Committee will continue to highlight this issue in 2024. Senate Warren Letter to OCC on Preemption On December 18th U.S. Senator Elizabeth Warren led a group of Democratic US Senators in a letter to Michael J. Hsu, the Acting Comptroller of the Currency (OCC), regarding the agency’s preemption authority. According to the letter, the Democratic Senators who signed the letter are concerned that the OCC is exceeding its authority, which they argue is limited by Section 1044 of the Dodd-Frank Act. Section 1044 sets forth three conditions under which federal law preempts state consumer protection law: (1) the state law favors state banks over national banks, (2) the state law “prevents or significantly interferes with” a national bank’s exercise of its powers pursuant to the Supreme Court’s decision in Barnett Bank v. Nelson, or (3) a federal law other than the National Bank Act preempts the state law. Further, the Senators detail that Dodd-Frank requires the OCC to consult with the Consumer Financial Protection Bureau before determining that another state law is substantively equivalent to a state law that the OCC is preempting. To read the letter in detail please click here. Dem Senators Prod CFPB on BNPL Three Democratic U.S. Senators, Sherrod Brown, Raphael Warnock, and John Fetterman signed a letter addressed to the CFPB expressing their concerns regarding Buy Now Pay Later products. The letter is a follow-up communication to CFPB Director, Rohit Chopra, who testified last month that the agency has concerns with BNPL. In their letter, the senators state that they are concerned that BNPL may lead some consumers who are vulnerable to unexpected debt during the holiday season. The letter closes by requesting that Director Chopra utilize the CFPB’s full regulatory and supervisory authority to protect Americans against any potential harms. IPA Podcasts
Hosted by the IPA, the Payments Podcast is designed to keep you ahead of an ever-changing industry and position you to succeed in tomorrow’s payments environment. Join us for thought-provoking discussions on the most pressing issues of the day. Listen to recent episodes below or subscribe using the app of your choice. 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: [email protected]. 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 ([email protected]). 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. 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: [email protected]. 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: [email protected]. 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: [email protected]. 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. |
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