April 19, 2023

The Government Update

​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​is 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].

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:

• Seth Frotman, General Counsel of the CFPB, will discuss Consumer Financial Protection and Payments in the 21st Century;
• Andrew Moss, Director for Minority Outreach at the OCC will discuss Building a New Economy through Financial Inclusion;
• Stu Richards, CEO of Bredin, will present original research on the payments preferences of small businesses;
• Adam Drucker, PayPal’s Sr. Director, Global Law Enforcement Outreach and Response Global Investigations will discuss how PayPal Approaches High-Risk Investigations;
• Dan McCrum of the Financial Times will discuss how his reporting helped uncover the Wirecard Scandal;
• Industry Veterans John Hagy and Karen Garrett, will talk about where the industry has been and where it is going.

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.