October 5, 2022

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].

Money 20/20 Reception
Please join Stinson LLP, Baird Holm LLP, The American Transaction Processors Coalition and the IPA on Monday, October 24th, for a reception during the Money 20/20 Conference. Drinks and hors d'oeuvres will be served beginning at 5 p.m. Registration information can be found here. 

​Federal Reserve Finalizes Updates to Reg II
The Federal Reserve Board has finalized updates to Reg II, the Board’s rule concerning debit card transactions. According the Federal Reserve the final rule is “substantially similar” to their 2021 proposed rule in which the IPA submitted a comment.  The final rule will be effective July 1, 2023.
 
In brief, the final rule specifies that debit issuers should enable at least two payment card networks to process all debit card transactions, including “card-not-present” transactions, such as online payments. According to the statement that accompanied the final rule, the Federal Reserve believes this new regulation will encourage competition between networks and incentivize them to improve fraud-prevention capabilities. The Federal Reserve also noted that many debit card issuers are already compliant with the final rule.  More information, including a press release, Board memo, and dissenting statement by Governor Bowman, can be found here.
 
CFPB Orders Regions Bank to Pay $191 Million for Overdraft Fees
The CFPB announced it is ordering Regions Bank to pay $50 million into the CFPB’s victims relief fund and to refund at least $141 million to customers harmed by its surprise overdraft fees. According to the CFPB, between August 2018 and July 2021, Regions Banks charged surprise overdraft fees on certain ATM and debit card transactions, even after telling customers they had sufficient funds at the time of the transaction. Specifically, the CFPB asserts Regions Bank employed “complex and counter-intuitive overdraft practices and manipulations.” More information can be found here.
 
CFPB Sues MoneyLion for Overdraft Charges
The CFPB announced it is suing MoneyLion for violations of the Military Lending Act. Specifically, the CFPB alleges that MoneyLion violated the Military Lending Act by charging more than the legally allowable 36% rate cap on loans to servicemembers and their dependents through a combination of stated interest rates and monthly membership fees. The CFPB also alleges MoneyLion required customers to join a membership program to access certain low interest loans, but did not allow them to cancel their memberships until their loans were paid. 
 
In a public response after the CFPB’s announcement, MoneyLion stated they have been cooperating with the CFPB for over three years regarding their membership offering, and accused them of prioritizing headlines over constructive dialogue.
 
Notably, this is the CFPB’s fourth enforcement action related to the Military Lending Act in the past two years. More information can be found here.
 
Sen. Elizabeth Warren Issues Report on Zelle Fraud
Sen. Elizabeth Warren (D-MA) issued a report on fraud on the Zelle platform. The report follows letters to Early Warning Services and the bank-owners of Zelle, including JPMorgan Chase, Wells Fargo, U.S. Bank, PNC, Capital One, Bank of America, and Truist; and the recent Senate Banking Committee hearing during which Warren questioned bank CEOs about reimbursing customers who are victims of fraud on the platform.
 
As expected, the report was highly critical of Zelle, Early Warning Services, the bank-owners of Zelle, and their fraud prevention and reimbursement policies. Notably, the report highlights that an estimated $440 million was lost by Zelle users through frauds and scams in 2021. It is also worth noting that Sen. Warren was the sole sponsor of the report, which was published through her office and not through the Banking Committee, and she was not joined in the report by Sen. Robert Menendez, who had previously co-authored letters to EWS and the bank-owners of Zelle.
 
FSOC Report on Digital Asset Financial Stability Risks and Regulation
The Financial Stability Oversight Council released its Report on Digital Asset Financial Stability Risks and Regulations in response to President Biden’s executive order, Ensuring Responsible Development of Digital Assets. The report outlines the specific financial stability risks and regulatory gaps posed by various types of digital assets and provides recommendations to address such risks. 
 
Specifically, the report identified three gaps in the regulation of crypto-asset activities in the United States:

1. Spot markets for crypto-assets that are not securities are subject to limited direct federal regulation.
2. Crypto-asset businesses do not have a consistent or comprehensive regulatory framework and can engage in regulatory arbitrage. 
3. Financial stability and investor protection implications may arise from retail investors’ exposure to certain practices commonly proposed by vertically integrated trading platforms, such as automated liquidation. 

 
The FSOC makes several recommendations in the report including regulatory principles, continued enforcement of existing regulatory structures, steps to address each of the above-mentioned regulatory gaps, and bolstering member agencies’ capacities related to crypto-asset data and expertise.
 
President Biden Announces Two FDIC Nominations
President Biden announced his intention to nominate Jonathan McKernan as a Member of the Board of Directors and Travis Hill as a Member and Vice Chair of the Board of Directors at the FDIC.
 
McKernan is currently on detail from the FHFA to the Senate Banking Committee and Hill most recently served as Senior Advisor to the Chairman and Deputy to the Chairman for Policy at the FDIC.
 
Nacha Releases Report on New Risk Management Framework
Nacha released a report on its new Risk Management Framework. The report outlines a new strategy for industry participants in both the ACH Network as well as other payment systems in an effort to address fraud that increasingly make use of credit-push payments, including vendor impersonation, business email compromise, and payroll impersonation. 
 
Nacha’s strategy identifies three themes in payment risk management:

1. The most significant fraud threats to bank account holders involve fraud and scams that result in money being sent out of their accounts using credit payments, including ACH credits, wires, cards, and other instant and digital payments.
2. The financial institutions that receive these credit payments should have an active role in fraud detection, prevention, and recovery. These institutions are often in the best position to identify potentially fraudulent credit payments sent to accounts at their institution.
3. Success in fighting credit-push fraud requires cooperation and information sharing among financial institutions and other stakeholders.

 
Federal Reserve Governor Jefferson Highlights Benefits of Payments Technology
This week at the Technology-Enabled Disruption conference, organized by the Federal Reserve Banks of Atlanta, Dallas, and Richmond, Federal Reserve Governor Philip Jefferson highlighted the benefits of innovations in the payments system, particularly during the Covid-19 pandemic:
 
“The payments system has also seen an acceleration in alternative online and mobile payment methods as well as contactless payment options. We all remember the onset of the pandemic, when social distancing became imperative and delivery and curbside pickup became the norm for many. Remote card payments naturally rose as in-person use fell. As stores reopened while the fear factor was still considerable, the contactless payment options that were available on cards and mobile devices received more attention. Such changes, coupled with the growing prominence of person-to-person money transfer apps, provided consumers with remote and touchless cash substitutes in their daily lives. The expanded use of those various payment options rested on the foundation of an intricate, robust payments ecosystem. That system supported a migration from in-person payment options to no-contact alternatives, helping restart the economy during a time of deep stress.”
​
His full remarks can be found here.

​New Federal Bills
None
 
Pending Federal Bills
S. 4760 - Digital Commodities Consumer Protection Act of 2022
 
Summary: The bill would give the CFTC the authority to regulate digital commodities.
 
Status: Introduced on August 8, 2022 and referred to the Senate Committee on Agriculture, Nutrition and Forestry.
 
Sponsor: Rep. Debbie Stabenow (D-MI)
 
Financial Data Privacy Bill Discussion Draft
 
Summary: The bill would modernize financial data privacy laws and give consumers more control over how their personal information is collected and used.
 
Status: Discussion Draft released. Not officially introduced.
 
Sponsor: Rep. Patrick McHenry (R-NC)
 
S. 4356 Responsible Financial Innovation Act
 
Summary: The bill would create a complete regulatory framework for digital assets that encourages responsible financial innovation, flexibility, transparency and robust consumer protections while integrating digital assets into existing law.
 
Status: Introduced in Senate on June 7, 2022, Referred to the Committee on Finance.
 
Sponsors: Senators Kristen Gillibrand (D-NY) and Cynthia Lummis (R-WY)
 
The Stablecoin Transparency of Reserves and Uniform Safe Transactions (Stablecoin TRUST) Act 
 
Summary: The bill would require that payment stablecoin issuers choose from one of three regulatory regimes: a traditional bank charter; a new federal license designed specifically for stablecoin issuers; or a state-based money transmitter or similar license under state law. The bill would also subject all payment stablecoin issuers to standardized disclosure, redemption, and audit requirements; and would clarify that stablecoins that do not offer interest are not securities.
 
Status: Proposed, but not yet introduced.
 
The Stablecoin Innovation and Protection Act
 
Summary: This bill would require stablecoin issuers to either become a bank or to partner with a bank and be subject to bank-like regulation. The bill also requires nonbank stablecoin issuers to maintain collateral in an amount equal to 100 percent of the value of outstanding stablecoin.
 
Status: Proposed, but not yet introduced.
 
Sponsor: Rep. Josh Gottheimer (D-NJ)
 
H.R. 6415 To amend the Federal Reserve Act to prohibit the Federal reserve banks from offering certain products or services directly to an individual, and for other purposes.
 
Summary: This bill amends the Federal Reserve Act to prohibit the Federal Reserve banks from offering banking products and services, including CBDC, directly to consumers.
 
Status: Introduced in the House and referred to the Financial Services Committee on January 18, 2022.
 
Sponsor: Rep. Tom Emmer (R-MN)
 
H.R. 4773 – Consumer Financial Protection Commission Act
 
Summary: This bill removes the CFPB from the Federal Reserve System, converts the Bureau into an independent commission, and modifies its leadership structure. Specifically, the bill eliminates the position of director and deputy director and establishes a five-person commission appointed by the President and confirmed by the Senate.
 
Status: Introduced in the House and referred to the Financial Services Committee on July 28, 2021.
 
Sponsor:  Rep. Blaine Luetkemeyer (R-MO)
 
H.R.963 – Forced Arbitration Injustice Repeal (FAIR) Act
 
Summary: This bill prohibits a pre-dispute arbitration agreement from being valid or enforceable if it requires arbitration of an employment, consumer, antitrust, or civil rights dispute.
 
Status: The bill passed the House on 3/17/2022 by a vote of 222-209 and was received in the Senate on 3/21/22.
 
Sponsor: Rep. Hank Johnson (D-GA)
 
H.R. 1711 – To amend the Consumer Financial Protection Act of 2010 to direct the Office of Community Affairs to identify causes leading to, and solutions for, under-banked, un-banked, and underserved consumers, and for other purposes.
 
Summary: This bill would direct the CFPB to conduct research on barriers to financial inclusion and identify hurdles under- and un-banked consumers. It would also require the Bureau to identify best practices to increase participation in the financial system and included a reporting requirement.
 
Status: Passed/agreed to in House on 5/18/21. Received in the Senate and Read twice and referred to the Committee on Banking, Housing, and Urban Affairs on 5/19/21.
 
Sponsor: Rep. David Scott (D-GA)
 
H.R. 1996 – SAFE Banking Act
 
Summary: This bill would allow marijuana-related businesses in states with some form of legalized marijuana and established regulatory structures to access the banking and payments system.
 
Status: Passed/agreed to in House on 4/19/21. Received in the Senate and Read twice and referred to the Committee on Banking, Housing, and Urban Affairs on 4/20/21.
 
Sponsor: Rep. Ed Perlmutter (D-CO)
 
H.R. 3968 - Municipal IDs Acceptance Act
 
Summary: This bill would require that the banking regulators update their guidance on Customer Identification Programs to state that an identification card issued by a municipality may be used by a bank to verify the identity of a customer, if such identification card enables the bank to form a reasonable belief that the bank knows the true identity of the customer.
 
Status: 06/23/2021 Ordered to be Reported from the Financial Services Committee in the Nature of a Substitute (Amended) by the Yeas and Nays: 27 - 23.
 
Sponsor: Rep. Richie Torres (D-NY)
 
H.R. 4277 – Overdraft Protection Act of 2021
 
Summary: This bill would limit overdraft fees, both in frequency and amount, and would establish a set of practices for overdraft coverage programs.
 
Status: Introduced and referred to the House Financial Services Committee on 6/30/21.
 
Sponsor: Rep. Carolyn Maloney (D-NY)
 
IV. U.S. Congress Members Not Seeking Re-Election in 2022
The current structure of the U.S. Senate is 48 Democrats, 50 Republicans, and 2 Independents. Currently 1 Democratic and 5 Republican Senators have announced they will not be running for reelection in 2022. The current structure of the U.S. House is 222 Democrats and 211 Republicans. Currently 31 Democratic and 18 Republican House members have announced they will not be running for reelection in 2022. More information about Congressional retirements can be found here.