October 17, 2024

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].

​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 roles and responsibilities of banks and fintechs in maintaining compliance.
• An overview of relevant regulations such as Regulation E, Regulation Z, the Bank Secrecy Act, and others.
• Practical considerations for developing a robust compliance plan.
• Guidance on third-party risk management, drawn from recent statements and guidance from federal banking agencies.

 
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: 

• The Interpretive Rule will replace the CFPB’s 2020 Advisory Opinion. 
• It mischaracterizes EWA products as a loan and EWA providers as “lenders.” 
• It applies Regulation Z to EWA, and accompanying Disclosures.
• Fees for “tips” and expedited delivery will be finance charges under TILA. 

 
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:

• It revises the definition of “deposit broker” to combine the “placing” and “facilitation” prongs into a single definition with single set of factors for determining when a third party acts as a deposit broker.
• It eliminates the exclusive deposit placement arrangement exception.
• It eliminates the “enabling transactions” test for application of the primary purpose exception.
• It removes the ability for third parties to apply for application of the primary purpose exception. Under the proposal, only the IDI would be able to apply.

 
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. 

• Nov. 5: Election Day

IPA Mentions

• Digital Transactions: Payments 3.0: Humanity And the War on Gift Card Fraud – Digital Transactions
  
• IPA Op-Ed: Brokered Deposits (Amer. Banker pay wall) 
  
• IPA Pod: September 2024 Government Update

Articles and Reports

• • Digital Transactions - July: Can Fintechs Control Their Destiny
  • Digital Transactions - June: Time for Second Thoughts on Fintechs 

 
Upcoming Events and Calls 

Events

• Save the Date: Money 2020 Reception - Oct. 29, 2024
  
  

GRWG Calls

• IPA October Monthly GRWG Call: October 17, 2024
• IPA November Monthly GRWG Call – November 14, 2024