December 20, 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].

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: 

• “In both scenarios, and especially when advances are provided and repayment is collected without the involvement of the consumer’s employer, these products share fundamental similarities with payday lending products.”
• “Rigorous supervision of all income-based advance products helps to ensure that the label of a product does not determine how providers are held accountable, or the extent to which consumers are protected, under the law.”
• “By treating these products as loans and including a variety of charges that accompany the advance, DFPI’s proposal takes a similar approach as the Truth in Lending Act and its implementing Regulation Z, which generally applies to extensions of consumer credit and provides that a finance charge ’includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit,’ with certain limited exceptions.”
• “As the CFPB has stated previously, the CFPB plans to issue further guidance to provide greater clarity concerning the application of the Truth in Lending Act in this market. The CFPB’s previous advisory opinion on this topic should not be misrepresented: Products that do not fit within its very narrow scope are not excluded from existing laws. To the contrary, the CFPB supports efforts to subject such products to rigorous oversight for the full scope of existing state and federal consumer protection and lending laws.”

 
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: 

•  Overdraft Fees
• Fees for Insufficient Funds
• *Sec. 1033 (Issued as a Proposed Rule in October) 

 
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
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