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; Grant Hannah, Director of Government Relations, IPA; Eli Rosenberg, Partner, Baird Holm LLP; and Gray Derrick, Partner, Baird Holm LLP.
Please address comments and suggestions to: firstname.lastname@example.org.
IPA Podcast: Teaching Banks and Fintechs to Work Together
In the brave new world of financial services, there are opportunities for both innovative companies and traditional banks, but they need to understand one another if they want to thrive, says Joyce Mehlman, the founder of iLex Consulting Group.
In the latest episode of the IPA Payments Pod, we talk about why Fintechs need to understand the difference and relative value of Banking as a Service versus a direct issuer model of working with banks. We also discuss how traditional banks need to understand where Fintechs offer more in terms opportunities than competition.
In addition, she explained how the latest group of Fintechs and their founders are different in that they are more focused on building a business long-term than they are in building up a company that can be sold.
BOARD OF GOVENORS OF THE FEDERAL RESERVE SYSTEM
IPA Files Comment in Response to Fed Debit Routing Proposed Rule
On July 22, the IPA submitted its comment letter to the Board of Governors of the Federal Reserve System (the Board) in response to their Notice of Proposed Rulemaking concerning Debit Card Interchange Fees and Routing. In brief, the IPA’s comment asks that the Board further consider the Proposed Rule's potential impacts on competition in the marketplace, the compliance burdens it may place on differently situated providers, and on the potential for the Proposed Rule's requirements to increase the presence of fraud in ecommerce transactions. The letter also asks the Board to make adjustments to the proposal accordingly to minimize such impacts and burdens. The letter further requests that the Board provide sufficient time for industry participants to implement whatever changes the Board ultimately makes as part of any final rule.
A copy of the letter can be accessed here. Thank you to all who provided feedback throughout the process of the drafting this comment letter.
CONSUMER FIANCIAL PROTECTION BUREAU (CFPB)
Filing Deadlines Extended in PayPal Case Appeal
In July, the CFPB filed an unopposed motion to extend the time they have to file their initial brief in their appeal in the PayPal case. Accordingly, a modified scheduling order from the United States Court of Appeals for the District of Columbia Circuit has been issued. The modified order requires that the CFPB files its initial brief by August 16, 2021 and that PayPal files its initial brief by October 13, 2021. Additional documents will be due in early-mid November, with final briefs being due on December 8, 2021.
PayPal Faces SEC & CFPB Probes
In its recent quarterly earnings report, PayPal disclosed that it is facing probes by both the U.S. Securities and Exchange Commission and the Consumer Financial Protection Bureau.
The SEC is investigating whether the swipe fees paid to the banks that issue PayPal’s debit cards are consistent with Federal Reserve guidelines. The agency is also investigating how PayPal reports marketing fees earned from its branded-card program.
PayPal has responded to subpoenas and requests for information it received from the SEC’s enforcement division and is cooperating with the investigation, according to the filing.
Separately, PayPal said it received a civil investigative demand from the CFPB in connection to the marketing and use of PayPal Credit in connection with merchants that provide educational services. The regulator asked PayPal to produce documents, written reports and answers to written questions. The company said it is cooperating.
OFFICE OF THE COMPTROLLER OF THE CURRENCY (OCC)
Acting Comptroller of the Currency Tells Congress OCC is Reviewing Bank Overdraft Policies
In testimony before the Senate Banking Committee on August 3, Acting Comptroller of the Currency Michael Hsu said the bank regulator is conducting a review of bank overdraft policies. Acting Comptroller Hsu told senators his agency is "looking very closely at overdrafts."
"Excessive fees on overdrafts, predatory lending, high-cost debt traps — these things shouldn't have a place in the federal banking system," Hsu said, responding to Sen. Chris Van Hollen, D-MD, who brought up several small banks that derive a large portion of their revenue from overdraft fees. "We have a review going on, these particular institutions have been identified, as well as other practices. We're going to use the full range, within our supervisory toolkit, to address it."
He then asked Hsu whether or not he believed a bank that operates in such a way should be considered a "safe and sound institution."
"It certainly raises a lot of flags, and we follow up on those flags to ensure the firms are safe and sound," Hsu responded.
White House Reported to Be Vetting Cornell Professor for OCC Head
On August 5, the New York Times reported that the White House is vetting Saule Omarova, a Cornell professor, to head the Office of the Comptroller of the Currency (OCC). That report can be accessed here.
Additionally, Ms. Omarova published a paper in February 2021 entitled, “The People’s Ledger: How to Democratize Money and Finance the Economy”, which a attempts to describe an approach to addressing, “…the challenge of “beating” the currently dysfunctional U.S. financial system by reimagining its fundamental structure and redesigning its operation.” From the paper’s conclusion - “This Article offers a blueprint for radically reshaping the basic architecture and dynamics of modern finance. Using the creation of digital dollar FedAccounts as its starting point, the Article constructs a coherent set of structural reforms aiming to make the financial system more inclusive, efficient, and stable. It advocates a comprehensive update of the Federal Reserve’s balance sheet—the nation’s core economic ledger—to maximize its structural capacity to support productive economic enterprise, in the long-term interests of the American people. In effect, it re-imagines the role of a central bank as the ultimate public platform for generating, modulating, and allocating financial resources in a modern economy—the People’s Ledger:”
New Reports on Digital Money
A few reports on digital money were released be various organization in recent weeks that are worth highlighting. The first, a report from The Clearing House (TCH), examines the challenges and opportunities associated with central bank digital currencies (CBDC). Specifically, it highlights significant implications of certain design and implementation choices that might be made with respect to a U.S. CBDC and makes specific recommendations about CBDC, assuming the U.S. government may proceed with some form of CBDC implementation.
The second report is from the Diem Association (formerly known as Libra) on the payments system. Titled “Why is the United States Lagging Behind in Payments?”, the paper offers criticism of payment fees, account fees, bank consolidations, interchange, and more. In addition, it outlines three ways to “remove frictions” and improve payments, which include a CBDC, greater adoption and use of real-time gross settlement (RTGS) systems, and facilitating the growth of interoperable stablecoin payment rails “by creating the right regulatory framework for these new types of networks.”
Finally, the International Monetary Fund (IMF) has released a new paper entitled, “The Rise of Digital Money”. In brief, the paper reviews the forces of change driving the adoption of digital forms of money; considers the policy implications and new policy questions that arise; clarifies the IMF’s role in tackling these questions; outlines a strategy to do so; and provides initial estimates of the resources necessary to deliver this vision.
Below is latest intelligence the IPA has received on recent activity on Capitol Hill:
California DFPI Enters in MOU with EWA Company
The IPA has learned that, in July, the California Department of Financial Protection and Innovation (DFPI) entered into a Memorandum of Understanding (MOU) with an earned wage access (EWA) company called Immediate Solutions. In brief, the MOU requires, among other things, that Immediate comply with a quarterly reporting requirement, periodic onsite examinations, a set of best practices, and that they include new specified language in their consumer disclosure. Immediate also agreed to refrain from representing to its customers that it is supervised, approved, or endorsed by DFPI in any way.
A copy of the MOU can be accessed here.
IPA Draft Letter to the California Financial Regulator on EWA
The IPA has drafted a letter to the California Department of Financial Protection and Innovation (DFPI) on earned wage access (EWA). In brief, the letter provides an overview of the industry, discusses principles for regulation going forward that the IPA believes would appropriately balance consumer protection and innovation, and expresses the IPA’s desire to being an ongoing dialogue with DFPI on EWA.
The IPA has released a revised draft of the letter and is currently working to incorporate additional feedback received from members.
New Federal Laws
S.J. Res 15 – A joint resolution providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by the Office of the Comptroller of Currency relating to "National Banks and Federal Savings Associations as Lenders" (True Lender Congressional Review Act Resolution)
Summary: This disapproval resolution invalidates the OCC’s True Lender Rule, which addressed lending arrangements between banks and non-bank third party lenders. Additionally, the Resolution prevents the OCC from issuing the Rule, or one like it, again.
Status: Signed by the President on 6/30/20.
Sponsor: Sen. Chris Van Hollen (D-MD)
Pending Federal Bills
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: Referred to the Subcommittee on Antitrust, Commercial, and Administrative Law on 04/23/2021.
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)