July 26, 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: gr@ipa.org.

The IPA Compliance Boot Camp Will Be Held in Chicago in September
Mark your calendars to join us at the IPA's Compliance Boot Camp on September 12th to ensure you don't miss out.
 
We will have sessions on Regulation E, Earned Wage Access, Artificial Intelligence, court cases impacting the payments sector, Buy Now Pay Later, and Stablecoins. Some attendees may be eligible to receive CLE credits through their attendance. The following day participants will have an opportunity to hear from agents and analysts from the FBI Chicago Field Office on financial and cyber-crime threats. Registration information for that event can be found here. 

IPA Continues Advocacy on Rep. Steil’s EWA Draft Bill
This month the IPA continued advocating on behalf of members in meetings with the office of Rep. Bryan Steil (R-WI) related to his EWA regulatory draft bill. The Congressman’s staff have been grateful for the concrete suggestions we have been able to provide. They specifically noted that the IPA was unique compared to others they’ve heard from in that we provided actual suggestions and changes. While we have mostly focused our advocacy on technical changes, we did bring up the issue of the IRS EWA proposal and the tax issues involved. We have been told that adding a provision on tax issues would trigger joint jurisdiction with the Ways and Means Committee, something they’d like to avoid at all costs. 
 
Rep. Steil is still working on generating bipartisan support and is hoping to have something ready for a fall markup on fintech-related legislation. We’ll continue to be a resource to Steil’s office in the coming weeks and months as they finalize the legislation.
 
Rhode Island Gift Card Scam Warning Bill Signed by Governor
Rhode Island Senate Bill 759 has passed and was recently signed by Governor Daniel McKee. The bill requires sellers of gift cards to post conspicuous warnings near where the gift cards are displayed and at or near the physical location where the sale occurs, and instructs the purchase on what to do if they suspect they might be a potential victim of such a scam. The bill went into effect immediately upon signing. More information can be found at the Rhode Island Department of Business Regulation.
 
According to unofficial guidance from the RI DPR, the signage does not need to be both in Spanish and English, and can be a version similar to the recommended signage that RI DPR provided here, as long as it is consistent with the intent of the law. 
 
In addition, the RI DPR stated that enforcement will begin slowly, with letters sent to businesses that are not in compliance. If there is no response, or if the business does not comply after a second warning letter is sent, only then will fines be assessed.  
 
U.S. District Court Hearing on PayPal v. CFPB
Judge Richard Leon of the U.S. District Court for the District of Columbia held a motion hearing in the case of PayPal v. CFPB, in which PayPal is challenging the CFPB’s model disclosures that companies could use to comply with the Bureau’s prepaid account rule. The case is before Judge Leon on remand after the U.S. Court of Appeals for the D.C. Circuit ruled in February that the prepaid account rule does not mandate specific fee disclosures for digital wallets, and only provides a model that companies can use while give them the option to develop their own similar disclosures. 
 
Judge Leon ruled on summary judgment in December 2020 that the Bureau’s short-form model disclosures violated EFTA’s ban on mandatory disclosure, and today heard oral arguments for PayPal and CFPB’s motions for summary judgments which were filed in late May (available here and here, respectively).
 
During their oral argument, attorneys for PayPal highlighted the differences between digital wallets such as PayPal and prepaid cards, and argued the prepaid accounts rule should not apply to digital wallets. Specifically, they demonstrated that digital wallets generate revenue based on fees to merchants, not fees to consumers, and that the CFPB found no evidence that digital wallets harm consumers in ways that are similar to prepaid cards. According to PayPal, the CFPB simply determined that digital wallets were “close enough” to prepaid cards in form and function, and in the interest of regulatory uniformity chose to apply the prepaid account rule to digital wallets. 
 
In closing, PayPal argued that the particularities of prepaid cards make them significantly different from mobile wallets and necessitates a heightened regulatory standard above and beyond Reg E, and the new standard via the Prepaid Account Rule should not apply to digital wallets. In their rebuttal, PayPal stressed that they have always followed the baseline Reg E disclosure requirements, and the issue is not whether or not PayPal will continue to discloses fees, but rather whether or not they are permitted to disclose those fees in a sensible way that makes sense for the products they offer, and in a way their users can understand. 
 
In CFPB’s oral arguments, attorneys compared the short-form disclosure form to a simple nutritional label and said the prepaid account rule was intended to apply not only to general purpose reloadable cards, but a wide range of asset accounts, and noted that at the time of the rulemaking, many asset accounts were moving to an online-only function. He noted a risk of harm to consumers from fees across the entire financial services market, and said that consumers are entitled to disclosures that outline what fees they can expect. Attorneys for the CFPB said that similar to prepaid cards, consumer funds in digital wallets are subject to fees, they have a right to receive disclosures about those fees, and the existence of fees is enough for digital wallets to be regulated under the same framework as prepaid cards. 
 
In direct response to PayPal’s argument, the CFPB acknowledged there was no evidence of consumer harm from digital wallets fees but said this the lack of evidence is not a reason not to regulate fee disclosures of digital wallets. In their rebuttal, the CFPB said that if digital wallets are able to escape prepaid account rule requirements, new products would classify themselves as digital wallets in an effort to receive less regulatory scrutiny.
 
Judge Leon asked clarifying questions of both sides but seemed to reserve his most probing and direct questions for the CFPB. Due to the complexities of the arguments, Judge Leon is allowing PayPal and CFPB to submit supplemental pleadings covering only items covered in the oral arguments, due two weeks from the day they receive the transcripts.
 
FDIC Consumer News: Is My Money Insured by the FDIC?
The FDIC published an FDIC Consumer News article entitled “Is My Money Insured by the FDIC?” which explains FDIC deposit insurance coverage and review how consumers can avoid fake banks and apps. Considering the recent events surrounding FDIC deposit insurance, marketing of FDIC deposit insurance coverage, and the potential for reform of the FDIC deposit insurance system, we encourage members to keep up to date on relevant information coming from the FDIC.
 
CFPB Fines Bank of America for Illegally Charging Fees, Withholding Credit Card Rewards, and Opening Fake Accounts
The CFPB announced fines against Bank of America for illegally double-charging insufficient fund fees, withholding credit card reward bonuses, and using sensitive personal information to open accounts with customer knowledge or authorization. Bank of America has been ordered to stop it repeat offenses, pay approximately $80.4 million in customer redress, and pay a total of $90 million in penalties to into the CFPB’s victims relief fund. Separately, Bank of America will also pay a $60 million fine to the OCC. More information can be found in the press release here. 
 
Sens. Lummis and Gillibrand Reintroduce Cryptocurrency Bill
Sens. Cynthia Lummis (R-WY) and Kristen Gillibrand (D-NY) reintroduced their cryptocurrency regulatory proposal, entitled the Responsible Financial Innovation Act of 2023. The legislation expands on the bill the senators introduced last year and adds consumer protections and safeguards against fraud and bad actors. 
 
According to a press release from the office of Sen. Lummis:
 
This legislation places crypto assets within the regulatory perimeter, requires all crypto asset exchanges to register, addresses decentralized finance, safeguards consumers through enhanced disclosures and limits on crypto asset lending, closes the wash sale loophole and codifies the criteria to determine which crypto assets are securities or commodities. 
 
The legislation also combats the use of crypto assets in illicit finance, imposes new penalties for willfully violating money laundering laws, requires stablecoins to be issued by depository institutions and provides appropriations to federal agencies to implement the policies within the bill. 
 
A section-by-section summary of the bill can be found here, and a comparison of this bill to their previous bill can be found here.
 
CA Assembly Appropriations Committee Passes CA SB728
In the final days of the session before summer recess, the California Assembly Appropriations Committee passed CA SB728, which would ban the sale and distribution of plastic gift cards. The bill now heads to the Assembly floor for consideration. The Assembly will reconvene on August 14th for one month until the end of the 2023 legislative session on September 14th.
 
CFPB Sues Snap Finance for Hiding Terms and Conditions and Illegal Debt Collection
The CFPB announced a lawsuit against lease-to-own company Snap Finance for obscuring the terms of its financing agreements and making false threats. Specifically, the CFPB alleges that Snap Finance locked consumers into expensive agreements using deceptive advertising, confused customers about payment obligations by obscuring the terms and conditions, misrepresented consumers’ rights in the finance agreements, and made false threats and deceptive statements to struggling borrowers. The CFPB is seeking monetary relieve for consumers, an end to Snap Finance practices outlined above, and a civil money penalty.
 
Joint Statement by CFPB and European Commission on Consumer Protection Issues
CFPB Director Rohit Chopra and Didier Reynders, Commissioner for Justice and Consumer Protection of the European Commission, issued a joint statement and announced the start of an informal dialogue on a range of consumer protection issues. According to the statement, the dialogue will cover issues such as automated decision making in financial services, new forms of credit such as BNPL, strategies to prevent consumer over-indebtedness, digital transformations to ensure fair choice and credit access, and implications for competition, privacy, security, and financial stability of Big Tech companies.

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. The bill was placed on the floor calendar for consideration on 4/6/23 and passed the House on 5/11/23 by a vote of 230-200.
 
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.