June 22, 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].

​The IPA Compliance Book 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. The $199 IPA Member Early Bird Rate expires on June 30th. 
 
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. 
 
IPA Continues Its Series of Meetings with the FBI
Building on earlier meetings in Atlanta and New York, the IPA plans to host future meetings with FBI field offices in Minneapolis on July 19 and Chicago on September 13, immediately following our Compliance Boot Camp. The meetings will give members of the payments community the opportunity to meet the agents in their local field offices and learn about trends in financial crimes. The IPA would like to thank our members Sunrise Banks and Discover for hosting these events in Minneapolis and Chicago, respectively. 
 
Registration for the Minneapolis event can be found here.  Registration for the Chicago event will open closer to September. 

Sens. Durbin, Marshall Reintroduce Interchange Legislation
Sens. Richard Durbin (D-IL) and Roger Marshall (R-KS) reintroduced the Credit Card Competition Act. The bill would call on the Federal Reserve to issue regulations within one year that ensures banks that have assets of over $100 billion cannot restrict the number of networks on which an electronic card transaction can be processed to less than two unaffiliated networks, at least one of which must be outside the top two largest networks. The bill appears to be identical to previous versions of the bill. While the bill has little chance of passing as a standalone bill, there is always the possibility of it being included in a larger legislative package. More information can be found in Sen. Marshall’s press release, or in an article published in the Wall Street Journal.
 
CFPB Release Fall 2022 Semi-Annual Report
The CFPB has released the Fall 2022 Semi-Annual Report of the Consumer Financial Protection Bureau. The report highlights recent rules and orders, complaints, and supervisory and enforcement actions. It also gives updates on the Bureau’s work in the areas of state consumer financial law, fair lending, and workplace and contracting diversity. The Semi-Annual Report typically provides a preview of areas in which the Bureau plans on regulating in the near future. Notably, there is no mention of earned wage access in the report, although the report reviews the September 2022 Buy Now, Pay Later report, and their December 2021 inquiry into BNPL providers Affirm, Afterpay, Klarna, PayPal, and Zip.
 
CFPB Publishes Blog on Open Banking
The CFPB published a blog post by Director Rohit Chopra on the potential for open banking to improve market access for American consumers and emerging businesses. The blog post highlighted the Bureau’s rulemaking to implement Dodd Frank Section 1033, which would give consumers the right to control their personal financial data, and said they expect the rule to be finalized in 2024. 
 
Notably, the proposal will recognize that while the CFPB should resolve certain core issues related to the ownership of personal financial data, many of the details and standards should be set outside of the agency to allow open banking to evolve as new technologies and new products are brought to the market.
 
CFPB Regulatory Agenda
The CFPB has published an updated regulatory agenda, which is an agenda identifying rules that the Bureau expects to consider over the course of the next year, and notes in which stage of the rulemaking process the Bureau is in. 
 
Among other regulatory actions, the agenda highlights upcoming rules on overdraft fees, Fair Credit Reporting Act, and NSF fees, all in the pre-rule stage. The Bureau is also in the Proposed Rule Stage on personal financial data rights, and the Supervision of Larger Participants in Consumer Payments Markets; and the Final Rule Stage for credit card penalty fees.
 
Although the CFPB is known to regulate outside of the normal rulemaking process, the published regulatory agenda gives the industry a good idea of the topics they are focusing their attention on.
 
CFPB Director Chopra Testifies at Senate Banking, House Financial Services Committees
Last week, CFPB Director Rohit Chopra appeared before both the Senate Banking and House Financial Services Committees to deliver the Semi-Annual Report of the CFPB. The hearings proceeded as expected, with Democrats praising the Bureau and administration and for their work at reducing so-called “junk fees,” and defending their funding mechanism; and Republicans criticizing Dir. Chopra for using compliance bulletins, circulars, advisory opinions, and blog posts to regulate in place of the normal regulatory rulemaking process. Earned wage access was not discussed in either hearing.    
 
On Tuesday in the Senate Banking Committee, Ranking Member Tim Scott (R-SC), now a candidate for the Republican presidential primary, questioned Dir. Chopra on the CFPB proposal to cap credit card late fees at $8. According to Ranking Member Scott, late fees incentivize on-time payments, and capping late fees would force banks to charge higher interest rates on all customers or cut access to credit for certain borrowers. Dir. Chopra disagreed with Ranking Member Scott’s conclusion and said that banks would still be able recapture costs even at a lower late fee. Sen. Elizabeth Warren (D-MA) later noted that credit card late fees make up a relatively small revenue stream for credit card issuers. 
 
Democrats on the Committee, led by Chairman Sherrod Brown (D-OH) also questioned Dir. Chopra on the potential effect if the Supreme Court upholds a Fifth Circuit Appeals Court decision which found the CFPB’s funding structure is unconstitutional. Dir. Chopra responded that depending on how the ruling is written, it could complicate current and future rulemakings, and would create major uncertainty in financial markets. Sen. Mark Warner (D-VA) said the results of such a decision would be “chaos.”
 
On Wednesday in the House Financial Services Committee, Republicans, led by Rep. Andy Barr (R-KY), Chairman of the Subcommittee on Financial Institutions and Monetary Policy, criticized Dir. Chopra for regulating outside the normal regulatory rulemaking process, and echoed the comments of his Senate colleagues that capping credit card late fees would increase rates on all borrowers. In her opening remarks, Ranking Member Maxine Waters (D-CA) praised the CFPB and defended the constitutionality of their funding mechanism. 
 
During questioning from both sides of the aisle on recent bank runs, Dir. Chopra said that the bank runs were accelerated by digital media and social media, and have brought the risks of uninsured deposits in the public view.
 
FDIC Demands Three Companies Cease False Representations about Deposit Insurance
The FDIC has issued letters to three companies demanding they cease and desist from making false representations and misleading statements about FDIC deposit insurance coverage of their products. The FDIC found that representatives from Bodega Importadora de Pallets, Money Avenue, LLC, and OKCoin USA, Inc. made statements that suggested the companies are FDIC-insured, which is false. No fines were assessed as part of the demands. 
 
According to the press release, the FDIC has observed an increasing number of instances where firms or individuals misused the FDIC’s name or logo, or made false misrepresentations about deposit insurance.
 
FDIC Updates Guidance Regarding Multiple Re-Presentment NSF Fees
Last August, the FDIC issued guidance to supervised institutions addressing compliance risks associated with assessing multiple non-sufficient funds (NSF) fees as a result of the re-representment of the same unpaid transaction.
 
Last week, the FDIC updated that guidance and issued a Financial Institution Letter to clarify its supervisory approach for corrective action when a violation of law is identified. According to the FIL, based on additional data and experience gained since the original guidance, the FDIC is updating and reissuing its guidance to reflect their current supervisory approach to not request an institution to conduct a lookback review absent a likelihood of substantial consumer harm. The updated guidance can be found here.
 
CFPB Publishes Report on Servicemember Use of Digital Payment Apps
The CFPB issued its annual report on the top financial concerns facing military families. Notably, the report highlighted the growth of digital payment app usage in the servicemember community; and focused on several risks to military families, including financial harm from fraud and scams, identity theft and unauthorized account access, and lack of timely and substantive resolutions servicemember complaints. The report offered a number of recommendations, including increasing the network security to prevent fraud, improve responsiveness in the event fraud does occur, and tailoring refund and fraud policies to recognize the unique experiences of military families. More information can be found in the CFPB’s press release.
 
FY24 FSGG Bill Text and Summary
With Appropriations season in full swing, House Republicans have another platform to address disagreements with the Administration and financial regulators. Unlike in the Senate where appropriators are working across the aisle, the prospect of bipartisanship in the House is non-existent. In the FY24 Financial Services and General Government appropriations bill, Republicans are aggressively pursuing funding limitations, policy riders, and report language designed to inject Congress into executive branch operations. We anticipated the FSGG bill will be marked up by the full committee on July 13th. While the Senate Appropriations Committee is kicking off its markup process this week, it has yet to unveil its FSGG bill. A detailed summary of the full bill can be found here. 
 
Federal Reserve Survey on Demand for Faster Payments
The Federal Reserve has released the results of two surveys highlighting an increased appetite for faster payment options, covering both business and consumer demand. The business survey found that slow payments was the top challenge identified by business, and that nearly half of businesses believe faster payments will lower their costs, mainly through more efficient processing. The consumer survey found that 
consumers ages 35-54 use smartphones more often than younger consumers (21-34) for activities such as checking account balances, making bill payments and account-to-account transfers, and that nearly 7 in 10 customers think it’s important for their financial institutions to offer faster payment services. More information can be found in a Federal Reserve blog post here.

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.
 
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.