June 7, 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 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.

CLE credits have been applied for the Complaince Boot Camp, ensuring that attendees can earn valuable continuing legal education credits.

 IPA Conference Wrap Up
If you were not able to join us for the Innovative Payments Conference last month, then make sure to check out the highlights from our conference at the IPA Website. Our MC, Tim Sloane, shared highlights on our blog, and Tim and Brian Tate also recorded a podcast to talk about lessons learned from the event.
 
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.  

HFSC and House Agriculture Chairmen Release Digital Market Structure Proposal
HFSC Chairman Patrick McHenry (R-NC) and House Agriculture Committee Chairman Glenn Thompson (R-PA) released a discussion draft of legislation which would create a statutory framework for digital asset regulation. The bill would allow digital assets to be traded on more conventional trading platforms, and introduces a division of authority between the SEC and CFTC. Specifically, the proposal grants regulatory authority over digital-asset securities to the SEC, while granting the CFTC spot market authority over crypto commodities. This proposal is just a starting point in negotiations that are likely to occur in the coming weeks and months between members of both the House Financial Services and House Agriculture Committees. More information, including a section-by-section summary, can be found here.
 
PayPal and CFPB Files Motions in Prepaid Account Rule Case
PayPal filed a renewed motion for summary judgment in the United States District Court for the District of Columbia in their remanded case challenging the CFPB’s prepaid account rule as it applies to providers of digital wallets. 
 
In their memo, PayPal argued that the rule’s heightened regulatory requirements are arbitrary and capricious as applied to digital wallets, the CFPB failed to perform appropriate cost-benefit analysis regarding the application of the rule to digital wallets, and that the rule violates the First Amendment by compelling PayPal to disclose information that is largely inapplicable to its products and likely to confuse its customers, while also prohibiting PayPal from presenting clarifications to dispel that confusion. 
 
Simultaneously, the CFPB filed its own motion for summary judgement, arguing that the rule is not arbitrary and capricious with respect to digital wallets, the CFPB appropriately considered the costs and benefits of the rule, and the short-form disclosure requirements do not violate the First Amendment. Oral arguments in the case are currently scheduled for July 6th.
 
CFPB Publishes Statement on Payment App Deposit Insurance
The CFPB published an issue spotlight on popular digital payment apps and reminded consumers that funds stored on these apps may not be held in accounts with federal deposit insurance coverage. Specifically, the spotlight found that more than three-quarters of adults in the U.S. have used payment apps, nonbanks can earn money when users store funds on their platforms, funds sitting in payment app accounts often lack deposit insurance, and user agreements often lack specific information on where funds are invested and under what situations they may be insured. 
 
Perhaps not surprisingly, the CFPB failed to mention the fact that many of these apps are regulated as money transmitters and as such, consumer funds are protected under state regulations.
 
CFPB Fines OneMain $20 Million for Deceptive Sales Practices
The CFPB announced a $20 million fine against installment lender OneMain Financial for failing to refund interest charged to customers who cancelled purchases within the full refund period. OneMain will pay $10 million in refunds to affected consumers, and an additional $10 million penalty to the CFPB’s victims relief fund. Additionally, the order requires OneMain to adjust their cancellation policies to make cancellation of add-on products easier, increase from 30-60 days the period in which a consumer can cancel an unused add-on product, and include interest in refunds after cancellations at any time. More information can be found here.
 
Chairman Brown Introduces Forced Arbitration Bill
Senators Sherrod Brown (D-OH) and Richard Blumenthal (D-CT) and Rep. Hank Johnson (D-GA) introduced The FAIR (Forced Arbitration Injustice Repeal) Act, a bill which would ban pre-dispute arbitration clauses in consumer, antitrust, employment, and civil rights cases.
 
CFPB Issues Guidance to Rein in Creation of Fake Accounts to Harvest Fees
The CFPB released guidance that affirms it would be a violation of federal law if a bank were to unilaterally reopen a deposit account to process transactions after a customer has already closed it. According to the press release, some customers have complained that even after they have completed all the necessary steps to close their accounts, banks have reopened the closed account and assessed overdraft and NSF fees. The guidance confirms that this practice may violate the Consumer Financial Protection Act’s prohibition on unfair acts or practices. More information can be found here. 
 
Rep. Luetkemeyer Introduces Small Business Stability Act
Rep. Blaine Luetkemeyer (R-MO), introduced the Small Business Stability Act, which would give the FDIC the ability to guarantee all non interest-bearing transaction accounts for up to 60 days if a systemic exemption is declared. An exemption declaration would require a 2/3rds vote by the FDIC and Federal Reserve Boards, and approval by Treasury.
 
Update on May 18th HFSC Stablecoin Hearing
The House Financial Services Committee, Subcommittee on Digital Assets, Financial Technology and Inclusion, held a hearing entitled “Putting the ‘Stable’ in ‘Stablecoins:’ How Legislation Will Help Stablecoins Achieve Their Promise.” 
 
During his opening statement, Subcommittee Chairman French Hill (R-AR) noted that although they were discussing separate proposals from both the majority and minority members (available at the links below), there were many similarities between the two, and expressed confidence an agreement could be reached, although Subcommittee Ranking Member Bill Foster (D-IL) and Committee Ranking Member Maxine Waters (D-CA) were less optimistic. 
 
One notable difference in the bills is the relationship between state and federal stablecoin regulation. The Republican bill would allow stablecoin issuers to choose which state they register in without going through the Federal Reserve. Supporters of this approach say it would prevent a “race to the bottom” and would mirror the two-tiered federal/state banking regulatory system. The Democratic bill, on the other hand, would preserve access to regulation at the appropriate federal regulator.
 
Drawing comparisons to the recent collapse of FTX, Ranking Member Maxine Waters (D-CA) highlighted that a central point of the Democratic bill is strong protection for digital wallets when it comes to preventing the comingling of customer assets from crypto exchanges. 
 
CFPB Fines Citizens Bank $9 Million for Unlawful Credit Card Servicing
The CFPB announced a settlement with Citizens Bank to resolve allegations the bank violated consumer protection laws. Specifically, the CFPB alleges that Citizens Bank violated the Truth in Lending Act by improperly denying customer reports of fraud and errors and failing to provide refunds, and failing to provide required documents and referrals. 
 
As part of the settlement, Citizens Bank is required to pay a $9 million fine to the CFPB’s victims relief fund, and fix its credit card practices related to billing error notices and unauthorized use claims. More information can be found 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.