May 3, 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].

2023 Innovative Payments Conference 
​The 2023 Innovative Payments Conference will be held on May 7-9th. The IPA’s IPC is the must-attend annual event for the payments community attracting the attention and support of the industry’s most influential players. Benefit from two days of cutting-edge content, discussions and enhanced networking as you engage directly with those leading the way in payments compliance, legislation, regulation and innovation.

Here are some highlights of the agenda:

• Seth Frotman, General Counsel of the CFPB, will discuss Consumer Financial Protection and Payments in the 21st Century;
• Andrew Moss, Director for Minority Outreach at the OCC will discuss Building a New Economy through Financial Inclusion;
• Stu Richards, CEO of Bredin, will present original research on the payments preferences of small businesses;
• Adam Drucker, PayPal’s Sr. Director, Global Law Enforcement Outreach and Response Global Investigations will discuss how PayPal Approaches High-Risk Investigations;
• Dan McCrum of the Financial Times will discuss how his reporting helped uncover the Wirecard Scandal;
• Industry Veterans John Hagy and Karen Garrett, will talk about where the industry has been and where it is going.

​CA Senate Considers Plastic Gift Card Ban
California State Senator Cynthia Limón has introduced SB728, a bill which would ban the sale or distribution of plastic gift cards. The bill passed the Environmental Quality Committee on April 27, 2023, and was amended to define “gift cards” using the statutory definition of “gift certificates” and to exclude open loop gift cards. The bill is eligible to be considered on the Senate floor immediately, but the Senator’s staff has committed to hearing from industry stakeholders, and have met with IPA staff to hear our concerns. We are in the process of drafting a letter in opposition to the bill, and will continue to engage with the bill author’s staff. 
 
CFPB Employee Breaches Data of Over 250,000 Consumers
News broke that a now-former employee of the CFPB forwarded the personal information of more than a quarter-million consumers to a personal email account in March. The employee sent over 50 emails containing personal information on approximately 256,000 consumers at one institution, as well as confidential supervisory information on 45 institutions. A CFPB spokesperson said that there is no evidence the records were shared beyond that former employee’s personal email account. In a statement about the breach, House Financial Services Committee Chair Patrick McHenry said “This breach raises concerns with how the CFPB safeguards consumers’ personally identifiable information. Republicans will ensure any bad actors are held accountable.”
 
Senate Banking Committee Ranking Member Tim Scott and House Financial Services Committee, Subcommittee on Oversight and Investigations Chairman Bill Huizenga have both sent letters to Director Chopra and called for a briefing on the breach and the CFPB’s response. 
 
Financial Services Committee Hold Legislative Markup
The House Financial Services Committee held a markup and reported 14 bills out the Committee. The focus of the bills was strengthening public markets, helping small businesses and entrepreneurs, and creating opportunities for investors. Additionally, the Committee passed by party-line vote the CFPB Transparency and Accountability Reform Act, which would reform the Bureau’s leadership structure, subject the agency to regular appropriations, and create an independent Inspector General for the CFPB. The bill is likely to be considered by the House later this year, but will not be taken up by the Senate. 
 
Federal Reserve Board and FDIC Release Reports on Bank Failures
Both the FDIC and Federal Reserve released the results of their reviews into the failures of Signature Bank, and Silicon Valley bank. The FDIC’s review of Signature Bank found that the collapse was due to poor management, and said bank management did not always heed FDIC examiners concerns, and was not always responsive or timely in addressing their supervisory recommendations. In particular, the report stated that bank management did not fully understand the risks associated with accepting crypto deposits, which comprised more than 20% of its total deposits.
 
In the Federal Reserve’s report on the failure of Silicon Valley Bank, the Fed outlined serious management errors by SVB executives, while also admitting the Fed failed to take sufficient actions to prevent the collapse. Specifically, the report said that “Regulatory standards for SVB were too low, the supervision of SVB did not work with sufficient force and urgency, and contagion from the firm’s failure posed systemic consequences not contemplated by the Federal Reserve’s tailoring framework,” 
 
These reports will be considered by Congress as they continue their investigation of the bank failures and determine what, if any, their legislative response should be. The Senate Banking Committee will hold a hearing this Thursday with academic witnesses to discuss the failures, and we can expect these reports to widely discussed.
 
Federal Reserve and FHN Reports
The Federal Reserve released its 2022 Federal Reserve Payments Study, which studied noncash payment methods used in the United States by consumers, businesses, and governments. The report found that The value of core noncash payments in the United States grew faster from 2018 to 2021 than in any previous FRPS measurement period since 2000.
 
The Financial Health Network released a report using their Financial Health Pulse panel survey, and found that four out of five Americans were financially unhealthy at least once over the last five years.
 
CFPB Statement on Bias in Automated Systems and Advanced Technology
The CFPB, Department of Justice, Federal Trade Commission, and the Equal Employment Opportunity Commission released a joint statement last week expressing their concerns with discrimination and bias in automated systems. The agencies said in the statement that private and public entities use automated systems to make critical decisions that impact individuals’ rights and opportunities, including fair access to jobs, housing, credit opportunities, and other goods and services. the statement also focuses on their potential to perpetuate unlawful bias, automate unlawful discrimination, and produce other harmful outcomes.  The agencies reiterated their intention to monitor the development and use of automated systems and promote responsible innovation, and also to use their collective efforts to protect individual rights regardless of whether legal violations occur through traditional means or advanced technologies.
 
FDIC Supervisory Guidance on Charging Overdraft Fees for Authorize Positive, Settle Negative Transactions
The FDIC issued a Financial Institution Letter (FIL) to supervised institutions to reiterate the consumer compliance risks associated with assessing overdraft fees on a transaction that was authorized against a positive balance, but settled against a negative balance (APSN). Specifically, the FIL noted that APSN transaction overdraft fees may violate Section 1036(a)(1)(B) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and Section 5 of the Federal Trade Commission (FTC) Act, and that unanticipated overdraft fees can cause substantial injury to consumers. The FIL also stated that institutions should ensure third party overdraft programs are compliant with all applicable laws and recommendations. 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.