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@example.com.
The Crypto Universe: From A-Z
The IPA will host a members-only event in Washington, DC on January 18, 2023. By attending this one-day seminar on digital currencies you can begin to learn more about the key questions that will impact the future of the crypto universe, including: What is a central bank digital currency? Does it matter if crypto is treated as an asset or a security? Are stablecoins actually stable and other pending questions.
Whether your company is currently investing in the crypto market, or considering operating in the crypto ecosystem, you do not want to miss this opportunity to listen and learn from experts from the business, political, and regulatory realm so you can navigate the future. Registration information can be found here.
Fifth Circuit Ruling on CFPB Funding
A three-judge panel from the U.S. Court of Appeals for the Fifth Circuit has ruled that the CFPB’s independent funding through the Federal Reserve violates the Constitution’s separation of powers clause. The ruling also invalidated the remaining portions of the CFPB’s 2017 Payday Lending Rule.
While it will take weeks, if not months, for the full implications of the Court’s decision to be clear, it is important to remember that in the short term the ruling affects only the issues raised by the plaintiffs in the present case.
In light of this ruling, West Virginia Attorney General Patrick Morrisey sent a letter to CFPB Director Rohit Chopra and argued that the CFPB cannot discharge its duties in a constitutionally permissible way due to the decision. He also wrote that “we cannot see how the Bureau intends to move on with its ‘business as usual’ attitude given that most of its operating funds derive from an unconstitutional funding scheme.” The letter requests answers to a series of questions, with a deadline for replying no later than tomorrow.
CFPB Files Petition in Supreme Court
The CFPB filed a petition to the Supreme Court, requesting the Court review the recent Fifth Circuit Court of Appeals ruling which held that the CFPB’s funding mechanism was unconstitutional. In the petition, the CFPB asked the Court to find the Fifth Circuit errored in their holding, and to hear the case this term. Notably, in the petition, the CFPB highlighted recent legal challenges to the CFPB’s regulations following the Fifth Circuit’s decision and said:
“Those legal consequences have major practical effects. The CFPB’s critical work administering and enforcing consumer financial protection laws will be frustrated. And because the decision below vacates a past agency action based on the purported Appropriations Clause violation, the decision threatens the validity of all past CFPB actions as well. That threat raises grave concerns not just for the CFPB and consumers, but for the entire financial industry.”
The Community Financial Services Association of America (CFSA) filed a request last week with the Supreme Court for a 30-day extension of filing the Brief of Opposition to the CFPB’s petition until January 13, 2023. The CFPB has not indicated any opposition to this later filing deadline. It’s not clear at the moment, but it does appear that the Court is likely to grant the extension based on recent developments.
Because the Supreme Court will review the Brief of Opposition before ruling on the CFPB’s writ of certiorari, if granted, it will be at least late January until we hear if the Court will hear the case.
Treasury Report on Bank-Fintech Partnerships
The U.S. Department of the Treasury, in consultation with the White House Competition Council, has released a report entitled “Assessing Impacts of New Entrant Non-bank Firms on Competition in Consumer Finance Markets.” The report is a product of President Biden’s July 2021 Executive Order, “Promoting Competition in the American Economy.” In brief, the report calls for enhanced oversight of the consumer financial activities of non-bank firms due to increased risks, including risks related to data security and privacy. Notably, in a section on competition trends in lending, the report did a good job in distinguishing between employer-sponsored EWA programs and direct-to-consumer models, which it referred to as “Early Wage Access.” The report was not as clear on the credit implications of EWA as we would have liked, or as they have in the past. Specifically, the report stated that “the state or federal lending laws applicable to an EWA product may vary based on structure and terms.” This statement seems to conflict with the Treasury Budget Proposal that was released in March, which stated more clearly that EWA products are not a form of credit. This is just a report and not a regulatory proposal, but is something that the IPA will monitor closely.
Rep. Perlmutter Draft EWA Bill
Democratic Rep. Perlmutter is circulating a draft bill to regulate EWA providers. Our initial reading seems to indicate the focus of the bill is direct to consumer EWA providers. We have reviewed the bill extensively, discussed its potential implications with our members, and met with House Financial Services Committee Republican staff to relay our concerns. At the moment, we are confident the bill will not advance during the Lame Duck session, and is not likely to be introduced at all. With the upcoming Republican Majority, any proposal to regulate EWA next Congress will look vastly different than the Perlmutter proposal, and the IPA will be involved in its crafting.
Party Leadership Changes for the 118th Congress
Republican representatives have nominated Rep. Kevin McCarthy (R-CA-23) as Speaker of the House for the 118th Congress by a vote of 188-31. Rep. Andy Biggs (R-AZ-5), a member of the conservative House Freedom Caucus, challenged Rep. McCarthy for the nomination. Although a few House races are still undecided, Republicans have control of 218 seats- enough for a majority in the next Congress.
On the Democratic side, House Speaker Nancy Pelosi announced she’ll step down as House Democratic leader after leading House Democrats for over 2 decades under 4 presidents, and becoming the first woman to serve as Speaker. Pelosi said she would remain in Congress, and Rep. Hakeem Jeffries of New York is widely considered the front runner to lead the House Democrats, potentially making him the first African-American to lead a party in Congress.
Chair Waters Announces Hearing on FTX Failure
Chairwoman Waters of the House Financial Services Committee announced a bipartisan hearing into the collapse of FTX and the broader consequences for the digital asset ecosystem. The Committee plans to hear from Sam Bankman-Freid, now-former CEO of FTX, as well as representatives from Alameda Research, Binance, and other related entities. It’s estimated the FTX failures has affected over one million account holders, including individual and retail investors and pension funds. Estimates are that between $1-2 billion in funds was lost, including around $600 million that vanished in an apparent insider hack.
HFSC Fintech Task Force Sends Letter to OCC
HFSC Ranking Member Patrick McHenry and Republican members of the FinTech Task Force sent a letter to Acting Comptroller Michael Hsu seeking clarification on the OCC’s position on bank-fintech partnerships. The letter included several questions for response on the growth of bank-fintech partnerships, the digitization of banking, regulatory burdens, and the examination of third-party risk management.
Acting Comptroller Hsu Remarks at DC Fintech Week
OCC Acting Comptroller Michael Hsu delivered remarks at DC Fintech Week 2022, a gathering of academics, officials, and practitioners focused on fintech and regulatory issues. Hsu focused his remarks exclusively on cryptocurrency, both through the lens of his leadership at the OCC, and as a member of FSOC. Hsu noted that although the language and online experience of owning and trading crypto may mimic that of traditional financial assets, the foundational questions of “what exactly do I own?” and “what’s the difference between possession and ownership?” must be answered by the crypto industry if they expect to mature and scale. He also noted the important differences, that some are only now learning, between deposits stored on crypto platforms and FDIC insured bank accounts.
US Supreme Court Unclaimed Property Case
Last month, the US Supreme Court heard the first oral arguments in an unclaimed property case in over 30 years. In Delaware v. Pennsylvania, potentially hundreds of millions of dollars of unclaimed MoneyGram funds are at stake, with Delaware claiming the funds under common law priority rules because that’s where Moneygram is incorporated, and the plaintiffs, Pennsylvania and 29 other states, arguing the checks are subject to the 1974 Federal Disposition Act which provides that unclaimed funds are to be escheated to the state where they were purchased. During the arguments many of the questions concerned skepticism about DE’s narrow reading of the priority rules. Although the case is limited to the treatment of money orders, it also implicates the rules governing which state’s unclaimed property laws apply. While we don’t expect a ruling until April, May, or June of next year, this is an issue the IPA will continue to monitor.
HFSC, E&C letter to Paypal on Acceptable Use Policy
Reps. McHenry, McMorris Rogers, Emmer, and Griffith, Republican leaders on the House Committees on Financial Services and Energy and Commerce, sent a letter to Paypal as a follow up to a briefing that was previously provided to the Committees on changes to Paypal’s Acceptable Use Policy that prohibited users from transactions that were “fraudulent, promote misinformation, or are unlawful.” A Paypal spokesperson has since stated the updated user agreement was an error and the reference to promoting misinformation was removed.
The letter raised questions of restrictions of free speech and presented several questions for response concerning the Paypal’s process for the approval and publication of updates to their user agreement.
Director Chopra Money 20/20 Remarks; CFPB Begins Rulemaking on Personal Financial Data Rights
Director Chopra spoke at the Money 20/20 conference in Las Vegas and discussed the CFPB’s new approach to regulations and how, according to Director Chopra, a move away from complicated rulemakings could increase competition in the financial services marketplace.
He also previewed the CFPB’s rulemaking process under Section 1033 of the Consumer Financial Protection Act that would require financial institutions offering deposit accounts, credit cards, digital wallets, prepaid cards, and other transaction accounts to set up secure methods, like APIs, for data sharing; and said the CFPB will be working to stop institutions from restricting access when consumers seek to control and share their data.
Only a few days after his remarks, the CFPB released their Section 1033 personal financial data rights rulemaking proposals. A link is included in today’s agenda, and they are requesting stakeholder feedback no later than January 23rd.
CFPB Seeks Public Comment on Big Tech Payment Platforms
The CFPB announced it is reopening a public comment period to gather additional information on the risks that consumers face while using faster payment systems. This is a follow up to a CFPB order last October that requested information from Amazon, Apple, Facebook, Google, PayPal, and Square on their data collection and use, consumer protection, and policies for removing individuals and businesses from their platforms. In this comment period, the CFPB is seeking additional input on companies’ acceptable use policies and their use of fines, liquidated damages provisions, and other penalties. More information can be found in the press release or the Federal Register Notice.
CFPB Publishes Bulletin on Crypto-Asset Scams
The CFPB released a compliance bulletin detailing an increase in consumer complaints related to crypto-assets. Specifically, the Bureau warned consumers of increased cases of fraud, theft, account hacks, and scams, and said other risks include romance scams, difficulty obtaining restitution after a fraud or hack, fraudulent transactions, risk of identification, and high asset volatility. The bulletin also noted that older consumers and servicemembers can be disproportionately impacted by problems with financial products and services, and can face special concerns or constraints when attempting to solve these problems.
The CFPB encourages consumers to be aware of commons scams, report suspicious FDIC insurance claims, and submit complaints to the CFPB if they have an issue with a consumer financial product or service, or feel they are the victim of a scam.
Nonbank Supervision Transparency Rule
The CFPB finalized changes to their nonbank supervision procedural rule to increase transparency to the public and clarify which standard will applied when deciding what information is appropriate for public release. Specifically, the finalized rule states the CFPB will not publish confidential commercial information, or information which may violate personal privacy. They will also avoid publishing information which may reveal specific violations of law or specific compliance management deficiencies.
The final rule will also extend the amount of time available to nonbank entities to provide input to the CFPB about what information should be released from 7 to 10 business days.
Gruenberg Nominated as FDIC Chair
President Biden has announced his intent to nominate Martin Gruenberg as Chair and Member of the Board of Directors of the FDIC, according to a recently released White House statement. Gruenberg joined the FDIC Board of Directors in 2005 and has served as Acting Chairman since the resignation of Jelena McWilliams at the end of last year. He previously served on the staff of the Senate Banking Committee, as Senior Counsel of the full Committee and Staff Director of the Subcommittee on International Finance and Monetary Policy.
New Federal Bills
Pending Federal Bills
S. 4760 - Digital Commodities Consumer Protection Act of 2022
Summary: The bill would give the CFTC the authority to regulate digital commodities.
Status: Introduced on August 8, 2022 and referred to the Senate Committee on Agriculture, Nutrition and Forestry.
Sponsor: Rep. Debbie Stabenow (D-MI)
Financial Data Privacy Bill Discussion Draft
Summary: The bill would modernize financial data privacy laws and give consumers more control over how their personal information is collected and used.
Status: Discussion Draft released. Not officially introduced.
Sponsor: Rep. Patrick McHenry (R-NC)
S. 4356 Responsible Financial Innovation Act
Summary: The bill would create a complete regulatory framework for digital assets that encourages responsible financial innovation, flexibility, transparency and robust consumer protections while integrating digital assets into existing law.
Status: Introduced in Senate on June 7, 2022, Referred to the Committee on Finance.
Sponsors: Senators Kristen Gillibrand (D-NY) and Cynthia Lummis (R-WY)
The Stablecoin Transparency of Reserves and Uniform Safe Transactions (Stablecoin TRUST) Act
Summary: The bill would require that payment stablecoin issuers choose from one of three regulatory regimes: a traditional bank charter; a new federal license designed specifically for stablecoin issuers; or a state-based money transmitter or similar license under state law. The bill would also subject all payment stablecoin issuers to standardized disclosure, redemption, and audit requirements; and would clarify that stablecoins that do not offer interest are not securities.
Status: Proposed, but not yet introduced.
The Stablecoin Innovation and Protection Act
Summary: This bill would require stablecoin issuers to either become a bank or to partner with a bank and be subject to bank-like regulation. The bill also requires nonbank stablecoin issuers to maintain collateral in an amount equal to 100 percent of the value of outstanding stablecoin.
Status: Proposed, but not yet introduced.
Sponsor: Rep. Josh Gottheimer (D-NJ)
H.R. 6415 To amend the Federal Reserve Act to prohibit the Federal reserve banks from offering certain products or services directly to an individual, and for other purposes.
Summary: This bill amends the Federal Reserve Act to prohibit the Federal Reserve banks from offering banking products and services, including CBDC, directly to consumers.
Status: Introduced in the House and referred to the Financial Services Committee on January 18, 2022.
Sponsor: Rep. Tom Emmer (R-MN)
H.R. 4773 – Consumer Financial Protection Commission Act
Summary: This bill removes the CFPB from the Federal Reserve System, converts the Bureau into an independent commission, and modifies its leadership structure. Specifically, the bill eliminates the position of director and deputy director and establishes a five-person commission appointed by the President and confirmed by the Senate.
Status: Introduced in the House and referred to the Financial Services Committee on July 28, 2021.
Sponsor: Rep. Blaine Luetkemeyer (R-MO)
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: The bill passed the House on 3/17/2022 by a vote of 222-209 and was received in the Senate on 3/21/22.
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)
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