October 24, 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].

HFSC Schedules Fintech Hearing
The House Financial Services Committee, Subcommittee on Digital Assets, Financial Technology and Inclusion has scheduled a hearing on October 25th at 10:00am, entitled “Modernizing Financial Services Through Innovation and Competition. It is our expectation that Rep. Steil’s EWA regulatory bill will be introduced ahead of, or concurrently with, the hearing.  
 
A livestream for the hearing can be found here, and additional information such as committee memo, relevant legislation, and a witness list will be updated as the hearing date approaches.
 
CFPB Proposes Section 1033 Rulemaking
The CFPB announced rulemaking to implement section 1033 of the Consumer Financial Protection Act. The proposed rule would require depository and nondepository entities to make available certain data relating to consumers’ transactions and accounts; establish obligations for third parties accessing a consumer’s data; provide basic standards for data access; and promote fair, open, and inclusive industry standards. 
 
The IPA is requesting member feedback as it prepares to submit comments in response to the proposal. Comments are due to the CFPB before December 29th. Please send any feedback to Brian ([email protected]). More information can be found in the proposed rule.
 
Federal Reserve Board to Discuss Interchange at Board Meeting
The Federal Reserve Board announced that at its October 25th Board Meeting it will discuss proposed revisions to the Board’s debit interchange fee cap. We do not yet have an indication of what revisions they will be proposing. The meeting will be open to the public, both in-person and via livestream. More information on the attending the meeting can be found here and we will keep members informed as we learn more. 
 
House, Senate Pass 45-day Government Funding Measure
Only hours before federal government funding expired, the House and Senate voted to approve a Continuing Resolution to fund the government for the next 45 days, averting a shutdown that had seemed inevitable. The agreement included natural disaster funding, a priority for the white house and democratic party, but did not include funding for stricter boarder security, which was a priority for the freedom caucus of the republican party. The bill also did not include additional funding for Ukraine. 
 
Government funding negotiations immediately resumed, as Congress now has until November 17th to reach an agreement on which provisions to include in a long-term spending bill. 
 
Invitation to Join NV EWA Regulation Workshop
The Nevada Financial Institution Division will be holding a workshop on Friday, November 3rd at 10:00am PST/1:00pm EST to solicit comments from interested parties on proposed regulations to implement SB 290, the EWA bill which was signed by the Governor in June. The agenda will include an open workshop, public comment, and a presentation of proposed regulations. More information, including a draft regulation, small business impact statement, and other information, can be found workshop notice here.  
 
CFPB Issues Supervisory Highlights on Fees in Banking
The CFPB released a Supervisory Highlights focused on the Bureau’s efforts to combat “junk fees.” Specifically, the report noted excessive fees for fake paper statements, add-on products for paid-off auto loans, and international remittances. At the same time, the CFPB released a data spotlight highlighting increased supervision of banks that charge non-sufficient fund fees. As a result of the CFPB’s work in these areas, they noted refunds of $140 million to consumers, $120 million of which is for surprise overdraft fees and double-dipping on non-sufficient fund fees. More information can be found in the press release here.
 
CFPB Issues "Junk Fee" Guidance
The CFPB issued an advisory opinion detailing how the CFPB will administer the legal requirements of Section 1034(c) of the Consumer Financial Protection Act. Section 1034(c), enacted as a result of the 2008 financial crisis, requires large banks and credit unions with more than $10 billion in assets to provide account information that is in their control or possession when it is requested by customers. Today’s advisory opinion clarifies that banks and credit unions must provide that information without unreasonable obstacles such as charging excessive fees. The CFPB does not intends to seek monetary relief for potential violations that occur before February 1, 2024. More information can be found in the press release here.
 
California Gift Card Ban Vetoed
California Governor Newson issued a veto of CA SB 728, which would have banned plastic gift cards in the state. The bill has been returned to the legislature where, in theory, the veto may be overridden by a 2/3rd majority vote in both chambers. In practice, however, vetoes from the California governor have almost never been overturned in recent decades. 
 
As is standard practice, Governor Newsom issued a veto message, available here. He notes that:
 
While I support the author's goal to reduce our reliance on single-use plastic materials, I am concerned that an outright ban without any incentives for compliance will disproportionately impact the state's small business community, as digital gift cards may not be a feasible option for many businesses or consumers. 
 
California has successfully implemented many programs to reduce our reliance on single-use plastic while incentivizing businesses to transition towards more sustainable products and materials. I encourage the Legislature to consider alternatives to a statutory, single-product ban to help meet the state's plastic waste reduction goals.
 
The IPA was active in lobbying against the bill in the Assembly and Senate, and we appreciate the assistance we received from members as we prepared comment letters to the committees and legislative leaders who considered the bill.
 
CFPB Issues Guidance on Credit Denials by Lenders Using Artificial Intelligence
The CFPB issued guidance about legal requirements that lenders must adhere to when using artificial intelligence. Specifically, the guidance states that lenders must use specific and accurate reasons when taking adverse actions against consumers, and may not simply point to a “broad bucket” of reasons. This guidance is the most recent of the CFPB’s guidance on the use of artificial intelligence in financial services. More information can be found in the press release here.
 
FDIC Chairman Gruenberg Delivers Remarks on the Financial Stability Risks of Nonbank Financial Institutions
FDIC Chairman Martin Gruenberg delivered remarks in Washington, D.C. on the financial stability of non-bank financial institutions. He noted that non-bank institutions are a critical part of the U.S. financial system, but expressed concern at the regulatory landscape in which they operate. According to Chair Gruenberg, non-banks are not subject to the same degree of regulation and supervision as banks, and as a result, have less transparency and rely on excessive leverage and volatile funding sources. Decreased regulatory oversight combined with market stress can result in risk being transmitted to other parts of the financial system, including the banking organizations which provide funding to support nonbank activity. Chair Gruenberg’s full remarks can be found here. 
 
IPA Drafts Responses to Connecticut and Maryland EWA Guidance
In response to Maryland and Connecticut’s recently released guidance on EWA, the IPA has drafted comment letters as a first step at engaging with the Maryland Office of Financial Regulation and Connecticut Department of Banking. The letters were successful in beginning a dialogue and we have a call scheduled with the Maryland OFR on Thursday morning. We appreciate everyone’s feedback as we drafted our letters. 
 
Since the initial publication of the guidance, the Connecticut Department of Banking published a No-Action Position stating the Department of Banking will not take enforcement action alleging violations of the EWA guidance before January 1, 2024.
 
The IPA also held a meeting with the Connecticut Department of Banking to discuss the guidance. While it was helpful to establish this line of communication, they were clear that they would prefer to meet with EWA providers to discuss the applicability of the guidance to their specific products. Please reach out to the IPA if you would like their contact information. 

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.