The Government Updateis 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 Boot 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. To register please visit the IPA’s website at: We will have sessions on Regulation E, Earned Wage Access, Artificial Intelligence, Third-Party Risk, Buy Now Pay Later, and Stablecoins. Some attendees may be eligible to receive CLE credits through their attendance. The following day participants will have an opportunity to hear from agents and analysts from the FBI Chicago Field Office on financial and cyber-crime threats. Registration information for that event can be found here. Credit Card Competition Act of 2023 Sens. Richard Durbin (D-IL) and Roger Marshall (R-KS) introduced their bipartisan Credit Card Competition Act of 2023, which would allow merchants to route credit transactions through unaffiliated networks rather than the network of the card used. Specifically, 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. While the bill has little chance of advancing as a standalone bill, Durbin and Marshall are working to find a legislative vehicle to attach it to. Most recently, their attempts to attach it to the FY2024 NDAA were unsuccessful. Brokered Deposits Assistant Secretary for Financial Institutions Graham Steele gave a speech in late July to the Americans for Financial Reform Education Fund. He focused his remarks on recent turbulence in the banking sector that began in early March which led to some of the bank failures. In his speech, Asst. Sec. Steele provided some observations and offered some considerations that may be relevant for any future steps that may be taken to help prevent future banking system issues. In the section of his speech entitled, “Observations and Preliminary Lessons Learned,” the Assistant Secretary made the following statements regarding brokered deposits and the changes to the FDIC regulations related to brokered deposits that were approved by the FDIC in December 2020. “Recent changes to FDIC rules and the agencies’ LCR rule have also made it easier for banks to accept reciprocal deposits and effectively excluded some bank-fintech partnerships from the brokered deposits rule.[25] Reciprocal and brokered deposits may warrant greater attention now that they are playing an increasingly important role in bank funding structures in light of the recent events.[26] This recent episode can help to inform a broader consideration of how well the standardized liquidity frameworks are performing and if further refinements would be appropriate.” To review the full speech please visit: Remarks By Assistant Secretary for Financial Institutions Graham Steele at the Americans for Financial Reform Education Fund | U.S. Department of the Treasury The IPA supported the changes to the FDIC’s brokered deposit regulations in 2020 and will continue to be engaged in this issue moving forward. CA DFPI EWA Proposal In March, the CA Dept. of Financial Protection and Innovation filed a Notice of Proposed Rulemaking on their EWA registration proposal. With input from our members, the IPA filed a comment letter with the CA DFPI in response to this proposal which outlined our support for the employer-based EWA model and the CFPB’s 2020 Advisory Opinion on EWA. Rep. Bryan Steil (R-WI) Prepares Federal EWA Legislation Rep. Bryan Steil (R-WI) is currently drafting legislation which would create a federal regulatory framework for EWA providers. We received a copy of the discussion draft and were able to meet with his office to relay our comments and a few concerns, mostly technical changes, with the bill. Staff specifically noted that the IPA was unique compared to others they’ve heard from in that we provided actual suggestions and changes. As far as timing for the bill’s introduction, they are still working on generating bipartisan support and are hoping to have something ready for a fall markup on fintech-related legislation. We’ll continue to be a resource to Steil’s office in the coming weeks and months as they prepare to introduce their bill. California Legislature Considers Plastic Gift Card Ban This spring, CA State Senator Monique Limon introduced a bill, SB728, which would ban plastic gift cards in the state. We’ve been active in engaging both in the Senate, with members of the Senator’s staff, and in the Assembly, with staff from the Natural Resources Committee, where the bill was first considered before passing in June and being referred to the Assembly Appropriations Committee. The bill has since passed the Appropriations Committee and will be awaiting consideration on the Assembly floor when they reconvene on August 14th. Several of the changes we advocated for have been included in subsequent versions of the bill. Specifically, the implementation date was pushed back one year, from January 2026 to January 2027, and a sell-through period of an additional one year, to January 2028 was included, during which retailers may continue to sell or distribute plastic gift cards that they have already acquired. Again, these were changes that we specifically lobbied for, so we’re pleased to see them included in what will likely be the final version of the bill. Nevada and Missouri Pass EWA bills State legislatures have been busy considering EWA regulatory frameworks this year. Two states, Nevada and Missouri, have enacted state-level EWA registration requirements so far this year. Nevada SB290 provides new licensing and regulatory requirements for both employer-integrated and direct-to-consumer EWA providers. According to the bill, all EWA providers in Nevada will be required to be licensed to operate and will be subject to oversight by the Commissioner of Financial Institutions and the Attorney General. The bill will also require EWA transactions to be non-recourse and fee-free, and have no impact on a user’s credit score. Missouri SB103 requires EWA providers to register with the Division of Finance and pay a $1,000 registration fee. The bill outlines obligations and restrictions on how an EWA provider may operate in the state, including requiring the development of customer complaint procedures, specifying how services may be provided and which notices are required to be given consumers, and regulating the types of fees and the manner in which repayment may be pursued. 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. The Government Updateis 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 Boot 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. 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. The following day participants will have an opportunity to hear from agents and analysts from the FBI Chicago Field Office on financial and cyber-crime threats. Registration information for that event can be found here. IPA Continues Advocacy on Rep. Steil’s EWA Draft Bill This month the IPA continued advocating on behalf of members in meetings with the office of Rep. Bryan Steil (R-WI) related to his EWA regulatory draft bill. The Congressman’s staff have been grateful for the concrete suggestions we have been able to provide. They specifically noted that the IPA was unique compared to others they’ve heard from in that we provided actual suggestions and changes. While we have mostly focused our advocacy on technical changes, we did bring up the issue of the IRS EWA proposal and the tax issues involved. We have been told that adding a provision on tax issues would trigger joint jurisdiction with the Ways and Means Committee, something they’d like to avoid at all costs. Rep. Steil is still working on generating bipartisan support and is hoping to have something ready for a fall markup on fintech-related legislation. We’ll continue to be a resource to Steil’s office in the coming weeks and months as they finalize the legislation. Rhode Island Gift Card Scam Warning Bill Signed by Governor Rhode Island Senate Bill 759 has passed and was recently signed by Governor Daniel McKee. The bill requires sellers of gift cards to post conspicuous warnings near where the gift cards are displayed and at or near the physical location where the sale occurs, and instructs the purchase on what to do if they suspect they might be a potential victim of such a scam. The bill went into effect immediately upon signing. More information can be found at the Rhode Island Department of Business Regulation. According to unofficial guidance from the RI DPR, the signage does not need to be both in Spanish and English, and can be a version similar to the recommended signage that RI DPR provided here, as long as it is consistent with the intent of the law. In addition, the RI DPR stated that enforcement will begin slowly, with letters sent to businesses that are not in compliance. If there is no response, or if the business does not comply after a second warning letter is sent, only then will fines be assessed. U.S. District Court Hearing on PayPal v. CFPB Judge Richard Leon of the U.S. District Court for the District of Columbia held a motion hearing in the case of PayPal v. CFPB, in which PayPal is challenging the CFPB’s model disclosures that companies could use to comply with the Bureau’s prepaid account rule. The case is before Judge Leon on remand after the U.S. Court of Appeals for the D.C. Circuit ruled in February that the prepaid account rule does not mandate specific fee disclosures for digital wallets, and only provides a model that companies can use while give them the option to develop their own similar disclosures. Judge Leon ruled on summary judgment in December 2020 that the Bureau’s short-form model disclosures violated EFTA’s ban on mandatory disclosure, and today heard oral arguments for PayPal and CFPB’s motions for summary judgments which were filed in late May (available here and here, respectively). During their oral argument, attorneys for PayPal highlighted the differences between digital wallets such as PayPal and prepaid cards, and argued the prepaid accounts rule should not apply to digital wallets. Specifically, they demonstrated that digital wallets generate revenue based on fees to merchants, not fees to consumers, and that the CFPB found no evidence that digital wallets harm consumers in ways that are similar to prepaid cards. According to PayPal, the CFPB simply determined that digital wallets were “close enough” to prepaid cards in form and function, and in the interest of regulatory uniformity chose to apply the prepaid account rule to digital wallets. In closing, PayPal argued that the particularities of prepaid cards make them significantly different from mobile wallets and necessitates a heightened regulatory standard above and beyond Reg E, and the new standard via the Prepaid Account Rule should not apply to digital wallets. In their rebuttal, PayPal stressed that they have always followed the baseline Reg E disclosure requirements, and the issue is not whether or not PayPal will continue to discloses fees, but rather whether or not they are permitted to disclose those fees in a sensible way that makes sense for the products they offer, and in a way their users can understand. In CFPB’s oral arguments, attorneys compared the short-form disclosure form to a simple nutritional label and said the prepaid account rule was intended to apply not only to general purpose reloadable cards, but a wide range of asset accounts, and noted that at the time of the rulemaking, many asset accounts were moving to an online-only function. He noted a risk of harm to consumers from fees across the entire financial services market, and said that consumers are entitled to disclosures that outline what fees they can expect. Attorneys for the CFPB said that similar to prepaid cards, consumer funds in digital wallets are subject to fees, they have a right to receive disclosures about those fees, and the existence of fees is enough for digital wallets to be regulated under the same framework as prepaid cards. In direct response to PayPal’s argument, the CFPB acknowledged there was no evidence of consumer harm from digital wallets fees but said this the lack of evidence is not a reason not to regulate fee disclosures of digital wallets. In their rebuttal, the CFPB said that if digital wallets are able to escape prepaid account rule requirements, new products would classify themselves as digital wallets in an effort to receive less regulatory scrutiny. Judge Leon asked clarifying questions of both sides but seemed to reserve his most probing and direct questions for the CFPB. Due to the complexities of the arguments, Judge Leon is allowing PayPal and CFPB to submit supplemental pleadings covering only items covered in the oral arguments, due two weeks from the day they receive the transcripts. FDIC Consumer News: Is My Money Insured by the FDIC? The FDIC published an FDIC Consumer News article entitled “Is My Money Insured by the FDIC?” which explains FDIC deposit insurance coverage and review how consumers can avoid fake banks and apps. Considering the recent events surrounding FDIC deposit insurance, marketing of FDIC deposit insurance coverage, and the potential for reform of the FDIC deposit insurance system, we encourage members to keep up to date on relevant information coming from the FDIC. CFPB Fines Bank of America for Illegally Charging Fees, Withholding Credit Card Rewards, and Opening Fake Accounts The CFPB announced fines against Bank of America for illegally double-charging insufficient fund fees, withholding credit card reward bonuses, and using sensitive personal information to open accounts with customer knowledge or authorization. Bank of America has been ordered to stop it repeat offenses, pay approximately $80.4 million in customer redress, and pay a total of $90 million in penalties to into the CFPB’s victims relief fund. Separately, Bank of America will also pay a $60 million fine to the OCC. More information can be found in the press release here. Sens. Lummis and Gillibrand Reintroduce Cryptocurrency Bill Sens. Cynthia Lummis (R-WY) and Kristen Gillibrand (D-NY) reintroduced their cryptocurrency regulatory proposal, entitled the Responsible Financial Innovation Act of 2023. The legislation expands on the bill the senators introduced last year and adds consumer protections and safeguards against fraud and bad actors. According to a press release from the office of Sen. Lummis: This legislation places crypto assets within the regulatory perimeter, requires all crypto asset exchanges to register, addresses decentralized finance, safeguards consumers through enhanced disclosures and limits on crypto asset lending, closes the wash sale loophole and codifies the criteria to determine which crypto assets are securities or commodities. The legislation also combats the use of crypto assets in illicit finance, imposes new penalties for willfully violating money laundering laws, requires stablecoins to be issued by depository institutions and provides appropriations to federal agencies to implement the policies within the bill. A section-by-section summary of the bill can be found here, and a comparison of this bill to their previous bill can be found here. CA Assembly Appropriations Committee Passes CA SB728 In the final days of the session before summer recess, the California Assembly Appropriations Committee passed CA SB728, which would ban the sale and distribution of plastic gift cards. The bill now heads to the Assembly floor for consideration. The Assembly will reconvene on August 14th for one month until the end of the 2023 legislative session on September 14th. CFPB Sues Snap Finance for Hiding Terms and Conditions and Illegal Debt Collection The CFPB announced a lawsuit against lease-to-own company Snap Finance for obscuring the terms of its financing agreements and making false threats. Specifically, the CFPB alleges that Snap Finance locked consumers into expensive agreements using deceptive advertising, confused customers about payment obligations by obscuring the terms and conditions, misrepresented consumers’ rights in the finance agreements, and made false threats and deceptive statements to struggling borrowers. The CFPB is seeking monetary relieve for consumers, an end to Snap Finance practices outlined above, and a civil money penalty. Joint Statement by CFPB and European Commission on Consumer Protection Issues CFPB Director Rohit Chopra and Didier Reynders, Commissioner for Justice and Consumer Protection of the European Commission, issued a joint statement and announced the start of an informal dialogue on a range of consumer protection issues. According to the statement, the dialogue will cover issues such as automated decision making in financial services, new forms of credit such as BNPL, strategies to prevent consumer over-indebtedness, digital transformations to ensure fair choice and credit access, and implications for competition, privacy, security, and financial stability of Big Tech companies. 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. The Government Updateis 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. The Government Updateis 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. 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. The Government Updateis 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:
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. The Government Updateis 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]. Upcoming IPA/FBI Events Webinar: The Value of SARs -- In a Webinar on April 20th the FBI will present on how the information that industry provides in SARs helps law enforcement with their investigations. They will also discuss how the Internet Crime Complaint Center can be a resource for helping your customers affected by cyber-crimes. Learn more and register here. 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:
SBC Republicans Send Letter to CFPB on Overdraft and Credit Card Late Fees Senate Banking Committee Ranking Member Tim Scott joined every Republican member of the Senate Banking Committee with the exception of Sens. John Kennedy and J.D. Vance, and sent a letter to CFPB Director Rohit Chopra criticizing efforts to further regulate overdraft fees and credit card late fees. The Senators state in the letter that the efforts are misguided and will cause harm particularly to low- and middle-income consumers with limited credit history. The letter specifically criticizes the Director’s statements concerning so-called “junk fees” and said CFPB efforts to ban responsible financial incentives such as overdraft and credit card late fees by labeling them “junk fees” is deceptive. CA DFPI Extends Comment Deadline for EWA Proposal The California Department of Financial Protection and Innovation has extended the public comment deadline for its proposal to create a regulatory framework for Earned Wage Access services. The original deadline of May 2nd has been extended to May 17th. The IPA is in the process of drafting our response and we appreciate our members’ participation and feedback in this effort. CFPB Fines Portfolio Recovery Associates for Continued Illegal Debt Collection Practices The CFPB announced that it is fining Portfolio Recovery Associates, one of the largest debt collectors in the nation, more than $24 million for violating a 2015 CFPB order. Specifically, the fine would require Portfolio Recovery Associates to pay more than $12 million to consumers and a $12 million penalty to be deposited into the CFPB’s victim relief fund. According to the CFPB, Portfolio Recovery Associates collected on unsubstantiated debt, collected on debt without providing required documentation and disclosures to consumers, sued or threatened legal action against consumers without offering or possessing required documentation, and sued to collect on debt outside the statute of limitations. Congressional Hearings on Bank Failures The House Financial Services Committee and Senate Banking Committee held the first of what will likely be many oversight/investigative hearings into the failures of Silicon Valley Bank and Signature Bank, and the federal regulatory response. Witnesses at both hearings included FDIC Chair Martin Gruenberg, Fed Vice Chair for Supervision Michael Barr, and Treasury Under Secretary for Domestic Finance Nellie Liang. Senate Banking Committee was up first, and there was bipartisan frustration with financial regulators and their apparent inaction leading up to the bank failures. Chairman Brown and Ranking Member Scott were in agreement on many points, and blamed executives at SVB and Signature, who they say will be testifying before the Committee at some point in the future. Chairman Brown, in particular, criticized the venture capitalists who were SVB’s key clientele and helped drive the run when they encouraged companies to pull their money. Senators also laid blame at the feet of regulators, particularly the Federal Reserve, and asked why the Fed was unable to see the crisis coming. There was partisan disagreement, however, on who was more to blame, the current board of Trump-era leaders. In his opening statement, Chairman Brown also took aim at brokered deposits, saying “The officials sitting before us today know that their predecessors rolled back protections like capital and liquidity standards, stress tests, broker deposit limits, and even basic supervision. They greenlighted those banks to grow and grow and grow, too big, too fast.” The issue of CFPB funding was not discussed at all during the hearing, except in Chairman Brown’s final remarks: “It’s interesting, many of my Republican colleagues are now so eager for bank regulators to crack down on banks for taking on too many risks. I hope they remember that when it comes time to empower regulators and strengthen guardrails including protecting the independent funding of financial regulators. The events of last month have shown why we need independent regulators funding and stability for all our financial watchdogs, but now as the Supreme Court considers whether the CFPB’s funding is constitutional, these independent watchdogs’ ability to keep our financial system stable faces an existential threat. U.S financial regulators, as we know, are independently funded so they can quickly respond when crises happen. On this and every issue I’ll continue to fight to protect American workers from Wall street arrogance and greed.” During the HFSC hearing the following day, members from both sides of the aisle questioned the regulators’ competency and said examiners were asleep at the wheel. Ranking Member Waters questioned regulators’ actions leading up to the crisis and said the repeated warnings delivered to SVB about their balance sheet and long-term interest risks were insufficient. Fed Vice Chair Barr did not disagree with this opinion and said he expects changes to how supervisors use the tools they have more promplty at banks under their supervision. Chair McHenry slammed the witnesses for a lack of transparency over the initial weekend, noting there are no publicly-available notes from the emergency meetings. In another notable exchange, Rep. Brad Sherman asked “Are there any banks out there, and roughly how many, that have capital of under 5% if you subtract from their stated capital their unhedged, unrealized losses on long-term debt?” FDIC Chair Gruenberg was unable to answer the question. This was the first of many hearings on SVB and Signature Bank. Members on both committees have expressed interest in hearing from former-bank CEOs, and Republicans said they’d like to hear from California regulators. Both the Fed and FDIC are expected to publish reports on the failures of SVB and Signature Bank by May 1st. These reports will not doubt affect the direction of future Congressional inquiries into the failures and regulatory responses. Second Circuit Rules CFPB Funding is Constitutional In a decision issued on March 23, the Second Circuit ruled that the CFPB’s independent funding through the Federal Reserve is constitutional. The plaintiff in the case is a New York debt collection firm attempting to escape a civil subpoena the CFPB issued in June 2017. This decision comes ahead of the Supreme Court oral arguments of CFSA v. CFPB, to be held later this year, in which the CFPB is appealing an October 2022 ruling in the Fifth Circuit that held the CFPB’s funding violates the constitution. Democratic Senators Press CFPB on BNPL Senate Banking Committee Chairman Sherrod Brown (D-OH), and Senators Jack Reed (D-RI) and Tammy Duckworth (D-IL) have sent a letter to the CFPB urging the Bureau to bring the largest BNPL providers under more direct federal supervision. Specifically, the three Senators remind CFPB Director Rohit Chopra that, in spite of the widespread popularity of BNPL products, it remains subject only to a patchwork of state regulations. The letter suggests on-site examinations to review lenders’ books and recommendations and evaluation of compliance systems; issuing related reports and compliance ratings; and the aggressive enforcement of consumer financial protection laws. 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. 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. The Government Updateis 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]. Upcoming IPA/FBI Events Webinar: The Value of SARs -- In a Webinar on April 20th the FBI will present on how the information that industry provides in SARs helps law enforcement with their investigations. They will also discuss how the Internet Crime Complaint Center can be a resource for helping your customers affected by cyber-crimes. Learn more and register here. 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:
GAO Publishes Report on Fintech Products/EWA The GAO published a report entitled “Financial Technology: Products Have Benefits and Risks to Underserved Consumers, and Regulatory Clarity is Needed.” In the report, the GAO studied fintech products such as digital deposit accounts, credit builder products, small-dollar fintech loans, and earned wage access. Notably, on the very first page of the report, the GAO recommended that “CFPB issue clarification on the application of the Truth in Lending Act’s definition of “credit” for earned wage access products not covered by its November 2020 advisory opinion. CFPB agreed with this recommendation.” The full GAO report can be found here, and a one-pager can be found here. FDIC Press Releases, Financial Institution Letters on Silicon Valley Bank and Signature Bank With the failures and subsequent resolutions of Silicon Valley Bank and Signature Bank, the Federal Deposit Insurance Corporation (FDIC) has issued a number of press releases and Financial Institution Letters (FILs) that IPA members should take note of, regardless of their exposure to recent events. On the morning of Monday, March 13th, the first business day after the failure of Silicon Valley Bank, the FDIC released a press release announcing that all deposits of Silicon Valley Bank-both insured and uninsured- would be transferred to a “bridge bank,” and that depositors would have full access to their funds. This historic action is a departure from traditional federally-backed deposit insurance in which only deposits up to $250,000 would be insured. A similar press release was issued in regards to Signature Bank. The following day, Tuesday, March 14th, the FDIC issued a Financial Institution Letterinforming all vendors and counterparties with contracts with the bridge banks of both Silicon Valley Bank and Signature Bank that they are legally obligated to perform under those contracts, and that the bridge banks have the full ability to make timely payments to vendors and counterparties and otherwise to perform its obligations under the contracts. Biden FY24 Budget Proposal- EWA The Biden Administration released its FY24 Budget Proposal, and the Treasury released its General Explanations. Both documents contained the same proposal that was included in the FY23 Budget Proposal on “clarifying the tax treatment of on-demand pay arrangements.” The Treasury’s General Explanations, specifically, contained a word-for-word repetition of the FY23 explanation. The IPA held a call with Treasury staff about this proposal last year and was told the proposal only applied to wholly-integrated providers (i.e. providers that do not work with a third party). Treasury stressed at the time that they would prefer legislation, but also said they could technically regulate on their own. California DFPI Proposes EWA Regulation The California Department of Financial Protection and Innovation (CA DFPI) filed a Notice of Proposed Rulemaking and invited public comments on an EWA registration proposal. We are still working through the proposal itself and encourage our members to do the same. Note that the press release includes three links for a Notice of Proposed Action, Text of Proposed Rulemaking, and Initial Statement of Reasons. The press release gives a deadline of May 2, 2023 (45 days) for public comments. The IPA will be submitting a comment, and we ask our members to review all three linked documents and send any feedback to Brian Tate ([email protected]) or Chris Stromberg ([email protected]). HFSC and SBC Announce First Hearings on Silicon Valley Bank and Signature Bank Failures The House Financial Services Committee and Senate Banking Committee have announced their first hearings on the Silicon Valley Bank and Signature Bank failures. On Tuesday, March 28th, the Senate Banking Committee will hold its hearing, and on Wednesday, March 29th, the House Financial Services Committee will hold theirs. Both hearings will feature testimonies from FDIC Chairman Martin Gruenberg, Vice Chair for Supervision of the Federal Reserve Michael Barr, and Undersecretary for Domestic Finance, U.S. Treasury, Nellie Lang. Joint Regulator Statement on Actions to Stabilize First Republic Bank. The Department of the Treasury, Federal Reserve, FDIC, and OCC issued a press releaseon an influx of bank deposits to stabilize First Republic Bank. Other media sources are reporting that JPMorgan Chase, Bank of America, and Citigroup will each contribute $5 billion in deposits, along with smaller deposits from other institutions. CFPB Issues Supervisory Highlight on Junk Fees The CFPB released a Supervisory Highlight that reports on “unlawful junk fees uncovered in deposit accounts and in multiple loan servicing markets, including in mortgage, student, and payday lending.” More information can be found in this press release. 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. 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 bway marked up and reported favorably by the House Financial Services Committee on 2/28/23 by a vote of 26-21. The Government Updateis 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]. Upcoming IPA/FBI Events Meet the New York Field Office -- If you or your colleagues are in New York City, we will be hosting a session with the FBI at MasterCard's Tech hub on March 27. FBI agents from the New York field office will present on cyber-crime and financial crimes trends. This follows on a similar event that we did last year in Atlanta. The goal is to introduce payments teams to their local field offices to help foster cooperation. You can learn more and register here. Webinar: The Value of SARs -- In a Webinar on April 20th the FBI will present on how the information that industry provides in SARs helps law enforcement with their investigations. They will also discuss how the Internet Crime Complaint Center can be a resource for helping your customers affected by cyber-crimes. Learn more and register here. 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. HFSC Republicans Send Letter to CFPB Dir. Chopra on Overdraft Republican members of the House Financial Services Committee sent a letter to CFPB Director Rohit Chopra regarding the recently released Fall Rulemaking Agenda for 2022. The letter notes the inclusion of Overdraft Fees in the pre-rule stage, and the Bureau’s abstract on the rule which states they will examine whether an overdraft fee is considered a finance charge under Regulation Z, which implements the Truth in Lending Act. The letter further states that identifying overdraft fees as a finance charge would limit, and possibly outright prevent, the ability of financial institutions to provide emergency, short term liquidity to consumers who need it most. The letter closes by urging the director to withdraw the pre-rule on overdraft. Reps. Luetkemeyer, Huizenga, and Barr Question Dir. Chopra's Schedule Reps. Blaine Luetkemeyer, Bill Huizenga, and Andy Barr, Republican leaders of the House Financial Services Committee, sent a letter to CFPB Director Rohit Chopra, questioning Director Chopra’s statement during his most recent appearance before the Committee that he has “done more industry outreach with those affected by the CFPB than both of my predecessors.” Using the publicly available Leadership Calendar, the Congressmen note that the Director’s statement is likely inaccurate, and point out that large blocks of time are either left blank, or do not identify who specifically the Director has met with. The letter concludes with several questions for response on the contents of Dir. Chopra’s public calendar and the process for making it public. Additionally, they ask for a comprehensive list of the industry outreach the Director has conducted while in office. Smith, Comer, Ways and Means Republicans Introduce Legislation to Recover Hundreds of Billions in Stolen Unemployment Benefits House Ways and Means Committee Chairman Jason Smith and House Oversight Committee Chairman James Comer, along with House Ways and Means Committee Republicans, introduced H.R. 1163, The Protecting Taxpayers and Victims of Unemployment Fraud Act, which would provide states with incentives to investigate and recover lost funds, fight and prevent future fraud, and extend the statute of limitations for prosecuting fraud. Specifically, the bill would:
CFPB Orders TitleMax to Pay a $10 Million Penalty for Unlawful Title Loans and Overcharging Military Families The CFPB fined TitleMax for violating the rights of military families and other consumers in providing auto title loans. Specifically, the CFPB found that TitleMax violated the Military Lending Act by extending prohibited title loans to military families and, oftentimes, by charging nearly three times the 36% annual interest rate cap. TitleMax then tried to hide their unlawful activities by altering the personal information of military borrowers to circumvent their protected status. The CFPB also found that TitleMax increased loan payments for borrowers by charging unlawful fees. The CFPB’s order ends TitleMax’s illegal activities, and requires the company to pay more than $5 million in consumer relief and a $10 million civil money penalty. Joint Regulator Statement on Liquidity Risks to Banking Organizations Resulting from Crypto-Asset Market Vulnerabilities The Federal Deposit Insurance Corporation, Board of Governors of the Federal Reserve System, and the Office of the Comptroller of the Currency issued a statement on the liquidity risks to banking organizations presented by certain sources of funding from crypto-asset related entities. The statement reminds banking organizations to apply existing risk management principles and provides examples of practices that could be effective. Banking organizations are neither prohibited nor discouraged from providing banking services to customers of any specific class or type, as permitted by law or regulation. Highlights:
FinCEN has issued an alert urging financial institutions to be vigilant in identifying and reporting check fraud schemes targeting the U.S. mail. The alert notes that despite the declining use of checks in the U.S., criminals have been increasingly targeting the U.S. mail and USPS mail carriers since the COVID-19 pandemic to commit check fraud. According to the alert, “Criminals typically steal personal checks, business checks, tax refund checks, and checks related to government assistance programs, such as Social Security payments and unemployment benefits. Following the initial theft and fraudulent negotiation of the stolen checks, criminals may continue to exploit their victims by using the personal identifiable information found in the stolen mail for future fraud schemes, such as credit card fraud or credit account fraud.” More information can be found in the FinCEN Alert or in the FinCEN press release. CFPB Highlights Public Benefit Fees The CFPB published an issue spotlight discussing fees associated with various financial products, such as prepaid cards, and how, according to the CFPB, fees associated with those products may affect individuals ability to fully access public benefits such as Social Security and unemployment compensation. This issue spotlight continues the CFPB’s recent actions, through press releases and blog posts, on fees that consumers face when using financial products and services. In this particular publication, available here, the CFPB alleges that public benefits are eroded by fees, fees can result in uneven access to benefits across states, individuals experience inadequate customer service when dealing with unrecognized charges, and consumers may be trapped by lack of choice and competition. CFPB Publishes New Findings on Financial Profiles of BNPL Borrowers The CFPB published a report analyzing the financial profiles of BNPL borrowers. A link to the report is in the agenda, but some high level findings were that 95% of BNPL borrowers had at least one other credit product; Black, Hispanic, and female consumers are more likely than average to use Buy Now, Pay Later products, along with consumers with income between $20,001-$50,000; BNPL borrowers surveyed also had lower credit scores, leading to higher rates on traditional credit products, making BNPL loans with no interest an attractive alternative. The data for this study came from a 2022 voluntary survey of anonymized credit records, and it’s interesting to point out that the CFPB specifically notes that the report cannot distinguish whether Buy Now, Pay Later usage leads to more delinquencies on other obligations or whether consumers who are already in distress are more likely to use Buy Now, Pay Later loans to pay off higher-interest debt. Democratic Senators Send Letter to Banking Regulators on Zelle Banking Committee Chairman Sherrod Brown, along with Democratic members Jack Reed, Robert Menendez, Elizabeth Warren, and Mark Warner, addressed the Federal Reserve, FDIC, NCUA, and OCC in a letter last week urging a close review and examination of the customer reimbursement and anti-money laundering practices of banks that participate in the Zelle network. Further, the letter also asks the regulators to coordinate their efforts with the CFPB. The Senators raised “concerns about the safe and sound operation of Zelle because depository institutions currently take the position that they are under no obligation under the EFTA to make their customers whole when fraudsters use the network to steal their hard-earned money.” Supreme Court Decides MoneyGram Unclaimed Property Case The U.S. Supreme Court issued its long-awaited decision in Delaware v. Pennsylvania, a case we have previously discussed involving abandoned MoneyGram funds. In a unanimous decision, the Supreme Court held that Agent Checks and Teller’s Checks are covered by the Federal Disposition Act (FDA) and, as a result, abandoned proceeds would generally escheat to the State where the instrument was purchased. In the opinion, drafted by Justice Kentanji Brown Jackson, the Court held stated “[t]he plain text of the FDA applies to not only money orders and traveler’s checks but also written instruments that are ‘similar’ to those financial products.” The Court established a two-prong test for determining if a financial instrument is sufficiently similar to a money order, and therefore falls under the FDA. First, it must be a prepaid written instrument used to transmit money to a named payee; and second, it must inequitably escheat to the holder’s state of incorporation under the federal common law’s secondary escheatment rule due to the holder’s business practice of not retaining a record of the instrument owner’s address. In the case at hand, because Moneygram does not generally collect creditor addresses as a matter of business practice, they do not have adequate records to follows the common law’s escheatment rule, the FDA applies, and the abandoned proceeds will generally escheat to the state where the product was purchased. 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. 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 bway marked up and reported favorably by the House Financial Services Committee on 2/28/23 by a vote of 26-21. The Government Updateis 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. U.S. Court of Appeals for the D.C. Circuit Releases PayPal v. CFPB Decision The U.S. Court of Appeals for the D.C. Circuit released its highly anticipated decision in PayPal v. CFPB. The court overturned PayPal’s victory the in lawsuit challenging the CFPB’s model disclosures that companies could use to comply with the agency’s prepaid card regulation. According to the ruling, The CFPB’s prepaid card regulation didn’t mandate specific fee disclosures for digital wallet products offered by companies like PayPal. The three- judge panel ruled unanimously that the agency only provided a model that companies could use while giving them the option to develop their own, similar disclosures, bringing the regulation in line with the requirements in the Electronic Fund Transfer Act. The Court concluded at the end of its decision that “[o]n remand, the district court may consider PayPal’s other challenges to the Rule, including the APA and constitutional claims, which remain to be addressed.” Virginia Legislature Passes HB1921 and SB1217 The Virginia State Senate passed SB1917 unanimously, while the Virginia State House passed a HB1921, a companion bill, by a vote of 53-46. The House bill would create a regulatory framework for earned wage access providers in the state, while the Senate bill replaced the regulatory framework with a proposed study on earned wage access. The bills must now be reconciled before being sent back to each chamber for a final vote. The reconciled bill could include only the study, only the regulatory framework, or some type of combination of the two. CFPB Seeks Public Input on Consumer Credit Card Market The CFPB issued a request for information seeking public input on the consumer credit card market as part of a biennial review mandated by the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act). Specifically, the request is seeking information on:
White House Published RFI on Digital Asset Research The White House Office of Science and Technology Policy (OSTP) published a request for information (RFI) seeking feedback on a proposed National Digital Assets Research and Development Agenda. Broadly speaking, they are seeking public comments to help identify priorities for research and development related to digital assets, including various underlying technologies such as blockchain, distributed ledgers, decentralized finances (DeFi), smart contracts, and related issues such as cybersecurity and privacy. Specifically, the RFI seeks feedback on six topics:
Comments are due March 3, 2023. Fed Promotes Level Playing Field Regardless of Deposit Insurance Status The Federal Reserve Board issued a policy statement to promote a level playing field for all banks with a federal supervisor, regardless of deposit insurance status. The statement clarifies that uninsured and insured banks supervised by the Board will be subject to the same limitation on activities, including novel banking activities, such as crypto-asset-related activities. The statement also makes clear that uninsured and insured banks supervised by the Federal Reserve will be subject to the same limitations on certain activities imposed on national banks that are supervised by the OCC. Through this policy, the Federal Reserve aims to promote a level playing field and limit regulatory arbitrage. White House Issues Statement on Cryptocurrency Risk The White House released a statement describing the risks that cryptocurrencies pose to retail and institutional investors, and outlined the Administration’s roadmap to mitigating those risks while preventing harm to the broader financial system. The Administration laid out a framework for developing digital assets in a safe, responsible manner while addressing inherent risks, and encouraged federal agencies to use their authority to increase enforcement and issue guidance where needed. The statement also encouraged Congressional action to expand regulatory authority to protect customers’ assets, strengthen penalties for violating illicit finance rules, and address the risks of stablecoins. The statement closed by highlighting that the Administration supports responsible technological innovation, but that there must be safeguards to ensure they are secure and beneficial to all. FDIC Announces Extension of Comment Period for Proposed Changes to its Regulation Regarding Misrepresentations of Deposit Insurance The FDIC announced a 45-day extension of the comment period for the proposed changes to regulations relating to the FDIC’s official sign, advertising statement, misrepresentation of deposit insurance coverage, and misuse of the FDIC’s name or logo. The original due date for comments was February 21, 2023, but has now been extended to April 7, 2023. More information can be found in the original notice of proposed rulemaking. IPA/EPC Joint Letter on North Dakota SB 2217 The IPA has signed a joint letter at the invitation of the Electronic Payments Coalition (including ABA, ICBA, CUNA, etc…) to oppose North Dakota State Senate bill SB.2217, which was recently passed by the ND Senate. If enacted, SB 2217 would prohibit the collection of interchange on the sales tax portion of electronic transactions. This bill is similar to other bills the IPA has opposed that have been introduced in several other states over the last couple of years. Luetkemeyer Sends Letter to DOJ on BSA Reporting Rep. Blaine Luetkemeyer (R-MO), Chairman of the National Security, Illicit Finance, and International Financial Institutions Subcommittee, sent a letter to Attorney General Merrick Garland regarding the Department of Justice’s fulfillment of Section 6201 of the 2021 National Defense Authorization Act (NDAA), which requires the DOJ to report metrics on its use of Bank Secrecy Act (BSA) data and on the use of data derived from financial institution reports. According to Chairman Luetkemeyer’s letter, the DOJ’s report did not include statistics required under the act, including statistics on the use and impact of BSA reports. Luetkemeyer criticizes the lack of transparency into the usefulness of BSA data, and asks if burdensome BSA reporting is even worthwhile. The letter includes several questions for response on the DOJ’s process for fulfilling the requirements laid out in Section 6201 of the NDAA. New Federal Bills
None Pending Federal Bills None The Government Updateis 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 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. CFPB Files Amicus Brief in Prepaid Card Case The CFPB filed an amicus brief in the U.S. Court of Appeals for the Fourth Circuit as part of Mohamed v. Bank of America, N.A., No. 22-1954 (4th Cir.). In the case, the plaintiff sued Bank of America for violations of the Electronic Fund Transfer Act (EFTA) when he received a prepaid government benefits card that had been fraudulently depleted of its entire $15,000 balance before he received it. Bank of America argued that EFTA does not apply to accounts loaded with unemployment assistance related to the pandemic. The CFPB’s amicus brief explains that EFTA’s protections clearly apply to prepaid card accounts used to distribute certain types of government benefits, including unemployment assistance related to the pandemic, and that to hold otherwise would be to create a new exception to the law’s regulations. More information can be found in this CFPB blog post, authored by general counsel Seth Frotman. CFPB Proposes Rule to Establish Public Registry of Contract Terms The CFPB proposed a rule which would establish a public registry of supervised nonbanks’ terms and conditions that are included in form contracts with their customers and users. According to the press release, the rule would require nonbanks to submit information on terms and conditions in form contracts that they use to waive or limit individuals rights and legal protections. The information would then be posted in an online registry that will be open to the public. The IPA is currently involved in a Chamber of Commerce coalition that is examining the effects the potential rule may have on pre-dispute arbitration clauses. The main concern seems to be the compliance burden on institutions that have many different contracts, sometimes more than one per state, the effect the registry would have on their ability to include pre-dispute arbitration clauses, and what next steps the CFPB may take after they have compiled this information. CFSA Files Brief in CFPB Funding Case The Community Financial Services Association of America (CFSA) filed its brief to the Supreme Court in their case against the CFPB. In the brief, the CFSA argued that the Supreme Court has the ability to address the validity of the CFPB’s payday lending rule without addressing the issue of the CFPB’s controversial funding mechanism. The Supreme Court is scheduled to consider the request for certiorari in a February 17th conference, after which we will know whether or not the Court will hear the case this term or next term, or will deny the request entirely. CFPB Issues Report on TransUnion, Experian, and Equifax The CFPB released its annual report on the three major credit reporting bureaus – Equifax, TransUnion, and Experian. In brief, the report analyzes how the credit bureaus respond to consumer complaints and implement aspects of the Fair Credit Reporting Act. Accordingly, the report acknowledges that the credit bureaus have taken affirmative steps to address consumer concerns and provide more substantive responses to consumer inquiries. However, the CFPB expects continued improvement in the next year and has recommended the credit bureaus implement the following changes: consider consumer burden when implementing automated processes; recognize that technology is also improving for consumers; and consider how to transition the market from control and surveillance to consumer participation Agencies Issue Joint Statement on Crypto-Asset Risks to Banking Organizations The Federal Reserve, FDIC, and OCC issued a joint statement on digital assets, expressing their concerns for banks and the use of digital assets including cryptocurrency and stablecoins. The statement describes several key risks they see associated with crypto-assets and the crypto-asset sector, including: uncertainties related to custody practices, redemptions, and ownership rights; misleading or false representations of disclosures; volatility, run risks on stablecoins; a lack of maturity and robustness in the risk management and governance practices; heightened risks associated with open or DeFi networks; and the risk of fraud. The statement also notes that the banking regulators are carefully reviewing any proposals from banking organizations to engage in activities that involve crypto-assets. OCC Releases 2022 Annual Report The OCC released its 2022 Annual Report in which they provide an overview of the condition of the federal banking system and discusses the OCC’s strategic priorities and initiatives. Specifically, the report found that the banking system remains resilient despite a recent dip in profitability with the phasing out of pandemic-related economic aid, and said that banks are still able to support their customers and the national economy. The report also highlighted the efforts of the OCC related to third-party risk management, financial inclusion, and the risks and benefits of cryptocurrency and digital assets. CFPB Blog Post on Supervision Process The CFPB published a blog post entitled “What new supervised institutions need to know about working with the CFPB”. In the blog, the CFPB outlines the supervisory activities that they conduct, the process they follow when conducting examinations, and what supervised institutions can expect following an exam or other supervisory activity. The blog post also included a link to the CFPB’s Supervision Program, and encourages supervised institutions to become more familiar with the program. House Financial Services Committee Subcommittee Chairs
House Balance of Power in the 118th Congress Senate Balance of Power in the 118th Congress New Federal Bills
None Pending Federal Bills None |
AuthorWrite something about yourself. No need to be fancy, just an overview. Archives
January 2025
Categories |