On Wednesday, May 5, 2021, the Board of Governors of the Federal Reserve System (“Federal Reserve”) issued a notice requesting public comment on proposed guidelines articulating a series of principles to be used by Federal Reserve Banks in evaluating requests for Reserve Bank master accounts and payment services (the “Proposed Guidelines”). The Federal Reserve intends

England’s Court of Appeal has decided that the Competition Appeals Tribunal (the “CAT”) erred in rejecting certification of former financial ombudsman Walter Merricks’ class action against MasterCard, for £14 billion.  As a result, the CAT will now reconsider whether to certify the class.  The decision has lowered the bar that will need to be cleared in this and future class actions in order to achieve certification.  In this alert, we consider the decision and its implications for the UK’s fledgling class action regime.

Continue Reading English Competition Appeals Tribunal to Reconsider £14 Billion Class Action Against MasterCard

On February 6, 2019, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) released its much-anticipated proposed amendments to the payday lending rule. The proposed revision is Kathy Kraninger’s first major regulatory initiative since becoming the director of the CFPB.

The Bureau issued two notices of proposed rulemaking that would (i) repeal the mandatory underwriting provisions in the payday lending rule and (ii) delay the compliance date for these provisions until November 19, 2020, which would allow the Bureau to consider comments and issue a final rule before the underwriting provisions take effect. The Bureau’s proposed revisions would not amend or delay the effective date of the payment provisions of the payday lending rule, although the preamble to one of the proposed rules makes clear that the Bureau may separately consider whether any revisions to the payment requirements are appropriate.

Continue Reading CFPB Releases Proposed Revisions to Payday Lending Rule

Today, the Bureau of Consumer Financial Protection issued a public statement of its intent to issue proposed rules in January 2019 to reconsider its final rule regarding payday, vehicle title, and certain high-cost installment loans, commonly referred to as the “payday loan rule,” and to address the rule’s compliance date.  The Bureau is currently planning

On March 22, 2018, the Government Accountability Office (“GAO”) issued a report on the regulation of financial technology (“fintech”) in response to a request from Congress for more information on “fintech activities.” The report concludes that agencies that regulate fintech firms should coordinate with each other more closely, develop offices of innovation (for agencies that have no already done so), and consider adopting approaches to fintech used in foreign jurisdictions, such as the “regulatory sandbox” approach used by the U.K.’s Financial Conduct Authority. GAO also reports on a few innovation initiatives under consideration by agencies such as the OCC and CFTC.

The GAO’s analysis focuses on the following fintech areas: payments, lending, wealth management and financial advice, and blockchain/distributed ledger technology, including virtual currency.  The report is the product of interviews with over 100 fintech stakeholders, including representatives of fintech firms, financial institutions, trade associations, law firms, consumer groups, and federal and state financial regulators.

Continue Reading GAO Publishes Report on Fintech Regulation

The Payment Services Directive (PSD2), which took effect on January 13, 2018, puts an obligation on banks to give Third Party Providers (TPPs) access to a customer’s payment account data, provided the customer expressly consents to such disclosure. The new legislation is intended to improve competition and innovation in the EU market for payment services. The General Data Protection Regulation (GDPR), which is due to take effect from May 25, 2018, enhances individuals’ rights when it comes to protecting their personal data. The interaction between PSD2, aimed at increasing the seamless sharing of data, and the GDPR, aimed at regulating such sharing, raises complicated compliance concerns.

For example, where banks refrain from providing TPPs access to customer payment data for fear of breaching the privacy rights of their customers under the GDPR, competition authorities may consider this a breach of competition law. This concern is already becoming a reality for banks – on October 3, 2017, the European Commission carried out dawn raids on banking associations in Poland and the Netherlands following complaints from fintech rivals that the associations were not providing them with what they considered legitimate access to customer payment data.

Continue Reading Overlap Between the GDPR and PSD2

On January 3, 2018, in Italian Colors Restaurant v. Becerra, No. 15-15873, a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit invalidated an application of a California law that would prohibit merchants from imposing a surcharge on credit card payments. The California law would allow offering discounts for payments by

On December 27, 2017, the CFPB released its biennial report on the state of the credit card market. The CFPB’s report found the market to be stable and growing steadily. In particular, the Bureau found that the cost of credit card credit to consumers remains stable overall, in terms of both total costs and the structure of those costs. Some trends noted in the report include the growing use of secured credit cards – which require a cash security deposit and are often used by consumers to build credit history – and the significant proportion of consumers who are interacting with their credit card accounts online and through mobile applications. The report does not make specific recommendations or signal any intent by the CFPB to pursue major regulatory initiatives with regard to credit cards.

Continue Reading CFPB Releases Credit Card Report

On December 7, 2017, the Federal Reserve announced that it will eliminate the use of the Strength of Support Assessment (or “SOSA” rating) as a supervisory tool.  The SOSA rating measures the extent to which a foreign banking organization (“FBO”) is in a position to provide support to its U.S. branches, agencies, and subsidiary banks, by assessing internal and external factors such as home country risk.  The Federal Reserve currently uses the SOSA rating solely to calculate an FBO’s net debit cap for purposes of daylight overdraft capacity at a Federal Reserve Bank and to determine an FBO’s eligibility for discount window loans.  Accordingly, on December 11, 2017, the Federal Reserve issued a proposal to amend its Payments System Risk Policy to eliminate reliance on an FBO’s SOSA rating to calculating its net debit cap.  The proposal would also eliminate reliance on an FBO’s status as a financial holding company (“FHC”) to determine its net debit cap.

Continue Reading Federal Reserve Eliminates SOSA Rating and Proposes New Standards for FBO Daylight Overdraft Capacity

On September 6, 2017, the Federal Reserve System (“FRS”) published a paper that identifies updated strategies and tactics for improving the U.S. payments system. The paper, entitled Strategies for Improving the U.S. Payment System: Federal Reserve Next Steps in the Payments Improvement Journey, refines the strategies set forth in a previous FRS paper, Strategies for Improving the U.S. Payment System, published in January 2015, and outlines nine tactics the FRS intends to pursue to advance progress on payment system improvements. The tactics fall into three broad categories: FRS service enhancements, FRS research, and industry collaboration efforts.

The new FRS paper retains without substantive change three of the five strategies outlined in the 2015 paper: speed, security, and collaboration. The fourth strategy outlined in the 2015 paper focused on achieving greater end-to-end efficiency for domestic and cross-border payments. The new paper divides this prior strategy into separate domestic and international components as follows: (1) efficiency—achieving greater end-to-end efficiency for domestic payments; and (2) international—working to enhance the timeliness, cost effectiveness, and convenience of cross-border payments. The tempered expectations for improving cross-border payments reflects concerns about compliance with anti-money laundering, terrorist financing, and economic sanctions requirements. The FRS also decided against enhancing the Fedwire Funds Service to make it easier for participating institutions to send cross-border payments.

The fifth strategy outlined in the 2015 paper—enhancing FRS payments, settlement and risk management services—has been eliminated. Instead, the FRS recharacterizes as tactics two types of potential enhancements to FRS services. First, the FRS will pursue enhancements to FRS settlement services to support real-time retail payments, such as assessing the demand for weekend hours. Second, the FRS will explore and assess the need, if any, for the FRS to engage as a service provider in areas beyond providing settlement services in a faster payments ecosystem. The American Banker reported that, while industry stakeholders generally support enhancements to the FRS’s settlement services, an expanded FRS role as a service provider is more controversial with support from small banks and credit unions and resistance from larger institutions.

Continue Reading Federal Reserve Updates Strategies and Tactics for Promoting Payment System Improvements