Recent Doings By Consumer Financial Service Regulators

Young woman is looking through a binocularsConsumer Financial Service regulators at the federal and state level have been quite productive in 2016. To highlight a few:

CFPB

Dwolla Consent Order (UDAPP application on the payment platform’s data security representations e.g. their “data-security practices ‘exceed industry standards,’ or ‘surpass industry security standards'”)

Proposed Rule to Ban Mandatory Arbitration Clauses in contracts for consumer financial products or services.

Online Payday Lending Study (Press Release Stated: “CFPB Finds Half of Online Payday Borrowers Rack Up an Average of $185 in Bank Penalties”)

CA DBO

A Survey on Consumer and Small Business Online Lenders (survey of 5 years of aggregate data from 13 online lenders)

FTC

Dealing in personal data? Seller Beware”  Warning to lead generators and data brokers in particular–do not sell personal data where there is no legitimate need for the financial information.

** Please note that any information provided on this site is not legal advice, and does not create an attorney-client relationship.

Money Transmission or MSB

MSB does not always mean money transmission.  This can be illustrated most simply by looking at the definitions provided in one state money transmitter law (California) and by FinCEN:

MSBs (as defined by FinCEN) are money service businesses, which include but are not limited to money transmission. MSBs include check cashers, issuers/sellers/redeemers of money orders and traveler’s checks, currency dealers, currency exchangers, and providers/sellers of prepaid access (includes prepaid cards). For more information, MSBs are defined at 31 CFR 1010.10

Money Transmission (as defined in California) includes selling or issuing payment instruments; selling or issuing stored value; or receiving money for transmission.  For more information, the California Money Transmission Act starts at Cal. Fin. Code 2000

** Please note that any information provided on this site is not legal advice, and does not create an attorney-client relationship.

 


					

Prepaid

plastic cardsThere has been a lot of news around RushCard the past couple of weeks, as their cardholders–many who are living paycheck to paycheck–weren’t able to access their money due to a payments processing glitch. Obviously, this was a huge disaster, for the cardholders, RushCard, and perhaps not so good PR for the prepaid card industry.

The Detroit Free Press reported: “No doubt, many will use this crisis as a time to criticize the prepaid card industry and some of the risks associated with not opting for a traditional checking and savings account. We’re hearing about class action suits as well.”

It’s much easier to point the finger when systems fail. The focus here should be on whether systems may be improved so that such a catastrophe doesn’t hit the most vulnerable again. It’s also easy to dish out advice that everyone should have a personal relationship with a bank, have a checking account and savings account, and avoid relying on such products as prepaid, but this does not provide a viable solution for many people.

Consumer protections on prepaid card accounts (products) have long been in the making. It has been nearly a year since the CFPB had released its proposed rules for prepaid which would extend Reg E protections, including error resolution and fraud and loss protections.

Arguably, even Reg E’s error resolution and fraud and loss protections don’t take care of the entire problem when banking and financial systems fail–10 days to gain access to money to pay for food and medication isn’t going to cut it. I’m curious to see what answers come from the RushCard debacle. Will it be business as usual in that there continues to be a two-tiered system where one group has access to credit and the other does not? Will there be space for development of new products and services to bridge this gap?

 

 

9.15 Payments Roundup

Young woman is looking through a binocularsBitcoin

Bitcoin is officially deemed a commodity–at least in the eyes of the U.S. Commodity Futures Trading Commission. More analysis is here

Payday/Small Dollar Lending

Jim Hawkin’s recently published a study on payday lenders, looking at a variety of factors including advertising, demographics, online vs storefront lenders, pricing and compliance. It’s definitely worth a read

Prepaid

The Boston Fed published findings on prepaid cards and savings“In one study, D2D partnered with Banking Up, a financial-services technology company, to pilot a ‘Rainy Day Reserve’ on Banking Up’s Upside Visa prepaid card. What they found was that there was demand from consumers for a savings product tied to GPR prepaid cards.”

Credit Cards & Security

It appears many merchants are not ready for the EMV chip deadline.  Will there be a dramatic uptick in merchant losses starting Oct 1st?  

 

 

CA Financial Services Related Bills

contract-iconVirtual Currency Act

AB 1326 (Dababneh) as amended 7.6.15

Adds Financial Code 26000 licensing for virtual currency

Creates requirements for persons engaged in any virtual currency business to either obtain a license or qualify for an exemption from licensure to operate in California. Under AB 1326 “‘virtual currency business’ means maintaining full custody or control of virtual currency in this state on behalf of others.”

Virtual currency businesses would be required to pay a $5000 application fee, complete the application form, maintain a trust account/bond to benefit consumers, provide a specified receipt to consumers, submit to examinations. Violations are subject to civil penalties.

Additionally, a virtual currency business in good standing may be eligible to convert their virtual currency business license to a money transmission license under the Money Transmission Act provided meeting certain criteria, which includes “conducting [a] virtual currency business with less than $1,000,000 in outstanding obligations and whose business model, as determined by the commissioner, represents low or no risk to consumers to register with a $500 license fee and, if approved, receive a provisional license to conduct virtual currency business.”

The bill also provides for a provisional license for virtual currency businesses “with less than one million dollars ($1,000,000) in outstanding obligations and whose business model, as determined by the commissioner, represents low or no risk to consumers may register with a five-hundred-dollar ($500) license fee with the commissioner”  They must register with FinCEN as a money services business, if applicable.

Finder’s Fee for Pilot Program for Increased Access to Responsible Small Dollar Loans

SB 235 (Block)

Would increase compensation to finders (entities that bring borrowers and licensed lenders together) from $45/40 to “no more than $70” per loan

The bill would also “require a licensee to provide the commissioner with prescribed information relating to each finder, including, but not limited to, the finder’s delinquency rate and default rate, and would authorize the commissioner to take prescribed action against a finder that is found to be in violation, including, but not limited to, disqualifying the finder from providing services under the pilot program.”

Creates Bank on California under DBO 

AB 1292 (Dababneh)

Various changes to Data Breach Notification Laws

SB 570; AB 83; AB 259; AB 964