Finally, Prepaid Rules are Finalized

plastic cardsThe CFPB’s Final Prepaid Card (Account) Rules are finally here after many years in the making. Rest assured there will be plenty of legal analysis and summaries provided on the 1,689 page rule the CFPB published October 5.

Here are a variety of reactions–from an industry news provider, leading prepaid provider, trade association and consumer group:

American Banker: “The bureau’s new rules are poised to disrupt, if not destroy, this industry and eliminate thousands of prepaid options from retail racks and online stores. Simultaneously, the rules will fundamentally transform the nature of the products themselves, making them function more like the heavily regulated banks they sought to replace.”

Green Dot‘s Steve Streit: “Green Dot embraces the new rule as recognition that the industry we started more than 15 years ago continues to serve an increasingly significant role in the everyday financial lives of a growing number of American families. We fully support the CFPB’s mission to ensure fairness, integrity and consumer protections for all participants in the financial system.”

NBPCA (Network Branded Prepaid Card Association): “While we are still analyzing the lengthy final rule to determine its full impact, it is already clear that the CFPB has dismissed many of our serious concerns and moved forward with a rule that will harm the very consumers it aims to protect. Instead of fostering financial innovation and inclusion, the CFPB’s rule will ultimately limit access to an essential mainstream consumer product that helps millions of Americans participate in the digital economy, affordably manage funds, and safely hold money.”

Pew Charitable Trusts: “By staying the course, the bureau has closed the door on practices that could have compromised consumers’ ability to use these products safely and stay out of debt.”

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.

 


	

NY Bitlicense Finalized

DIGSOUTH_ShaneSnowQA_042913New York’s Department of Financial Services finalized its rules regarding the regulation of a person engaged in “any virtual currency business activity.”

Under these regulations, “virtual currency business activity” is defined to mean:

“the conduct of any one of the following types of activities involving New York or a New York Resident:

(1) receiving Virtual Currency for Transmission or Transmitting Virtual Currency, except where the transaction is undertaken for non-financial purposes and does not involve the transfer of more than a nominal amount of Virtual Currency;

(2) storing, holding, or maintaining custody or control of Virtual Currency on behalf of others;

(3) buying and selling Virtual Currency as a customer business;

(4) performing Exchange Services as a customer business; or

(5) controlling, administering, or issuing a Virtual Currency.

The development and dissemination of software in and of itself does not constitute Virtual Currency Business Activity.”

There are two categories of exemption:

“(1) Persons that are chartered under the New York Banking Law and are approved by the superintendent to engage in Virtual Currency Business Activity; and

(2) merchants and consumers that utilize Virtual Currency solely for the purchase or sale of goods or services or for investment purposes.”

These rules also include a detailed application, a $5000 application fee, a compliance officer, compliance policies and procedures on anti-money laundering and security, capital requirements, and consumer disclosures.

Who’s Lending Anyway?

Young woman is looking through a binocularsIn commemoration of Payments Law’s one year anniversary, I’ve taken a slight departure in this post by quickly summarizing how people come up with the capital to jumpstart their companies.

Where do most (non-tech) entrepreneurs go?

Mostly likely, NOT banks:  According to the Wall Street Journal–“The number of loans for $1 million or less held by banks is down about 14% to 23.5 million since 2008. In nearly one-third of all U.S. counties, small-business lending remains below 2005 levels, estimates PayNet Inc., a Skokie, Ill., tracker of loans by banks, corporations and alternative lenders such as finance companies….Some analysts are encouraged by recent signs of a lending uptick by small banks, which often focus on small businesses. In July, the total amount of commercial and industrial loans held by small U.S. banks rose 11% from a year earlier, according to Moody’s Analytics.”

Those numbers are still very low.

Not surprisingly, “alternative” financing sources have met great success as SMBs clearly needed other sources to obtain capital.  Here’s a short list of various alternative lenders:

Family/Friends

P2P: Prosper, Lending Club

Crowdfunding:  KickStarter

Online Payments Companies: Kabbage, PayPal Working Capital

CDFI: Opportunity Fund (only in CA) but there are CDFIs throughout the country

It’s true that the regulations that these alternative lenders may differ from traditional lenders, and may be providing loans at less competitive rates than traditional lenders.  But it seems, the tide is turning and many entrepreneurs are looking first to these non-traditional lenders.  Which begs the question: who is taking the the real long term risk: banks or borrowers?

 

 

 

CFPB Looks for Comments on Mobile Technology & the Underserved

looking-through-binoculars-future-predictionsIn mid-June CFPB issued a notice inquiring about mobile apps geared toward the financially underserved.  Here’s a sampling of the questions the agency is seeks comment on:

(1) What are some of the ways in which consumers use mobile technology to access financial services? What are some of the benefits to consumers of enhanced access via mobile?

(2) How would making access via mobile differ from or improve overall access compared to only accessing financial services through an online channel?

(3) Based on your experience, what percentage of customers access accounts at financial institutions via mobile? Has there been any research that sheds light on level of use by income strata, age, or other demographic factors?

I was interviewed by Mobile Payments Today on the topic:

“There is no question that there is a great need to provide financially underserved consumers with fair and robust products and services,” she wrote in an email. “Right now, all bets are on mobile technology due obviously to the ubiquity of mobile devices, particularly for low- to moderate-income consumers, and the number of companies and new entrants is enormous.

“So, it isn’t surprising that this is an area that the CFPB is interested in, or interested in enough to make a formal request for information. It also isn’t surprising that segments of the industry will be nervous that regulations will soon come next, but in my experience with the CFPB, it is likely the agency is conducting its due diligence in gathering information from all interested and involved stakeholders and will likely be taking its time in figuring out how best to address any issues or concerns that have been or might be raised.”

If this topic is of importance to you, make sure to submit your comments by the deadline, Sept 10, 2014.