2016 did not bring dramatic changes to financial services in California, but there are a few key changes to take note of:
- Data breaches will need to be reported if encrypted information and the encryption key were acquired by an unauthorized person.
- Licensing will be required for Student Loan Servicers and independent contractors of Residential Mortgage Lenders who engage in activities of loan processing or underwriting.
- Added CFL licensing exemption for one commercial loan for a 12-month period.
- Makes mandatory requirements for debt collectors regarding identity theft.
- Extended Increased Access to Small Dollar Loans pilot program.
For the full summary: jun-soter-2016-california-chapter-law-summary
New Regulatory and Industry Developments
Along with all the predicted changes to the CFPB, as well as:
- OCC‘s special limited purpose national bank charter proposal for companies who lend money, pay checks or receive deposits. Public comments will be accepted until January 15, 2017. Comments are to be sent to email@example.com
- Fast Company’s 5 Fintech Startups to Watch
- PYMT’s 2017 predictions
The 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.”
Consumer Financial Service regulators at the federal and state level have been quite productive in 2016. To highlight a few:
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”)
A Survey on Consumer and Small Business Online Lenders (survey of 5 years of aggregate data from 13 online lenders)
“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.
There 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?
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.
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?