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

 

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.

CFPB GPR NPRM

plastic cardsIf you are involved or follow the world of prepaid cards, you already know that the CFPB had issued proposed rules late last year, and that the comment period ended late March.

The California Bar Business Law Section holds a lunchtime lecture series which features the latest of relevant and interesting topics.

March’s presentation was “Prepaid Cards and the New Rules of the Road.”  Here is the summary, along with links to presentations below:

Over five percent of retail sales in the U.S. (representing $200 billion) were made with prepaid cards last year.  From gift cards to general purpose reloadable cards to virtual cards embedded in smartphones, prepaid cards are everywhere…. And so are 800+ pages of newly proposed prepaid card rules and guidance.

  • Judie Rinearson , Bryan Cave Partner and regulatory counsel to the prepaid industry association, will explain the contours of the new proposed rules and their interplay with existing electronic funds transfer and credit regulations.
  • Emily Goodman Binick, American Express Senior Counsel will help us understand the challenges and opportunities involved in implementing both existing prepaid card laws and the new proposed rules.
  • Michelle Jun, Payments Law Group Principal and former Consumers Union attorney, will share insights into market dynamics and consumer protection issues that still need to be resolved.