Payments News Update – August 26, 2021
Legal and Regulatory Developments
SPOTLIGHT: Outgoing NY Governor Signs Bill to Limit Overdraft Practices at State-Chartered Banks
Banking Dive – August 20, 2021
New York Gov. Andrew Cuomo signed a bill Thursday aimed at helping consumers avoid bank overdraft fees. The law requires New York-regulated banks to process checks in the order they are received, or from smallest to largest, to prevent customers from racking up fees for overdrawing their accounts. “If a bank receives a check for a greater amount of money than the balance in the account, it may decline to pay the check,” the governor’s office said in a statement. “However, the banking institution must honor any smaller checks that can be paid with the existing account balance.” Under the current law, banks can reject the subsequent smaller checks, even if there are sufficient funds in the account to pay them.
The new law, which takes effect Jan. 1, comes as lawmakers and regulators are paying more attention to overdraft fees and the revenue they generated for banks during the pandemic. Many banks have also revamped their overdraft policies amid the increased scrutiny. . . .
Square is planning to purchase buy now, pay later (BNPL) firm Afterpay for $29 billion. It’s a validation of the space, yes, but it also means that lawmakers and regulators will train their gaze more fully on the sector. They likely will want to have more information and input on contract terms and whether the hyper growth that has been a hallmark of BNPL can be sustained safely.
The writing is on the wall, so to speak. In one example, as recounted earlier in the year, across the pond, BNPL is to be regulated by the U.K. Financial Conduct Authority (FCA) following a four-month review. In looking at the largely unregulated sector, the FCA recommended that, among other initiatives, there needs to be the “secure provision of debt advice,” especially against the landscape where more than 42 million people used consumer credit in 2019. . . .
Biden Takes on Visa, Mastercard Over Debit Card Fees: Explained
Bloomberg Law – August 20, 2021
The Biden administration wants to loosen the grip that Visa Inc. and Mastercard Inc. have on routing debit card payments in online transactions and the billions in so-called interchange fees that come with it. The Justice Department’s Antitrust Division and the Federal Trade Commission last week endorsed a May proposal by the Federal Reserve to reopen Dodd-Frank Act rules that capped the fees retailers pay and required banks and other debit card providers to offer more payment network choices for routing transactions.
The Fed wants to expand the 2011 rules to cover rapidly growing “card-not-present” transactions—primarily online shopping and automatic bill payments—to rein in alleged anticompetitive behavior by giants like Visa and Mastercard, which process roughly 75% of all debit transactions. The Fed’s earlier rules faced stiff opposition and years of litigation from retailers that said the regulations weren’t tough enough. Banks, card networks, and others oppose the Fed’s efforts this time around. . . .
Canadian business groups are asking the federal parties for promises to lower credit-card interchange fees, a move they say would benefit small businesses to the tune of many millions of dollars a year — and could help consumers save a few dollars, too. Between the pandemic-driven shift to e-commerce and cashless transactions, and the bumpy road to a recovery from COVID-19, consumers should care about such fees, even if they don’t directly see them on their receipt, said Gary Sands, senior vice-president of the Canadian Federation of Independent Grocers (CFIG).
“We’re talking hundreds of millions of dollars in savings,” said Sands. “This is a huge issue that I don’t think is getting the attention it deserves.” A credit-card interchange fee, also known as a transaction fee or a processing fee, is the fee the merchant — the business — pays to be able to accept credit cards. The fee is taken from the payment for each individual purchase, whether it’s an e-commerce transaction or a payment in person, and goes to the card’s issuing bank. (There’s also a fee on debit-card transactions, but it’s significantly lower than on credit-card payments.) . . .
Regulators Set Sights on Amazon One Biometric Payments Next
Tech HQ – August 19, 2021
It appears the regulatory tide is truly against the big US tech giants, as Amazon One, the e-commerce juggernaut’s latest biometric payment system that utilizes palm scans, became the latest casualty to go under the data privacy microscope. Three US senators published an open letter last week to new Amazon CEO Andy Jassy, expressing concern about the new payment method and stating that it “raises serious questions” about “user privacy, including about how Amazon may use the data for advertising and tracking purposes.”
The company first introduced Amazon One in late-2020 at two of its pilot Amazon Go stores in Seattle, where users could self-checkout for groceries and other items by linking their accounts to a credit card, and by scanning their palms to verify the payment as they exited the store. Since then, Amazon One has been rolled out at around 50 locations across the US, including at Whole Foods Market outlets which Amazon acquired back in 2017. The retail and fulfillment giant has been looking to ramp up adoption of the biometric payment system, and earlier this month began offering a US$10 discount to account holders who were willing to upload scans of their palm prints to the Amazon One database. . . .
Mastercard’s Credit Card Fees Find Themselves in the Cross-Hairs of a U.K. Class Action
Digital Transactions News – August 19, 2021
While the two global payments networks have been embroiled in a controversy over merchant debit card fees in the U.S. market, they also face trouble in the United Kingdom over an even bigger issue: credit card interchange fees. That fact was thrown into relief early Thursday when Reuters reported the U.K.’s Competition Appeal Tribunal certified a $14-billion class action brought against Mastercard Inc. that alleges interchange set by the network between 1992 and 2008 hurt consumers as merchants passed on the cost. The case, brought by a former financial ombudsman named Walter Merricks, could result in 46 million adults receiving approximately 300 pounds ($410) each, according to Reuters.
The news service quoted Mastercard calling the case “spurious” and alleging it is being pushed by lawyers and others seeking to profit from it. The 5-year-old case represents the first time a consumer class action has been approved in the United Kingdom. It follows action by Britain’s Supreme Court in December to let the case proceed. That high court in June last year handed down a ruling that the interchange schedules set by both Visa and Mastercard unlawfully restricted competition. . . .
CFPB Asks DC Circ. To Undo PayPal’s Fee Disclosures Win
Law360 – August 17, 2021 (subscription required)
The Consumer Financial Protection Bureau urged the D.C. Circuit on Monday to overturn its loss to PayPal Inc. in a lawsuit challenging some of the agency’s prepaid card rules, arguing that its power to regulate fee disclosures doesn’t stop at issuing optional “model” disclosure language. In an opening brief, the CFPB kicked off its appeal of a December decision from U.S. District Judge Richard Leon that sided with PayPal to invalidate the so-called short-form fee disclosure requirements from the agency’s 2016 prepaid rule.
Judge Leon concluded that these “mandatory” requirements conflict with a provision of the Electronic Fund Transfer Act that directs the CFPB to draft “model clauses” that providers may use when disclosing fees. But the CFPB told the appeals court on Monday that the judge took the provision too far. “The model-clause provision simply ensures that institutions will always have a surefire way of complying with the statute, even when the Bureau’s regulations do not specify how information should be disclosed,” the CFPB said. . . .
Will CFPB Take Cues From Canada in Writing Data-Sharing Rules?
American Banker – August 17, 2021 (subscription required)
As the Consumer Financial Protection Bureau mulls standards on the portability of consumer financial data, a concurrent effort by Canada to craft an open banking system could help determine the shape of U.S. rules. An advisory report issued earlier this month by the Canadian government calls on Ottawa to launch a new framework by January 2023, with rules for banks and an accreditation process for third-party providers to govern data sharing.
The CFPB plans to have a data-sharing rule in place sooner, by April 2022. But observers note the Canadian report has shed much more light on what an open banking regime would look like than the U.S. agency’s request for public comment issued last fall, and could influence the rulemaking process in both countries. “For banks that straddle the border, it now looks like Canada is slightly ahead of the U.S., and is setting up some of the dynamics on how the bureau is thinking about it’s rulemaking,” said John Pitts, a policy lead at the financial data aggregator Plaid and a former CFPB deputy assistant director. . . .
SPOTLIGHT: The End of the Payment Card Magstripe Is Also an EMV Mandate for Merchants
PaymentsJournal – August 20, 2021
Mastercard announced that issuers can begin to offer debit and credit cards without a magnetic stripe beginning in 2024 and by 2033 cards in the U.S. will not be permitted to be issued with a magnetic stripe, with some exclusions for prepaid. From the issuer perspective, this requires some planning, but it’s not a big effort. As an article in the American Banker points out, this seemingly innocent ban on mag stripes is an EMV mandate for merchants.
One would think that the reduction in fraudulent transactions would be incentive enough but for some merchants, particularly those with fuel dispensers, this is an expensive proposition. As ACI notes, about half of the fuel pumps in the U.S. will be EMV compliant by year end. Conexxus believe that percentage is closer to 70%, but regardless, the number of terminals in just this industry that still rely on a mag stripe is significant. The cost of replacing terminals is not cheap particularly for fuel dispensers and the industry is plagued with equipment shortages. . . .
The Latest LexisNexis Report Finds the Cost of Fraud Is on the Rise Since the Pandemic Set In
Digital Transactions News – August 24, 2021
The cost of fraud to merchants has risen since the onset of the Covid-19 pandemic. Each $1 in fraud costs retailers in the United States $3.60 in total expenses, compared to $3.13 pre-pandemic, according to LexisNexis Risk Solutions’ “True Cost of Fraud” study for e-commerce and retail merchants. U.S. e-commerce merchants have been hit with the highest fraud costs, losing $3.90 for each dollar in fraud losses, compared to $3.13 pre-pandemic. Of those costs, 47% is related to replacing and or redistributing lost goods.
In addition to the overall rising cost of fraud, U.S. merchants are experiencing higher fraud costs in the mobile channel. In 2021, the cost to retailers from a fraudulent transaction made with a mobile device has risen 27%, compared to just 8% in 2020. E-commerce merchants are seeing a 39% increase in the cost of fraudulent transactions made with a mobile device, up from 5% in 2020. “This continues a trend based on fraud involving more mobile transactions, increased bot/cyberattacks and synthetic identities, which have been significantly heightened during the Covid-19 pandemic,” the report says. . . .
Cash Discounting, Surcharging Go Mainstream
The Green Sheet Online Edition – August 23, 2021