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Payments News Update – May 17, 2024

Posted  May 17, 2024

Legal and Regulatory Developments

SPOTLIGHT: Merchants and Banks Prepare for Battle Over the Fed’s Proposed Debit Adjustments
Digital Transactions News – May 14, 2024

The National Retail Federation and the Merchants Payments Coalition have lined up against the Federal Reserve, arguing that while a rate reduction on debit card transactions is welcome, the Fed’s proposed pricing does not go far enough. The two industry trade groups sent their respective letters to the Fed on Sunday, the final day for comments on the regulator’s proposed interchange rate-reduction plan for debit. . . .

Last fall, the Fed proposed an update to all three components of the interchange fee cap—the current base component, ad valorem component, and fraud-prevention adjustment—established under Reg II of the Dodd Frank Act, also known as the Durbin amendment, which was signed into law in 2010. . . .

But banks aren’t happy, either. In response to the Fed’s proposal, the American Bankers Association and eight other bank and credit union associations sent a letter to the Fed urging it to withdraw its proposed interchange-rate adjustments. . . .

Justices Say CFPB Is Constitutionally Funded
Law360 – May 16, 2024 (subscription required)

The U.S. Supreme Court ruled Thursday that the Consumer Financial Protection Bureau is constitutionally funded, rejecting a payday lender-backed challenge that threatened to incapacitate the agency and throw a wrench in the Biden administration’s financial regulatory agenda.

A 7-2 majority of the high court sided with the Biden administration to uphold the funding structure given to the CFPB in the Dodd-Frank Act, the landmark 2010 financial reform law that created the agency to tighten oversight of banks, mortgage lenders and other consumer financial providers.

Under Dodd-Frank, the CFPB can and does operate with money it gets from the Federal Reserve rather than Congress. In an opinion by Justice Clarence Thomas, the majority said this arrangement does not conflict with the Constitution’s Appropriations Clause, which assigns ultimate control over spending to Congress. . . .

CFPB, DOT Take Aim at Airline Rewards
Payments Dive – May 10, 2024

Consumer Financial Protection Bureau Director Rohit Chopra took aim at airline frequent flier rewards programs and credit card industry players Thursday, saying the programs “evolved from a perk for an airline’s most loyal customers to a multi-billion-dollar currency market.”

During a public event at bureau headquarters in D.C., Chopra was joined by U.S. Secretary of Transportation Pete Buttigieg, who said that the joint CFPB-Department of Transportation hearing was prompted by concerns that “for many Americans point balances are significant enough that they amount to part of our savings” even though “the value of points in miles is completely up to the companies that issue them.”

After each giving opening remarks, Buttigieg and Chopra moderated a panel discussion that included heads of credit unions and small banks, consumer advocates and executives of small airlines. . . .

Senate Deals Death Blow to Durbin II Inclusion in FAA
American Banker – May 9, 2024 (subscription required)

The Durbin credit card bill failed to pass a procedural vote that would have allowed it to be attached to the bill reauthorizing the Federal Aviation Administration, one of the final must-pass funding bills before the presidential election.

The Senate defeated Sen. Roger Marshall’s effort to attach the Credit Card Competition Act to the FAA package handily by a vote of 85-12 Wednesday night. Marshall, along with Sen. Dick Durbin, D-Ill., are the primary sponsors of the credit card legislation. . . .

Industry Developments

SPOTLIGHT: Changes From Visa Mean Americans Will Carry Fewer Physical Credit, Debit Cards in Their Wallets
Associated Press – May 15, 2024

Visa on Wednesday announced major changes to how credit and debit cards will operate in the U.S. in the coming months and years. The new features could mean Americans will be carrying fewer physical cards in their wallets, and will make the 16-digit credit or debit card number printed on every card increasingly irrelevant.

They will be some of the biggest changes to how payments operate in the U.S. since the U.S. rolled out chip-embedded cards several years ago. They also come as Americans have many more options to pay for purchases beyond “credit or debit,” including buy now, pay later companies, peer-to-peer payment options, paying directly with a bank, or digital payment systems like Apple Pay. . . . The biggest change coming for Americans will be the ability for banks to issue one physical payment card that will be connected to multiple bank accounts. . . .

Klarna Joins the Race for Top-of-Wallet Status in the US With Its New Card Offering
Tearsheet – May 9, 2024

Klarna is the latest player in the US market to introduce a new card offering and open its waitlist to American consumers.

While certain aspects of the Klarna card issued by WebBank may resemble those of typical credit cards, there are distinctive nuances to consider. For instance, unlike traditional credit cards, the spend limit is determined on a real-time basis, and the card does not offer the revolving credit feature typically found in traditional credit card offerings.

“We want to offer payment option flexibility but we don’t want it to be like a credit card that builds revolving credit for consumers,” said David Fock, Klarna’s chief product and design officer in an interview. “We see it as a problem that the credit card debt in the US is hitting record levels, and we believe our options are healthier and more sustainable.” . . .