Payments News Update – November 17, 2023
Legal and Regulatory Developments
SPOTLIGHT: Why the CFPB Proposal for Big Techs May Affect the Entire Industry
The Financial Brand – November 9, 2023
The Consumer Financial Protection Bureau is asserting the ability to perform examinations of major digital wallet and mobile payments providers in a regulatory proposal. This would be the first time entities like Apple Pay, Google Pay and more than a dozen other big tech consumer payment providers would come under the examination-level scrutiny of a federal banking regulator.
At present, the CFPB only has proposed oversight for some players, but those players have very deep pockets (in terms of lawyers and lobbyists). However, the bureau has succeeded at this before given its wide scope to issue and enforce rules affecting nonbank institutions.
The proposal represents the sixth time the CFPB, founded in 2011, has proposed expanding its regulatory turf. The bureau is unusual among banking regulators in that it can, through issuing a rule, assert authority over larger participants in markets for consumer financial products and services. Past target areas have included consumer credit reporting, consumer debt collection, student loan servicing, international money transfers, and auto financing.
The banking industry has a multi-faceted relationship with the big techs that run the digital wallets. . . . Thus far if the companies and their trade groups are worried about the proposal, they are apparently keeping their powder dry for the formal comment stage. . . .
Expert Analysis – 5 Credit Card Practices Drawing CFPB Notice in New Report
Law360 – November 14, 2023 (subscription required)
On Oct. 25, for the sixth time since its inception, the Consumer Financial Protection Bureau released its biennial report evaluating the state of the consumer credit card market. The Credit Card Accountability Responsibility and Disclosure Act, or CARD Act, mandates that the CFPB provide these reports to Congress every two years, highlighting credit card market data, developments and innovations. Though these biennial reports do not suggest any new rules or give any express guidance, the content of these reports can be useful for identifying areas of concern and enforcement priorities for the bureau.
This year’s report, in addition to updating general datasets from the 2021 report — which was highly influenced by the economic conditions precipitated by the COVID-19 pandemic — includes a new bureau analysis of credit card issuer profitability, along with a related discussion of issuer revenue, issuer costs and cardholder costs.
The report also provides CFPB reviews of common practices within the market. These include both traditional practices — such as balance transfers, cash advances, debt collection and rewards programs — and innovative ones, like the use of AI, the integration of third-party marketers into prescreen experiences, new credit scoring processes, credit-builder cards and digital wallets.
This article discusses key takeaways for five important topics identified in the 2023 report. . . .
Some Merchants Take Issue With the CCCA
Digital Transactions News – November 14, 2023
Small businesses claim they have legitimate concerns that their larger counterparts will be the beneficiaries of lower card acceptance costs should the Credit Card Competition Act become law, argues the Small Business Payments Alliance, a trade organization recently formed by the Electronic Payments Coalition.
Among the concerns about how the CCCA would impact small businesses is that processors would partner with networks that lack the infrastructure and security to properly handle credit card transactions or offer higher cost networks, such as American Express, as an alternative to routing transactions over the Visa and Mastercard networks. . . .
Claims that only large businesses with high credit card volume would benefit from the CCCA are false, counters Doug Kantor, an executive committee member for the Merchant Payments Coalition and general counsel for the National Association of Convenience Stores. To support his claim, Kantor points to a recent survey by the National Federation of Independent Business, which represents small as well as large businesses, in which 94% of respondents say they prefer to have a network choice when it comes to routing card transactions. . . . Kantor adds that small businesses pay more in card acceptance fees than their larger counterparts do now and that CCCA can reduce card acceptance costs for small businesses. . . .
US Judge Orders Probe of Phony Visa, Mastercard Settlement Website
Reuters – November 13, 2023
A U.S. judge has agreed to investigate a website that lawyers said is presenting “false and misleading” information about the $5.6 billion settlement that retailers struck with Visa and Mastercard over credit and debit card fees. U.S. Magistrate Judge Joseph Marutollo in Brooklyn in an order on Friday granted a request from plaintiffs’ lawyers in the case to start a probe that could shut down the unauthorized site and void any client contracts that have come from it.
Marutollo set a deadline for the website to respond to an inquiry from him. A representative for the website did not immediately respond to an inquiry from Reuters.
Major class action settlements often feature websites with information for class members. The website at issue in the Visa and Mastercard case closely resembles the official U.S. court-authorized page set up as part of the 2019 settlement in the litigation in Brooklyn, New York, federal court. . . .
Marutollo’s order directed the settlement site to respond to why the court should not issue a report and recommendation to “immediately take down the website.” . . .
EU Digital Identity Wallet to Stir Paytech Market
Payments Dive – November 13, 2023
The European Union has taken another step toward creating a digital wallet linked to a user’s identity, according to a press release last Wednesday. The European Parliament and the Council of the EU reached a final agreement on a regulation that would allow the digital identity wallet to be used for payments, other financial services and storing digital documents.
“The wallets’ features and common specifications will make it attractive for all private service providers to accept them for their services, thus creating new business opportunities,” the European Commission release said. The wallet “will also facilitate service providers’ compliance with various regulatory requirements,” the release said.
The wallet could provide a serious challenge to existing digital wallets and payment apps offered by big tech firms like Amazon, Apple and Google, designated in April by the European Commission as subject to more oversight under its Digital Services Act. . . .
Payments App Zelle Begins Refunds for Imposter Scams After Washington Pressure
Reuters – November 13, 2023
Banks on the payment app Zelle have begun refunding victims of imposter scams to address consumer protection concerns raised by U.S. lawmakers and the federal consumer watchdog, in a major policy change. The 2,100 financial firms on Zelle, a peer-to-peer network owned by seven banks including JPMorgan Chase and Bank of America, began reversing transfers as of June 30 for customers duped into sending money to scammers claiming to be from a government agency, bank or existing service provider, said Early Warning Services (EWS), the banks’ company that owns Zelle.
That’s “well above existing legal and regulatory requirements,” Ben Chance, chief fraud risk officer at EWS, told Reuters. Federal rules require banks to reimburse customers for payments made without their authorization, such as by hackers, but not when customers themselves make the transfer.
While Zelle disclosed Aug. 30 that it had introduced a new reimbursement benefit for “specific scam types,” it has not previously provided details on its new imposter scam refund policy due to worries doing so might encourage criminals to make false scam claims, a spokesperson said. The new policy marks a major shift from last year when bankers, including JPMorgan CEO Jamie Dimon, told lawmakers worried about rising scams that it was unreasonable to require banks to refund transfers that customers were tricked into approving. . . .
Expert Analysis – Retailers: Beware Legislator and Regulator Junk Fee Focus
Law360 – November 9, 2023 (subscription required)
For many months, President Joe Biden has been leading the so-called war on junk fees, a campaign to restrict surcharges spanning across industries — from airline seating upcharges, to hotel resort fees, to extra service charges tacked on to concert tickets.
Now, the president’s focus on fees has led to a series of significant developments that stand to affect retailers across the country, including a new California law banning such surcharges, a proposed rule from the Federal Trade Commission, and the still-pending bill to enact a federal Junk Fees Prevention Act. Below, we summarize what retailers need to know to stay ahead of this myriad of fee legislation. . . .
While the Biden administration’s focus began with select industries — such as online ticketing, banks and cable providers — it has since expanded. Now, the administration has defined junk fees to include hidden costs in all industries. These fees allegedly harm consumers — and particularly, low-income consumers — by weakening market competition and making comparison shopping more difficult, thus purportedly resulting in Americans overpaying for various goods and services.
The Biden administration has not specifically called out retailers, which for years have been targeted for charging shipping and handling fees, and, amidst recent challenges, have imposed other fees, such as supply chain surcharges. . . . .
Industry Developments
SPOTLIGHT: BNPL Companies Face Grim Outlook, Moody’s Says
Payments Dive – November 13, 2023
Intense competition, rising regulation, challenging economic times and persistent losses led credit rating agency Moody’s Investors Service to paint a dire outlook for buy now, pay later companies in a report last week. In addition, dwindling investor interest in the companies and more expensive funding for their lending services have helped sour prospects, according to the Nov. 8 report on the worldwide industry. To date, the difficulties have resulted in at least five years of industry losses, paid for by venture capitalists backing the businesses.
“If losses are not contained this year and new equity injections are not secured, many BNPL providers may deplete their equity over the next few years,” the report said.
Moody’s isn’t optimistic, predicting “few BNPL companies will remain independent.” “Some may be acquired, others may cease operations if their products cannot remain competitive in the market, or if they are unable to navigate the impending wave of regulation,” the report said, noting an Australian BNPL company, Openpay, shut down in February. . . .
Unable to Hold Their Pegs, Stablecoins Prove Anything but Stable
PYMNTS – November 9, 2023
The hallmark of stablecoins has been instability. In a paper published this week by the Bank of International Settlements (BIS), the analysis shows that with a decade of trading history, none of the more than five dozen stablecoins observed were able to hang on to their pegs.
Stablecoins, of course, are constructed to do just that: trade with an asset backing (such as a currency, or a basket of assets) so that valuations, ostensibly, won’t fluctuate as much as has been seen in the cryptocurrency realm.
But a dive into the history of 68 stablecoins, as per the BIS paper, revealed that stablecoins don’t live up to their billing as being stable. “Issuers claim that stablecoins can be redeemed at par with the value of the relevant peg,” the paper noted. “To date, the majority of stablecoins have been pegged to a single asset, most typically sovereign currencies, such as the U.S. dollar or euro, but also commodities such as gold or another cryptoassets.” . . .