The Consumer Financial Protection Bureau has issued a brief press announcement that the Prepaid Card Rule would be further revised and that the effective date for compliance will be further postponed from the current deadline in April 2018.

The announcement creates more worry than relief – it’s just a tease. The announcement did not say what changes would be made or when the new deadline will be. It only said that amendments to “certain aspects” of the rule would be coming “soon after the new year.”  No doubt the Bureau meant for this announcement to be helpful to someone, but it is not clear if anyone is actually helped.

Prepaid card issuers are scrambling to implement the systems changes and new business processes necessary to support the sweeping changes required by the rule. With this announcement, they must now wonder which of those efforts will turn out to be wasted, or perhaps need to be re-worked, and they can’t pause pursuing any specific implementation efforts until the actual amendments are published. Are they supposed to trust that the extra time to be allowed by the CFPB will be sufficient to accommodate this pivot?

Congratulations to the Bryan Cave Payments Team on launching BryanCavePayments.com.

We’ll continue to post payments-related items from time-to-time on BankBryanCave.com, but the team will also be keeping BryanCavePayments.com up-to-date with the latest payments-related regulatory, legislative and legal issues.

Examples of the type of content that will be featured on BryanCavePayments.com include:

• Should your Bank do Business with Bitcoin?
• CFPB Consent Order Cites Bank Violations Related to “Add-On Products” — Required “Vendor Management Policies”
• Managing Social Media Risk: New Guidance From Regulators

DC Partner John ReVeal, New York Partner Judith Rinearson and Santa Monica Partner Brette Simon will provide insight at the Money2020 Expo. The conference promises to bring together a global community of innovators in payments and financial services with 400-plus speakers spanning more than 100 sessions and workshops. More than 4,000 attendees are expected.

October 6, 2013 – October 10, 2013
Aria Resort and Casino
3730 Las Vegas Blvd.
Las Vegas, NV 89158

On Oct. 6, ReVeal will moderate a panel on the risks and rewards of credit-based emerging payment products. In addition to discussing what people need to know when launching or distributing credit-based products, this panel will address the current consumer group and regulatory pressure to restrict or prohibit credit as part of emerging payments and financial services solutions.

Later in the afternoon, Rinearson will moderate the panel “Money Transmitter Licensing: Kafka Revisited,” which will offer insight on how to manage the ambiguities of state money transmitter licensing laws.

Simon then will join a panel on how to prepare in advance of raising capital from institutional investors. Topics will include getting your legal and business house in order to maximize value upon a capital raise and avoid the “10% valuation haircut;” due diligence and the risks of having the wrong investors; and structuring investment to avoid “change of control” regulatory issues.

While Employers Can Mandate Electronic Direct Deposit, Employers Are Prohibited From Requiring the Use of a Specific Payroll Card Selected by the Employer.

On September 12, 2013, the Consumer Financial Protection Bureau (“CFPB”) published Bulletin 2013-10 (“Bulletin”) establishing that any “financial institution or other person” is prohibited from requiring that an employee receive wages only on a payroll card issued a particular financial institution of the employer’s choosing, based on the application of federal law to payroll card accounts. In particular, the Bulletin affirms that the Electronic Fund Transfer Act (“EFTA”) and its implementing regulation Regulation E (“Reg E”), prohibit mandatory payment of wages through a payroll card issued by a particular financial institution. Although “Regulation E permits an employer to require direct deposit of wages by electronic means,” the employee must be “allowed to choose the institution that will receive the direct deposit.” The CFPB explicitly states, however, that employers may offer employees “the choice of receiving their wages on a payroll card or receiving it by some other means.” (emphasis added). According to the Bulletin, “payroll card accounts” refer to those “accounts that are established directly or indirectly through an employer, and to which transfers of the consumer’s salary, wages, or other employee compensation are made on a recurring basis.”

The CFPB’s Bulletin was issued following reports that New York State Attorney General Eric Schneiderman was investigating some of the nation’s largest employers in connection with their payroll card programs.

Decision Favoring Merchants Could Potentially Cost Banks Billions

A U.S. District Court judge recently granted summary judgment against the Board of Governors of the Federal Reserve System (the “Federal Reserve” or “Board”), ruling that the Federal Reserve disregarded Congress’s statutory intent by “inappropriately inflating all debit card transaction fees” and considering data it was not permitted to use in setting a 21-cent cap on debit-card transaction fees under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). In NACS v. Board of Governors of the Federal Reserve System, 11-cv-02075, U.S. District Court, District of Columbia (Washington), Judge Richard J. Leon also ruled in favor of the retailers’ challenge to the network non-exclusivity and routing provisions, stating that the Board’s rule is inconsistent with the “clear, defined language in the network non-exclusivity and routing provisions” and does not support competition or choice in the marketplace.

Background

Pursuant to the so-called “Durbin Amendment” (which implemented Section 920 of the Electronic Fund Transfer Act, as enacted by Section 1075 of the Dodd-Frank Act), the Federal Reserve was directed to establish standards to determine whether debit card interchange fees are “reasonable and proportional to the cost incurred by the issuer” with respect to a transaction. Congress provided specific guidelines to establish interchange transaction fee standards, and called upon the Federal Reserve also to prescribe rules related to network non-exclusivity for routing debit transactions.

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The first deadline – June 30, 2013 – under Delaware’s new unclaimed property Voluntary Disclosure Agreement (VDA) program is fast approaching! This initial deadline offers the maximum program benefits to VDA participants: Prior to the new VDA program, holders were required to report and remit any past due unclaimed property starting in 1981. However, holders who enter into the new VDA program by June 30, 2013 qualify for a limited look-back period through 1996. Holders who sign up by June 30, 2014 qualify for a look-back period through 1993.

For those who may not be aware, Delaware’s new VDA program is an amnesty program primarily aimed at helping non-compliant companies become compliant under the law. The business-friendly program is run by the Department of State, and is designed so companies can “catch up” on their past due unclaimed property obligations, avoid interest and penalties, and significantly reduce their unclaimed property liability. Completion of the program also offers companies a full release of all past due unclaimed property liability in a reasonably short and efficient process.

CFPB Finds Limited Preemption; Gift Card Issuers Must Honor Cards
Even After Funds Have Escheated to the State

The Consumer Financial Protection Bureau (“CFPB”) recently published a final determination regarding whether the unclaimed property laws of Maine and Tennessee relating to unredeemed gift cards (“Applicable State Law”) are inconsistent with and preempted by the gift card provisions of the  Electronic Fund Transfer Act and Regulation E (“Federal Law”).  The applicable laws of Maine and Tennessee are quite similar for the issues at hand.  In its ruling, the CFPB determined that Maine’s unclaimed property law as applied to gift cards is not inconsistent with Federal Law, and therefore no preemption was found.  However, with respect to Tennessee’s unclaimed property law, the CFPB ruled in favor of preemption but only with respect to the provision permitting issuers to choose whether to honor an unclaimed gift card after the underlying funds have been escheated to the state.  (A Print Version of this Alert is available.)

Background

The specific issue involves Federal Law vis à vis the abandoned property laws of Maine and Tennessee.  Federal Law prohibits a gift card from containing an expiration date that is less than five years from the date of issuance or date of last load, whichever is later; Applicable State Law, however, generally requires escheatment of unused balances on certain types of gift cards after two years of card inactivity.

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Podcast: Play in new window | Download

The Bryan Cave Payments Team recently held a webinar providing an overview of major legal and regulatory events impacting both open and closed looped credit cards and other emerging payments.

Topics included a review of key Consumer Financial Protection Bureau activities for prepaid and payments; new regulatory concerns and open issues for 2013 from FinCEN on anti-money laundering issues; an update on FinCen’s cross-border reporting regulation for prepaid cards; an update on the “Durbin Amendment,” including effective dates on routing restrictions; a 2012 bank regulatory overview; recent trends in social media, mobile products, E-sign and PCI DSS in privacy and data security; and new developments in retail and reward cards, including abandoned property and consumer protection issues.

Presenters included Judith Rinearson (New York), John ReVeal (Washington, D.C.), Linda Odom (Washington, D.C.), Kristine Andreassen (Washington, D.C.) and Margo Strahlberg (Chicago). The full presentation is available online, and the slides themselves are also available online.

Bryan Cave’s Prepaid and Emerging Payments Team provides legal counsel and advice on a broad range of payment-related issues including prepaid and stored value, mobile and contactless payments, bank regulatory compliance, money services business (MSB) compliance, electronic wallets and P2P payments, anti-money laundering compliance, bill payment, overdraft and lines of credit, retail gift cards, abandoned property, money transmitter licensing, privacy and data security, patents and intellectual property and litigation strategy and defense.

The Illinois Department of Financial & Professional Regulation recently released five cease and desist orders from January 2013 against six entities charging each with unlicensed activities under the state’s Transmitters of Money Act. These six entities offer a variety of services in Illinois, including domestic and international money transfer, bill payment services and prepaid cards.

One of these companies, Square, Inc. is described in its order as providing “mobile card reading devices for the express purpose of transmitting money,” providing iPhone and Android apps to Illinois consumers “for the express purpose of transmitting money” through those devices and selling and issuing “digital gift cards to Illinois consumers for the express purpose of purchasing items from designated vendors on Square’s Website.”

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A collection of new banking resources from around the internet:

• Beige Book (Atlanta Summary) – Published two weeks prior to each FOMC meeting, the Beige Book reports on economic conditions in each Federal Reserve district.
• SAR Activity Review – FinCEN released the 22nd issue of the SAR Activity Review – Trends, Tips & Issues.  This issue includes a forum on the AML risks associated with business funded prepaid cards.
• Small Business Lending Fund Generates $6.7 Billion in Small Business Lending – Recognizing the power of leverage, Treasury’s $4 billion in investments has now generated $6.7 billion in increased small business lending.  What would have happened if Treasury had been less restrictive on allowing banks to convert from TARP to the SBLF?
• FDIC Adopts Final Rule on Stress Tests and Large Bank Assessments – All institutions over $10 billion in total assets will need to conduct annual company-run stress tests, with phased implementation over the next year.
• TARP Monthly Report to Congress – The Treasury Department released its September Monthly TARP Report to Congress.  Among other information, Treasury notes that it now expects that TARP CPP program will ultimately generate $14.6 billion in income for the federal government and taxpayers.