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Two Recent Card Payment Developments

Our Bryan Cave-affiliated sister site, the BC Retail Law Blog, recently published two posts that may be of interest to our banking, fintech and payments clients.

In “Bans on Credit Card Surcharges Face First Amendment Challenges,” the Retail Law Blog looks at how state laws that prohibit retailers from charging customers a surcharge for using a credit card are being challenged on First Amendment grounds.

For more than four decades, California’s Song-Beverly Credit Card Act of 1971 prohibited retailers from charging credit card customers such a surcharge. In Italian Colors Restaurant, et al. v. Harris, 99 F.Supp.3d 1199 (E.D. Cal. 2015), a federal judge ruled that the law unconstitutionally limits retailers’ freedom of speech. The California attorney general appealed, and the case is set for oral argument before the Ninth Circuit Court of Appeals on August 17.

One consequence of these actions may be to make credit cards more expensive to the consumer, which, in turn, could encourage further development of alternative forms of payment.

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Thoughts on Payment Systems for Banks

the-bank-accountJonathan and I sat down with our colleague, Stan Koppel, on Thursday, April 13th to discuss the intersection of payment systems and banks.   Stan joined Bryan Cave LLP following a 28-year stint with VISA, where he was originally the third lawyer employed.  In this episode of The Bank Account, Stan shares his background and touches on what’s working now and what’s ahead in the payments world for financial institutions.

Topics covered include banking the unbanked, tokenization, the blockchain and machine learning!  Preview of a hot take from Stan… “blockchain is more distracting than disruptive.”

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U.S. Supreme Court Rules NY Surcharge Law Regulates Speech

What the U.S. Supreme Court Did

The U.S. Supreme Court ruled last week that New York’s statutory ban on merchant’s surcharging customers who choose to pay with credit cards is a regulation of speech and is not merely a regulation of pricing conduct, as the lower court had ruled. New York’s statute, N. Y. Gen. Bus. Law Ann. §518, makes it a misdemeanor punishable by a fine or imprisonment for a merchant to “impose a surcharge on a holder who elects to use a credit card in lieu of payment by cash, check or similar means.”  In Expressions Hair Design et al. v. Schneiderman, et al., the Court required the Second Circuit to consider the validity of the law under the First Amendment.  Specifically, the circuit court of appeals must now determine whether the New York law is a valid commercial speech regulation and whether the law can be upheld as a disclosure requirement.  Previously, the Second Circuit ruled that the law regulated conduct, not speech, since it required that the merchant’s prices should be the same whether a customer uses a credit card or cash.

Impact on Merchants and Payment Networks

In short, the status quo remains intact for now, in New York and in the eleven other states that regulate surcharges. The Supreme Court’s action does not immediately uphold or invalidate New York’s anti-surcharge law. Reviving the claim after it had been dismissed by the lower court, the law now must be reviewed again by the court of appeals (and potentially again after that by the Supreme Court) as to whether the law is a valid commercial regulation of speech. This review process could take a while, especially considering that one of the Supreme Court Justices recommended that the federal court of appeals ask New York’s top state court to give it an “accurate picture of how, exactly, the statute works.”

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Rinearson Identifies How US is Behind in FinTech Innovation

London and New York Partner Judith Rinearson authored a “Bankthink” opinion piece posted on the front page of American Banker  on Dec. 28 regarding differences in how the payments industry is perceived and supported in the U.S. and Europe.

“My biggest surprise after moving to London in September is how far the U.S. has to catch up to the United Kingdom and other European Union countries in the fintech and payments innovation race. Compared with their U.S. counterparts, U.K. and EU regulators are really trying to encourage payment innovation through licensing regimes. One thoughtful and pragmatic step taken by the U.K.’s payments regulator, the Financial Conduct Authority, was to ask industry for its input on appropriate policy. But the U.K. and EU’s bigger advantage is how their ‘e-money’ and payment service licensing processes work compared with U.S. state money transmitter laws.”

Click here to read her full article.

Rinearson is leader of Bryan Cave’s global Prepaid & Emerging Payments Team and has recently been named co-chair of the firm’s new Fintech Team.

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Bank Regulators take Aim at Payday Lenders and AML Control

In two recent posts on BryanCavePayments.com, Bryan Cave attorneys have addressed new developments related to the CFPB’s efforts to regulate payday lenders through their banking relationships as well as statements from New York’s top banking regulators suggesting that bank executives should be held personally liable for anti-money laundering violations.

On April 1st (but unfortunately not part of any April Fools joke), John Reveal published a post on the CFPB’s efforts against payday lenders.

In May 2014, the Department of Justice (DOJ) and the FDIC were criticized by the U.S. House of Representatives’ Committee on Oversight and Government Reform in May 2014 Report for using the DOJ’s “Operation Choke Point” to force banks out of providing services to payday lenders and other “lawful and legitimate merchants”. The Committee’s report noted, among other things, that the DOJ was inappropriately demanding, without legal authority, that “bankers act as the moral arbiters and policemen of the commercial world”.

Now the CFPB has announced that it is considering rules that would end “payday debt traps”.  At least the CFPB is following standard regulatory processes in doing so rather than trying to regulate payday lenders by punishing their bankers.  The CFPB’s announcement, published March 26, 2015 (available here), outlines its proposals in preparation for convening a Small Business Review Panel to gather feedback from small lenders, which the CFPB refers to as “the next step in the rulemaking process”.

The CFPB’s proposal considers payday loans, deposit advance products, vehicle title loans, and certain other loans, and includes separate proposals for loans with maturities of 45 days or less, and for longer-term loans.  Broadly speaking, the CFPB is considering two different approaches – prevention and protection – that lenders could choose from.

You can read the rest of John’s post here.

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Bryan Cave Sponsors 16th Annual Southeastern Bank Management & Directors Conference

Bryan Cave is pleased to once again serve as a sponsor of 16th Annual Southeastern Bank Management & Directors Conference, hosted by UGA’s Terry College of Business on February 9, 2012.  The conference’s theme for this year is “Banks & Emerging Retail Payments Systems: Opportunity or Threat?” and this year’s keynote speaker will be E. Robinson McCraw, CEO and Chairman of Renasant Bank.

Topics will include Regulations in Payment Systems, Monetizing Payments and Non-Lending Activities, the Retail Landscape, Getting Management and Your Board to think about Payments, and Evolving Accounting Standards and Compensation Policies.  Download the conference agenda or information sheet.

The long-term impact of payment systems on community banks remains unpredictable, but one fact is indisputable – change is coming and banks need to be nimble, embrace technology and understand their customers’ preferences if they want to thrive in the new environment.  This conference addresses an approach to extending the vitality of your bank.

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Federal Reserve Board Issues Final Gift Card Rules

On March 23, 2010, the Federal Reserve Board issued its final rule, a summary and analysis of the final rule, and the official staff interpretation of the final rule in connection with Title IV of the CARD Act (the “Final Rules” or “Rules”).  The Final Rules are comparable to the proposed rules that were issued in November 2009, and follow the gift card related provisions set forth in the CARD Act addressing fees, expiration, disclosures, and various exemptions.  Set forth in this Bryan Cave Client Alert is a brief summary of key provisions of the Rules.

The Rules set forth various restrictions and guidelines with respect to gift card fees, expiration dates, and disclosures.  The Final Rules apply to any gift certificate, store gift card, or general-use gift card (including any reward/promotional card or any virtual/online gift card) that is sold or distributed to a consumer on or after August 22, 2010.

The Rules may affect any retailer, restaurant, consumer product supplier, hotel or travel provider that offers gift or reward cards – including loyalty programs – to consumers.  The Rules apply to retailers, processors and financial institutions involved in the issuance, distribution and sale of various types of gift certificate and gift card products.

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