Payments and Digital Commerce

Cryptocurrencies have captured the imaginations of individuals and emerging businesses drawn to their potential to serve as alternative stores of value, to reduce transaction costs by eliminating intermediaries, and―most notably in popular culture and media―to provide eye-catching opportunities for speculative investing. Coin valuations for well-established players Bitcoin and Ethereum have fallen sharply since late 2017/early 2018, and new players continue to enter and leave the marketplace. As noted previously in this blog, regulators are taking interest.

Much less appreciated and often overlooked is the business potential for the distributed-ledger, or blockchain, architecture that makes cryptocurrencies possible. Distributed-ledger systems present enormous opportunities for businesses to operate more efficiently and mitigate risks. The financial-services industry in particular stands to gain from the adoption of blockchain technology due to the significant variation and complexity of products, business processes, and relationships among industry participants. We have seen great interest in blockchain technology in the banking and securities industries in particular.  Continue Reading Brave New Wheels? Potential Uses for Blockchain Technology in Auto Finance

On July 31, 2018, the U.S. Department of the Treasury (“Treasury”) released a report on “Nonbank Financials, Fintech, and Innovation,” its fourth and final report on the U.S. financial system pursuant to Executive Order 13772 (the “Report”). At over 200 pages long, with 80 separate recommendations, the Report addresses products and services ranging from payments and marketplace lending to debt collection and wealth management. While many of Treasury’s recommendations would have a positive impact on creating a national and state regulatory environment to foster innovation in financial services, the Report is ambitious, and implementing many of its recommendations will be a massive effort in legislation, policy-making and regulatory oversight.  Continue Reading Fintech-Forward: U.S. Treasury Department’s Report on Nonbank Financials, Fintech, and Innovation

The recent flurry of activity and press coverage, over the past 18 months in particular, concerning “initial coin offerings” (also referred to as a “digital token sale”) has created confusion regarding their relationship to cryptocurrencies. While certainly connected in both concept and actuation, those with an interest in this burgeoning marketplace will be wise to note that both the risk and the regulatory landscape for existing cryptocurrencies (also referred to as “virtual currencies”) differ from ICOs/tokens. Those who forge ahead, uninformed, stand to learn an expensive lesson. We hope to illuminate certain fundamental concepts here. Continue Reading Cryptocurrency vs. Initial Coin Offerings (ICO): Different Animals, Different Regulatory Concerns

Not long ago, financial technology (FinTech) startups were all seeking to disrupt the market for financial services and compete directly with financial institutions (FIs) for customers. But as these startups have grown into more mature companies, cooperation with FIs has come to replace disruption for many FinTech firms. These companies have realized that FIs can help scale their technology to larger bases of potential users, and can also help FinTechs raise capital by showing strong partnerships and FI distribution channels.

In turn, FIs now recognize that FinTech firms offer more than competition, representing potentially valuable partnerships with better technology and an improved user experience. By collaborating with FinTechs, FIs can improve product offerings and increase efficiency, all without the FIs committing significant resources to create new solutions themselves. Continue Reading Access vs. Security: Takeaways For U.S. Financial Institutions from the European PSD2 Open API Framework

2018 has a tough act to follow, after a 2017 full of momentous developments—starting with a new Administration and wrapping up with a showdown over the right to serve as Acting Director of the Consumer Financial Protection Bureau (CFPB) (a fight that continues as of this writing, as discussed below).

But 2018 is unlikely to be a quiet year. In addition to developments in the CFPB leadership battle and other litigation, the year is expected to bring developments such as effective and compliance dates for major regulations on data protection, Bank Secrecy Act/anti-money-laundering (BSA/AML), mortgage servicing, and other topics, and could bring changes in supervisory focus at multiple federal agencies.  Continue Reading Fasten Your Seatbelts: Are You Ready for Another Eventful Year?

On June 15, 2017, the Federal Reserve Board (FRB) published in the Federal Register final amendments to Regulation CC (Availability of Funds and Collection of Checks). The amendments contain a number of changes that will affect financial institutions, such as modifications to check return requirements, additional warranties, and new indemnities, including a new indemnity for remote deposit capture (RDC). (Spoiler Alert: The indemnity for RDC has significant implications for financial institutions that offer RDC services.) The rule will become effective July 1, 2018.

Regulation CC implements the Expedited Funds Availability Act (EFAA) and the Check Clearing for the 21st Century Act (Check 21 Act). The FRB previously published a notice of proposed rulemaking to amend Regulation CC in February 2014. Continue Reading Amendments to Regulation CC Affect Liability Considerations for Financial Institutions

NetSpend Corporation (NetSpend) recently agreed to settle with the Federal Trade Commission (FTC) regarding allegations that NetSpend deceived consumers about certain aspects of NetSpend’s reloadable prepaid cards. NetSpend will pay $40 million in restitution to customers and $13 million to the FTC under the enforcement order. Providers of consumer financial products and services—not just prepaid card providers—should carefully review the FTC’s allegations. The allegations provide insights on practices the FTC perceives to be deceptive, and how to avoid engaging in them. Continue Reading Federal Trade Commission Action Against NetSpend Has Relevance Beyond the Prepaid Card Industry

The Consumer Financial Protection Bureau (CFPB)’s long-delayed prepaid card rule has been delayed once again—and further delays may lie ahead, as the CFPB considers whether to make additional changes. The additional time gives prepaid providers and other stakeholders another bite at the apple to advocate for changes to this regulation.

On April 20, the CFPB issued a final rule officially delaying the prepaid rule’s effective date by six months, to April 1, 2018, after proposing that delay in light of calls from the industry for the need for more time to implement compliance. Along with announcing the delay, the CFPB stated that it also has “decided to revisit at least two substantive issues in the prepaid accounts rule through a separate notice and comment rulemaking process. We expect to release that proposal in the coming weeks.” Those two issues are “the linking of credit cards to digital wallets that are capable of storing funds” and “error resolution and limitations on liability for prepaid accounts that cannot be registered, have not yet been registered, or for which consumers have attempted but have not successfully completed the registration process.” Continue Reading The CFPB’s Prepaid Rule: Yet Another Delay Brings a New Opportunity to Shape the Course

The Consumer Financial Protection Bureau (“CFPB”) made headlines last week by taking action against Dwolla, an online and mobile payments platform. The CFPB imposed a $100,000 penalty against Dwolla, and while the dollar amount of the penalty may appear to be small compared to other civil money penalties, the action is significant because it is the first action the CFPB has taken in the data security area and provides insight into future enforcement activities surrounding data security by the CFPB. It also serves as a notable reminder of the CFPB’s broad enforcement powers, which go beyond financial institutions to non-FI companies that deliver financial products and services to consumers. While the CFPB lacks authority over the substantive data security requirements that are enforced by the federal financial regulators, that poses no obstacle to the CFPB’s ability to take an action, like this, initiated under its authority to police “deceptive” acts or practices.

Continue Reading CFPB Takes First Data Security Enforcement Action Against Dwolla