On June 5, the FTC announced that it has added a payment processor as a defendant in an existing suit against a debt relief firm that the FTC alleges operated a credit card interest rate reduction scam. The FTC claims that the debt relief firm cold-called consumers and charged them up-front fees for promises of credit card interest rate reductions that the firm never obtained. The FTC charges that the payment processor knew, or consciously avoided knowing, the supposedly illegal nature of the operation and facilitated allegedly deceptive and abusive telemarketing acts or practices in violation of the Telemarketing Sales Rule. The FTC also alleges that the processor ignored the “alarmingly high” chargeback rates.
On June 6, the CFPB released a notice and request for comment on its plan to conduct a new survey related to its ongoing study of arbitration agreements. A supporting document submitted with the notice includes the initial survey questions proposed by the CFPB. The CFPB plans to contact 1,000 credit card holders to evaluate their awareness of card agreement dispute resolution provisions, and their “assessments of such provisions.” The CFPB stated that the survey will seek information regarding card holders’ perceptions and valuations of arbitration and litigation, but will not gather data regarding respondents’ post-fact satisfaction with arbitration or litigation proceedings. Comments on the proposed survey are due by August 6, 2013.
On June 3, AG Schneiderman announced an agreement with a credit card issuer to resolve an investigation into alleged consumer protection concerns arising from the offering of credit cards through medical care providers. The AG cited a Health Care Bureau investigation that found the health care provider application process is often rushed and occurs when treatment is set to begin, resulting in consumers feeling pressured into applying for the card and being charged the full amount for treatment in advance of receiving services. The AG claimed that, in many instances, providers failed to inform consumers of the terms of the card and represented that the account had “no interest,” when it carried retroactive interest of 26.99% if not paid in full during a promotional period. Other consumers allegedly thought that they were signing up for an in-house, no-interest payment plan directly with their provider, or a line of credit with 0% interest. Under the agreement, the issuer will establish an appeals fund for certain card holders who disputed a claim and were denied, which could result in refunds or credits of up to $2 million to approximately 1,000 card holders. The issuer also must implement consumer protection and compliance measures, including, among others: (i) offering a three-day “cooling off” period, such that no transaction over $1,000 can be charged within three days of an initial application, (ii) adding a set of “Transparency Principles” to provider contracts to ensure that providers accurately describe card terms, and implementing other health care provider training and oversight measures, (iii) revising promotional interest rate and other disclosures, and (iv) standardizing complaint management procedures.
On May 31, the FDIC announced enforcement actions against a California bank and an affiliated service provider for alleged unfair and deceptive practices in the marketing and servicing of a prepaid reloadable MasterCard. According to the FDIC, the service provider’s website contained a number of misrepresentations while omitting other information. Specifically, the FDIC claimed that the firm deceptively advertised free online bill pay, promoted features that were not available to cardholders, and charged fees that were not clearly disclosed. Additionally, the service provider’s ACH error resolution procedures imposed additional, undisclosed requirements on card holders. Neither the bank nor the service provider admitted the allegations, but they agreed to establish a restitution fund of approximately $1.1 million for over 64,000 card holders, and pay civil money penalties of $600,000 and $110,000, respectively. The consent orders (i) direct both entities not to engage in further violations of law, (ii) establish specific corrective actions, and (iii) require enhanced compliance management systems and periodic reporting to the FDIC. The bank is further required to strengthen its oversight of third parties.
On May 23, the Federal Reserve Board issued a report showing that the exemption designed to protect small debit card issuers from interchange fee standards applied to large issuers is working as intended. The report indicates that depository institutions with consolidated assets of less than $10 billion, which are exempt from the interchange fee standard in Regulation II, received fee revenue of 43 cents per transaction in 2012 – roughly the same as the average received before Regulation II took effect. While the Dodd-Frank Act exempted small issuers from the interchange fee standard set in the regulation, it did not provide an exemption from the statute’s prohibition on network exclusivity. As a result, Regulation II requires every debit card issuer, regardless of size, to have at least two unaffiliated networks on every debit card. According to the report, most small issuers that responded to a survey about the effect of the network exclusivity provisions of the rule indicated that significant compliance costs were not incurred.
On May 20, NACHA, the organization that manages the ACH Network, requested comment on proposed changes to the NACHA Operating Rules to clarify the definitions, roles, and responsibilities of third parties in the ACH Network. The proposal explains that third parties are performing roles in ACH processing that were not contemplated at the time third parties were first addressed in the rules, and that the line between third parties and originators may sometimes be blurred. The proposal includes specific changes related to related to (i) clear Identification of the originator in consumer debit authorizations; (ii) third parties and receiver authorizations; (iii) definition of third-party sender; (iv) definition of third-party service provider; and (v) third-party sender and third-party service provider audit requirements. Comments on the proposal are due by June 28, 2013.
On May 21, the FTC proposed to prohibit the use of certain payment methods it believes are favored by “fraudulent telemarketers.” The FTC’s proposed rule would amend the Telemarketing Sales Rule (TSR) to prohibit telemarketers from (i) using remotely created unsigned checks and payment orders to directly access consumer bank accounts, and (ii) receiving payment through “cash-to-cash” money transfers and “cash reload” mechanisms. The FTC explained that allegedly fraudulent telemarketers rely on such payment methods because they are largely unmonitored and provide fewer consumer fraud protections. The proposed rule also would (i) expand the TSR’s ban on telemarketing “recovery services” in exchange for an advance fee and (ii) clarify various other provisions of the TSR. The FTC is accepting public comments on the proposal through July 29, 2013.
On April 30, the CFPB issued a revised final rule to amend regulations applicable to consumer remittance transfers of over fifteen dollars originating in the United States and sent internationally. Generally, the rule requires remittance transfer providers to (i) provide written pre-payment disclosures of the exchange rates and fees associated with a transfer of funds, as well as the amount of funds the recipient will receive, and (ii) investigate consumer disputes and remedy errors. The revised rule makes optional the original requirement to disclose (i) recipient institution fees for transfers to an account, except where the recipient institution is acting as an agent of the provider and (ii) taxes imposed by a person other than the remittance transfer provider. Instead, the revised rule requires providers to include a disclaimer on disclosures that the recipient may receive less than the disclosed total value due to these two categories of fees and taxes. The revised rule exempts from certain error resolution requirements two additional errors: (i) providing an incorrect account number or (ii) providing an incorrect recipient institution identifier. For the exception to apply, a remittance transfer provider must (i) notify the sender prior to the transfer that the transfer amount could be lost, (ii) implement reasonable measures to verify the accuracy of a recipient institution identifier, and (iii) make reasonable efforts to retrieve misdirected funds. In addition, the revised rule provides institutions more time to comply with the new remittance transfer standards. The final regulations, as revised by this rule, take effect on October 28, 2013.
On April 29, the CFPB amended Regulation Z to make it easier for spouses or partners who do not work outside of the home to qualify for credit cards. Regulation Z generally requires that credit card issuers consider an applicant’s independent ability to pay regardless of age. A Federal Reserve Board rule adopted to implement the Credit CARD Act, which took effect on October 1, 2011, required card issuers to consider only an individual card applicant’s independent income or assets. The rule received criticism from members of Congress and other stakeholders who argued the rule limited access to credit for stay-at-home spouses and partners. The CFPB’s revised rule allows credit card issuers to consider third-party income for a consumer who is 21 or older, if the applicant has a reasonable expectation of access to such income. The CFPB rule does not change the independent ability to pay requirement for individuals under 21 years old. The rule is effective as of May 3, 2013 and compliance with the rule is required by November 4, 2013. Card issuers may, at their option, comply with the rule prior to that date.
On April 19, the CFPB issued a final preemption determination regarding whether the Electronic Fund Transfer Act (EFTA) and Regulation E preempt certain unclaimed gift card laws in Maine and Tennessee. The EFTA, as implemented by Regulation E, generally prohibits any person from issuing a gift certificate, store gift card, or general-use prepaid card with an expiration date, though under certain conditions, the card may have an expiration date so long as it is at least five years after the date of issuance (or five years after the date that funds were last loaded). The CFPB determined that the Maine law does not interfere with a consumer’s ability to use a gift cards at point-of-sale for at least as long as guaranteed by the EFTA and Regulation E because it requires the issuer to honor the gift card on presentation indefinitely even if the unused value has been transferred to the state. For Tennessee, the CFPB reached the opposite conclusion because the Tennessee provision permits issuers to decline to honor gift cards as soon as two years after issuance. According to the CFPB, the Tennessee law is inconsistent with federal law because, in effect, the provision allows funds to expire sooner than is permitted under EFTA and Regulation E.
On April 15, the U.S. District Court for the Northern District of California dismissed a putative class action in which the named plaintiff brought a breach of contract claim and other common law and statutory claims after the issuer stopped providing the cardholder an interest free grace period on new charges because the cardholder transferred a balance from another card account as part of an interest free balance transfer offer and did not immediately pay off that transferred balance. Barton v. Capital One Bank (USA), N.A., No. 12-5412, slip op. (N.D. Cal. Apr. 16, 2013). Applying Virginia law, the court held that while some cardholders may have accepted the offer and transferred balances “without realizing that, because it would cause them to begin carrying a post-due balance each month, it would deprive them of the grace period they had previously enjoyed,” the agreement was clear that “carrying a post-due balance — whatever its source — terminated cardmembers’ rights to the 25-day grace period.” For the same reason, the court held the cardholder’s claim that the issuer violated the CARD Act’s requirement that a “creditor shall not change the terms governing the repayment of any outstanding balance” similarly failed. The court also held that the cardholder failed to allege any contractual discretion to support her claim of breach of good faith and dismissed her claim under California’s Unfair Competition Law.
On April 4, the CFPB announced that it is collecting money transfer complaints. Although the CFPB previously was accepting some complaints about money transfers under the “bank account” topic in its complaint system, it now has a complaint portal dedicated to money transfer complaints. The system categorizes complaints as relating to: (i) money was not available when promised; (ii) wrong amount charged or received (transfer amounts, fees, exchange rates, taxes, etc.); (iii) incorrect/missing disclosures or information; (iv) other transaction issues (unauthorized transaction, cancellation, refund, etc.); (v) other service issues (advertising or marketing, pricing, privacy, etc.); or (vi) fraud or scam. The announcement does not indicate whether the money transfer complaints will be published in the recently expanded public database at this time.
On March 11, the California State Assembly Standing Committee on Banking and Finance held a hearing entitled “Emerging Technology and the California Money Transmission Act.” The hearing’s purpose was to discuss the MTA’s interactions with emerging technology and mobile payments and “bring common sense reforms to money transmission laws” to “account for the changes in technology.” This is especially significant since the MTA has been a source of concern for many businesses because of its broad scope and limited exemptions. These concerns have been especially amplified for emerging technologies in recent years given that many new technologies and apps, in particular, are beginning to combine service and third-party payment functions into a single interface; a feature which they fear could require licensing under the MTA. The Commissioner of the California Department of Financial Institutions noted during her testimony that the Department had received many inquiries from technology-related services since the MTA’s enactment and that the Department intends to clarify the matter in the near future.
On March 22, Utah enacted SB 150, a bill that modifies the Financial Institutions Act and Financial Institution Mortgage Financing Regulation Act. The bill adds a definition for money services business – to include check cashers, deferred deposit lenders, issuers or sellers of traveler’s checks or money orders, and money transmitters – and adds a supervisor of money services businesses within the Department of Financial Institutions. The bill also adds additional filing requirements for check cashers and deferred deposit lenders, and changes from April 30 to December 31 the annual registration expiration date. The bill makes numerous other technical changes. Most provisions of the bill take effect on May 14, 2013.
On March 20, Nebraska enacted LB 616, the Nebraska Money Transmitters Act. Based on a model legislative outline drafted by a trade group of money transmitter state regulators, the new law repeals and replaces the Sale of Checks and Funds Transmission Act, while incorporating the license and renewal fees, a net worth standard, surety bond requirements, change of control notices, and material changes notices of the prior Act. The bill covers the receiving of money or monetary value for transmission to another location by any means, prepaid cards, stored value cards, certain bill payment services, payment instruments, money orders, and traveler’s checks. It establishes licensing standards and continuing duties, and sets up transition of the state’s licensing process to the NMLS starting July 1, 2014. The law defines and provides a system of conduct for authorized delegates and grants enforcement authority to the Department of Finance over authorized delegates. Finally, the law provides administrative and criminal sanctions for violations of the Act. By state rule, the new law will take effect three months after the end of the state’s legislative session, which is scheduled to conclude May 30, 2013.