Regulatory Update from Washington DC October 5, 2016

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2 2017 Northwest Compliance Conference Seattle, Washington Regulatory Update from Washington DC October 5, 2016 Nessa Feddis American Bankers Association

3 ABA National Update Bureau generally Regulatory relief Data collection for small business loans MLA Small dollar loan proposal Overdraft Prepaid cards Arbitration Alternative data Debt collection Card network updater Breach CRA Reform 4

4 Washington Update Bureau generally Regulatory relief Treasury report President s Executive orders 5

5 Small Business Data Colletion RFI Required under Dodd Frank Act Early days Limit data collection to statutory list ABA letter Challenges in defining small business Value of data and potential for manipulation/misinterpretation Met with SBA 6

6 Military Lending Act Issues remain Letter to DoD to clarify/amend regulation Requested extension of compliance date for credit cards Recommend exemption for credit cards, exclude certain fees from open-end credit 7

7 MLA Issues Purchase money loans Lot loans Paying by check Remotely created checks Loans secured by bank account Right of offset Oral disclosures Timing of disclosures Status verification safe harbor 8

8 MAPR for Open-End Loans Historic APR concept 1. All finance charges 2. Application fees (with small dollar exception) 3. Participation fees 4. Fees for credit-related ancillary products sold in connection 5. Credit insurance premiums, debt suspension and cancellation fees 9

9 MAPR for Open-End Loan If finance charge under Reg Z, included (with certain exceptions for credit cards) If not a finance charge or other listed fee, excluded 10

10 MAPR for Open-End Loan Clearly included as finance charge: Interest; Balance transfer fees; Cash advance fees; and Transaction fees, including transaction fees on overdraft lines of credit. 11

11 MAPR for Open-End Loan Clearly excluded from finance charge: Rush card fees; Late fees; Returned check fees; Expedited payment fees; Over-the-limit fees; Fees charged for documentary evidence of transactions for income tax purposes; Reinstatement or reissuance fees; ATM fees imposed by an institution other than the card issuers for use of the other institution s ATM. 12

12 MAPR for Open-End Loan Not clear whether finance charge Duplicate statements fees. Probably not because it is not an incident to credit but a service. Regulation Z does not address. Replacement card fees. Probably a finance charge because the customer cannot use the account without it. Regulation Z does not address. 13

13 MAPR for Open-End Loan Exclusions from MAPR for credit cards Bona fide fees that are reasonable for that type of fee Standard includes comparing fees typically imposed by other creditors for the same or a substantially similar product or service like-kind fees DoD offers the example of a cash advance fee Substantially similar product is not defined 14

14 MAPR for Open-End Loan Safe harbor: A bona fide fee is reasonable if less than or equal to an average amount of a fee for the same or a substantially similar product or service charged by 5 or more creditors with at least $3 billion in an outstanding U.S. credit card balances during the last 3 years 15

15 MAPR for Open-End Loan If one fee is not bona fide, all fees must be included Exception does not apply to non-credit open-end line of credit If no balance, no fees except participation fee less than $100 If MAPR cannot be calculated because no balance, no fee may be imposed during that billing period except participation fee or annual fee that is $100 or less 16

16 MAPR for Open-End Loan Interpretive Rule expected Will continue to push for changes to regulation More at ABA Staff Analysis 17

17 Other Issues 1. Paying by check 2. Remotely created checks 3. Loans secured by financial accounts 4. Right of offset 5. Oral disclosures 6. Timing of disclosures 18

18 Small Dollar Loan Proposal Expected soon Expect to apply to loans with terms 45 days or less Not clear impact on direct deposit advance Some accommodation loans are impacted 19

19 Overdraft Bureau recognizes value Industry adoption of consumer-friendly terms Difficult to regulate further Overdraft research report and prototype disclosure of August 14, 2017 Includes prototype if consumer opt-in notice ABA letter TD Bank decision 20

20 Prepaid Card Rule: Overview Final rule issued October 5, 2016 Published in the Federal Register Nov. 22, 2016 Effective Oct.1, 2017 (with exceptions) ABA Staff Analysis Amends Reg E and Reg Z Exceedingly broad scope Reg E to cover prepaid accounts Reg Z to treat overdrafts on prepaid cards as credit cards 21

21 Reg E: Consumer Protections In addition to the other provisions of Reg E, new provisions apply to prepaid accounts: Special pre-acquisition disclosures Alternative disclosure to periodic statements Error resolution rights Greater protections for registered cards held by customers who have completed ID verification Public posting of account agreements Submission or agreements to Bureau Special rules for remittances funded by prepaid account 22

22 Definition: Prepaid Account 1. Payroll cards Accounts directly or indirectly established through an employer and to which EFT of the consumers' wages, salary or other compensation (e.g., commissions) are made on a recurring basis 2. Government benefit accounts Other than need-tested benefits accounts established under state or local law 23

23 Definition: Prepaid Account 3. Accounts marketed or labeled as prepaid That are usable at multiple unaffiliated merchants for goods or services or usable at ATMs 24

24 Definition: Prepaid Account 4. Accounts i. issued on a prepaid basis for a specific amount and accounts not issued on a prepaid basis, but capable of being funded after issuance ii. whose primary function is to conduct transactions with multiple, unaffiliated merchants for goods or services or at ATMs or to conduct P2P transfers and iii. are not a checking account, share draft account, or NOW account. 25

25 Definition: Prepaid Account Meaning of primary function and distinction between checking account and prepaid account: Checking account not defined (other than demand deposit accounts ) Supp. Info says ability to create preauthorized checks qualifies account as checking account What about checkless checking accounts? 26

26 Definition: Prepaid Account Prepaid account includes: Network-branded GPR cards, including nonreloadable cards Non-need tested government benefit cards Tax refund cards Digital wallets that store funds (not solely credentials) Certain P2P payment products Virtual currency? 27

27 Definition of Prepaid Account Prepaid account excludes 1. Health savings accounts, flexible spending arrangements, medical savings accounts, health reimbursements, dependent care assistance programs, or transit or parking reimbursement arrangements; 2. Gift certificates; 3. Store gift cards; 4. Loyalty, award, or promotional gift cards; 5. General-use prepaid cards marketed and labeled as a gift card or gift certificate; and 6. Need-tested benefits card established under state or local law. 28

28 Pre-acquisition Disclosures Short form on packaging Long form inside packaging (retail) or separate (bank branch) Modified forms for payroll government benefits cards Modified disclosures for cards with multiple service plans Issuing bank, website, and phone number printed on cards 29

29 Short-Form Disclosure Tabular format Text size and prominence requirements Segregation of information 30

30 Short-Form Disclosure Top portion: Monthly fee (if any) ATM withdrawal fees Per purchase fees Cash reload fees Bottom portion: ATM balance inquiry fees Customer service fees Inactivity fees (if any) Revenue-based fees Mandatory statements 31

31 Short-Form Disclosure Other Rules: Must disclose 0 or NA for free or not applicable features For fees that may vary, highest amount that may be imposed followed by symbol linked to statement e.g., This fee can be lower depending on how and where this card is used. 32

32 Short-Form Disclosure Revenue-Based Fees: Bottom portion of short form 2 fees that generated the most income for the product in the past 24 months (not including the above-the-line fees) Requires biennial study of fees to determine income generated Requires new packaging to reflect and information changes from study New card stock not required until the first time new card stock is printed after the required biennial assessment Short Form Mandatory Statements: Credit-related fees may apply Number of fees (other than those listed) that a consumer may incur Existence of overdraft feature Phone number and URL to access long form FDIC or NCUSIF insurance statement URL for CFPB 33

33 Long-Form Disclosure Form: Tabular format Text size and prominence requirements Orally by telephone if consumer acquires account orally by telephone Electronically, if consumer acquires card by electronic means Viewable on all screen sizes On a website if a consumer acquires card in retail location Timing: Before a consumer acquires a prepaid account Except for accounts acquired in a retail location under certain conditions Content: Amount of all fees that may be imposed When imposed/waived/reduced Third party fees known to the issuer Any appropriate Reg Z credit disclosures for credit features Phone number, URL and mailing address for more information FDIC/NCUSIF statement (from short form) CFPB URL URL and phone number for complaints 34

34 Account History Periodic statement not required under Regulation E Regulation Z requires billing statements for cards with credit features In lieu of periodic statements, availability of account history 12-month electronic account history 24-month written account history, upon request by registered cardholder Access to account information (e.g., balance) by telephone Account history must include History of all transactions during relevant period Disclosure of all fees charged Summary total of all fees charged for prior calendar month and year Other content currently required for periodic statements 35

35 Error Resolution Registered Cards Existing error resolution requirements extended to registered cards Provisional credit required if investigation exceeds 10 business days The current 60-day reporting period under Regulation E begins when consumer accesses electronic account history reflecting the error, or when a written history is sent to the consumer Alternatively, institution may limit rights to errors reported by the consumer within 120 days after the erroneous transfer occurred Unregistered Cards Investigation required Provisional credit not required Timeframes in Regulation E not applicable Issuers permitted to restrict functions available on unregistered cards to prevent fraud 36

36 Submission of Agreements to Bureau Submission to CFPB: All agreements currently offered, not previously submitted New and amended agreements, within 30 days of offer/effectiveness Notification of withdrawn agreements, within 30 days of ceasing to offer Accompanying Information Issuer s name, address, ID (RSSD ID or TIN) Effective date of agreement Name of relevant parties E.g., program manager, government agency (benefit cards) Effective: October 1, 2018 Issuers must submit all prepaid account agreements, if offered, as of Oct 1, 2018, no later than October 31,

37 Public Posting of Agreements Posting: If the issuer would be required to submit the agreement to the CFPB, they must also publicly post the same on their website Prominent and accessible location on website If an agreement is not posted, the issuer must provide a copy to consumer within 5 business days of request Effective: April 1,

38 Hybrid Accounts and Reg Z Applies existing Reg Z open-end credit requirements to prepaid cards with credit features including: Account opening disclosures Periodic statements Change in terms Prompt crediting of payments Billing error resolution Restrictions on unsolicited issuance Liability for unauthorized transactions Prohibitions against right of offset Ability to repay requirements Limitation on fees that exceed 25% of credit limit Limitations on penalty fees 39

39 Hybrid Accounts and Reg Z New Protections 30 day waiting period for offering access to credit features Once a month payment limit Limits on raising interest rates For existing balance: customer must miss 2 back-to-back payments Prospectively: 45 day notice requirement Wall between prepaid assets and credit repayment 40

40 Hybrid Accounts Prepaid account is hybrid account if it: 1. Can access credit from single device used to access separate credit feature if: Card can be used to access credit in the course of authorizing, settling, or otherwise completing transactions using the card to obtain goods, services, or cash or conduct P2P transactions and The separate credit feature is offered by issuer, affiliate or business partner 41

41 Hybrid Accounts 2. Can access credit from credit structured as a negative balance on the asset feature of the prepaid account (allows overdrafts). However, hybrid cards generally cannot allow overdrafts. Thus, prepaid cards that allow overdrafts are hybrid cards, but allowing overdrafts on hybrid cards is prohibited. Any credit feature must be separate from asset feature. 42

42 Hybrid Accounts Prepaid cards are not hybrid cards in certain situations if no fee is imposed and: Credit offered by a third-party; Credit not used during the transaction; Overdraft caused by forced-pay transactions; Overdraft is $10 or less (payment cushions); or Load is delayed because EFT not yet settled. 43

43 Proposed changes RFI March 15,2017 Compliance deadline extension ABA comment letter Agreed with extension Strongly recommended clarification re prepaid account definition 44

44 Proposed changes Proposed amendments: June 29, 2017 Variety of issues including: Liability for unverified cards Requirement that credit cards linked to prepaid accounts (e.g. when insufficient funds) apply credit card rules to the prepaid card transaction with merchant transaction ABA letter ABA met with staff early September and filed summary of discussion 45

45 Card Network Updater Confusion about networks update Network requires card issuers to provided updated credentials to participating merchants via network Questions whether issuers must provide opt-out notice to cardholders No requirement under federal regs or network rules Customers may opt out Good practice: Change terms and conditions with next update Remind customers when replacing the card Suggest they notify merchants of changes See ABA Staff Analysis 46

46 Other issues Arbitration Alternative data ABA comment letter Debt collection Breach CRA Reform 47

47 QUESTIONS? 48