Weekly Fintech Focus

• House Democrats latest relief bill includes protections for financial institutions working with marijuana-related businesses.
• The CFPB issues guidance providing flexibility for financial institutions dealing with billing error disputes and making changes to consumer accounts to respond to the challenges of the COVID-19 pandemic.
• The CFPB amends the Remittance Transfer Rule to permanently allow estimates of exchange rates and third-party fees.
• FinCEN is seeking comments about the burden of collecting, filing, and maintaining CTRs.
• U.S. credit card spending falls 40% in March and early April.
• Contactless payments are more likely to be used.

Latest Coronavirus Relief Bill Supports Protections for Banking Marijuana Businesses

The House Democrats’ latest omnibus coronavirus relief bill, the Health and Economic Recovery Omnibus Emergency Solutions Act, or HEROES Act, takes aim at protections for the cannabis industry (see Section 110606). The language in the HEROES Act basically mirrors the language from the Secure and Fair Enforcement Banking Act, or SAFE Banking Act, which passed the House last year. As a separate bill, the SAFE Banking Act did not proceed in the Senate.

The SAFE Banking Act would prohibit a federal banking regulator from penalizing a bank for providing banking services to legitimate marijuana related businesses (MRBs). This includes providing cash deposit services and providing credit to MRBs. Federal banking regulators would be prohibited from (1) terminating or limiting deposit or share insurance of a bank solely because the bank provides financial services to legitimate MRBs; (2) prohibiting or discouraging a bank  from providing financial services to legitimate MRBs; (3) recommending or encouraging a bank not to offer financial services to an account holder because of the person’s affiliation with an MRB; (4) taking any adverse or corrective supervisory action on a loan solely because the recipient of the loan owns an MRB or owns real estate or equipment that is leased or sold to an MRB; or (5) penalizing a bank for processing or collecting payments for a legitimate MRB. Additionally, under the bill, a bank would not be liable under federal law or subject to forfeiture of the proceeds of a loan or any other financial service to a legitimate MRB or its services provider.

The SAFE Banking Act would also modify the SAR filing requirements for providing financial services to MRBs. The bill directs the Department of Treasury to provide guidance consistent with the SAFE Banking Act so that financial institutions are not significantly inhibited from providing financial services to legitimate MRBs.

Finally, the protections in the SAFE Banking Act would also be extended to providing financial services to hemp-related businesses. The bill would direct the federal financial regulators to provide guidance and best practices related to providing financial services to hemp-related businesses.

CFPB Issues Guidance on Payment Regulation Flexibility During the Pandemic

On May 13, 2020, the Consumer Financial Protection Bureau (CFPB) released a statement and FAQs addressing responsibilities of certain financial firms during the COVID-19 pandemic.

Statement on Billing Error Dispute Flexibility

The CFPB’s statement provides guidance to credit card companies handling billing error dispute resolutions. The CFPB recognizes the additional burdens placed on credit card companies during this time in responding to billing error disputes because merchants are having a difficult time responding in a timely fashion given the demands they face right now. The statement informs creditors that the CFPB will take a “flexible supervisory and enforcement approach” related to billing dispute resolution because creditors making decisions on billing error notices without merchant input could result in merchants facing higher volumes of chargebacks and consumers being affected by decisions based on insufficient information. The offered flexibility extends only to the time limits for resolution and not to any other procedures under the regulations.

Under Regulation Z, a credit card issuer is required to acknowledge a consumer’s billing error notice within 30 days, and lenders are required to investigate and resolve these errors within two billing cycles and no later than 90 days. Given the additional stressors during this time, the CFPB states that missing these billing error dispute deadlines will not be grounds for citation by the CFPB in an enforcement action so long as the creditor is making good faith efforts to obtain needed information and making decisions as quickly as possible. Good faith efforts include the creditor obtaining reasonable estimates from the merchant of when it will be able to respond to the dispute.

In addition to the flexibility the CFPB is offering creditors, the CFPB expects creditors to extend flexibility to consumers reporting billing error disputes. The CFPB recognizes that consumers are facing disruptions at this time as well, and expects creditors to show flexibility in the standard 60‑day timeline for reporting a billing error after it appears on a periodic statement.

FAQs on Payment and Deposit Rules

The CFPB issued FAQs addressing questions about payments and deposit accounts related to the COVID-19 pandemic.

The questions address whether a financial institution may change account terms on consumer checking, savings, or prepaid accounts during the pandemic. Under Regulations E and DD, advance notice of 21 days and 30 days, respectively, is required for certain changes. The CFPB explains that account terms may be changed so long as appropriate notice is given to consumers. However, changes that are favorable to consumers may be implemented immediately without advance notice. For example, changes to provide immediate relief to consumers, such as reducing a fee, may be made immediately without advance notice. If making these types of changes to help consumers, it is important to provide appropriate advance notice if the financial institution later raises or reimplements those fees.

CFPB Amends Remittance Transfer Rule to Permanently Allow Estimates

Effective July 21, 2020, the CFPB amended the Remittance Transfer Rule to allow insured institutions to continue to estimate certain fees and exchange rate information and to increase the safe harbor threshold used to determine whether a remittance transfer provider is subject to the rule.

Today, insured institutions can use estimates of the exchange rate and covered third-party fees associated with a remittance transfer instead of disclosing exact amounts to consumers as part of two temporary exceptions to the Remittance Transfer Rule. However, those temporary exceptions to exact disclosures expire on July 21, 2020. In an effort to make these exceptions permanent, the CFPB’s amendment offers insured institutions similar, permanent exceptions so long as certain conditions are met.

Exception to Allow Estimation of the Exchange Rate

This permanent exception allows insured institutions to continue using estimates of exchange rates, so long as the recipient of the remittance transfer to a particular country receives funds in that country’s local currency and the following are met:

• The remittance transfer provider is an insured institution;
• The insured institution cannot determine the exact exchange rate for the remittance transfer at the time it must provide applicable disclosures;
• In the prior calendar year, the insured institution did not exceed the exception’s threshold (1,000 or fewer) with regard to the particular country which it is sending the remittance transfer; and
• The remittance transfer is sent from the sender’s account with the insured institution (including a payroll card account or government benefit account, but not any other prepaid account).

Exception to Allow Estimate of Covered Third-Party Fees

This permanent exception allows insured institutions to continue using estimates of covered third-party fees if the following conditions are met:

• The remittance transfer provider is an insured institution;
• The insured institution cannot determine the exact covered third-party fees required to be disclosed for the remittance transfer at the time it must provide applicable disclosures;
• Either (a) the insured institution made 500 or few remittance transfers to the recipient’s institution the prior calendar year, or (b) a U.S. federal or state regulation prohibits the insured institution from being able to determine the exact covered third-party fees required to be disclosed; and
• The remittance transfer is sent from the sender’s account with the insured institution (including a payroll card account or government benefit account, but not any other prepaid account).

However, this exception is not available to insured institutions if any of the following conditions exist: (i) the insured institution has a correspondent relationship with the designated recipient’s institution; (ii) the designated recipient’s institution acts as an agent of the insured institution; (iii) the insured institution has an agreement with the designated recipient’s institution with respect to the imposition of covered third-party fees on the remittance transfer; or (iv) the insured institution knows at the time the disclosures are given that the only intermediary financial institutions that will impose covered third-party fees on the transfer are those institutions that have a correspondent relationship with or act as an agent for the insured institution, or have otherwise agreed upon the covered third-party fees with the insured institution.

Normal Course of Business Safe Harbor

In addition to permanently establishing the disclosure exceptions set forth above, the amended Remittance Transfer Rule also increases the required amount of annual remittance transfers that subject a business to the Remittance Transfer Rule. The amendment increases this threshold from 100 or fewer remittance transfers in the prior calendar year and 100 or fewer remittance transfers expected in the current calendar year, to 500 or fewer transfers in both instances.

Thus, businesses that provided 500 or fewer remittance transfers in the prior year, and expect to also provide 500 or fewer remittance transfers in the current year, can qualify for the Normal Course of Business Safe Harbor and do not need to comply with the Remittance Transfer Rule.

FinCEN Seeks Comment on CTR Regulatory Requirements

On May 14, 2020, the Financial Crimes Enforcement Network (FinCEN) published a 60-day notice to renew the Office of Management and Budget (OMB) control numbers assigned to currency transaction report (CTR) reporting and regulatory requirements. The OMB recently provided FinCEN with recommendations, which resulted in FinCEN significantly revising its methodology as to how it estimates costs and time requirements for purposes of the Paperwork Reduction Act. Comments are due on or before July 13, 2020.

Under the Bank Secrecy Act and its implementing regulations, financial institutions are required to report CTRs, which capture transactions in currency of more than $10,000. The information collected on the CTR, FinCEN Report 112, will not change as a result of this notice. In the notice, FinCEN recognizes that financial institutions are relying more and more on automation for handling CTRs. This increases the periodic costs due to maintaining, updating, and upgrading financial institution systems for handling CTRs, but generally not the overall cost. Automation reduces the amount of time necessary for handling CTRs, and FinCEN’s new estimate reflects that. FinCEN intends to do additional granular testing to better understand timing and cost requirements. Commenters should review the notice and provide information to FinCEN about whether FinCEN’s estimates reflect the real-world experiences of financial institutions and whether there are ways to enhance the quality of the information collected.

Industry Updates

U.S. Credit Card Spending Falls 40% YoY

JP Morgan Chase noted that American credit card spending during March and early April fell 40% compared to last year. As a result of the stay-at-home orders put in place in many states, the non-essential goods and services spending in retail, restaurant, and entertainment industries were hit hardest. Restaurant spending in particular saw a 70% drop.

Using anonymized spending data from more than 8 million credit card customers, JPMorgan Chase found that households that earn less than $39,000 reduced spending by 38% while cardholders with incomes of more than $92,000 reduced spending by 46%.

Contactless Payments are More Likely to be Used

According to the 2020 American Express Digital Payments Survey, 58% of consumers who have used contactless payments in the past say they are more likely to use them moving forward. The survey found an increasing trend of contactless payment use over the last 8 months, but finds that there is even more incentive to use the contactless feature.

As J.J. Kieley, VP of Payments Consulting Group at American Express, put it, “[t]his survey tells us that U.S. consumers view contactless as faster, safer, and more convenient than other forms of payments, which is becoming especially important as people are avoiding contact and are considering how to resume in-store purchasing.”