Weekly Fintech Focus

  • The current pandemic creates new stresses on the relationship between payment processors and merchants, but there are ways to work through these challenges together. See here for our discussion reserve account issues in credit card processing agreements.
  • FinCEN seeks comment on the burden financial institutions face when filing SARs.
  • The CFPB files its first status report on its progress on rulemaking regarding the small business loan data rule.
  • The CFPB issued a report on the consumer complaints it received during COVID-19.
  • Marqeta raises $150 million with a $4.3 billion valuation.
  • New mobile banking registrations in April surge 200%.

COVID-19: Reserve Issues in Credit Card Processing Agreements

The current economic slowdown can affect credit card processing agreements between companies and payment processors. It is an issue relevant to all companies that accept or process credit cards as a method of payment. The following update analyzes financial risks that companies (merchants) and payment processors face under their processing agreements during a slowdown, and it proposes certain proactive steps companies and processors can take to manage their respective risks, while maintaining a positive long-term relationship with one another.

Please see our colleagues’ publication detailing these important issues in the processor-merchant relationship here.

FinCEN Seeks Comment on SAR Burden Estimates

On May 26, 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 suspicious activity report (SAR) reporting and regulatory requirements. The notice provides FinCEN’s analysis of its SAR database assessing the amount and type of SARs filed, as well as different financial institutions filing SARs. In the past, FinCEN has estimated that the SAR filing process requires two hours to complete. This notice broadens the issues FinCEN considers when evaluating the burden and cost of filing SARs, and provides a range of 25 to 315 minutes per SAR filing. The notice introduces two modifications to the scope and methodology used to estimate costs and time requirements for reporting SARs for purposes of the Paperwork Reduction Act. The modifications include adding supplemental annual burden estimates to reflect annual costs involved in determining whether elevated alerts require a SAR and the decision to document the decision not to file a SAR if the situation did not warrant it. Comments are due on or before July 27, 2020.

CFPB Files Its First Status Report on the Small Business Loan Data Rule

In an ongoing case in California Federal District Court, the Consumer Financial Protection Bureau (CFPB) is subject to a stipulated settlement agreement that requires status reports on the agency’s progress to comply with and provide regulations in accordance with Section 1071 of the Dodd-Frank Act. Section 1071 requires the CFPB to collect and report data regarding credit applications made by women or minority-owned businesses and other small businesses. On May 26, 2020, the CFPB filed its first status report in this case.

This status report notes that the CFPB has started drafting sections of the Small Business Regulatory Enforcement Fairness Act (SBREFA) outline required as a preliminary step in the rulemaking process. While the CFPB believes that it is on track to meet its SBREFA deadlines in September and October of this year, it notes that the current COVID-19 pandemic may result in delays in this process. The CFPB states that it will provide notification to the plaintiffs in the case if an extension of the deadlines is necessary.

The case before the Northern District of California is: California Reinvestment Coalition et al. v. Kraninger, No. 4:19-cv-02572-JSW.

CFPB Issues a Report on the Consumer Complaints It Received During COVID-19

The CFPB issued a report detailing the complaints it received during the COVID-19 crisis. Of the 79,200 complaints received in April and May, those relating to mortgages and credit cards were the most common that referenced COVID-19. As expected, both months resulted in historic highs for the total number of complaints (36,700 and 42,500, respectively).

While 59% of mortgage-related consumer complaints identified personal struggles with making their mortgage payment, 19% of consumers with a credit card complaint noted a problem with their purchase or statement generally. This illustrates the troubles that many individual Americans have with two key sources of credit. The report also includes other breakdowns, including:

  • Complaint volume distribution by consumer financial products
  • Weekly complaint volume by consumer financial products with comparisons to periods before and after the national emergency declaration
  • Highlights of common issues from a review of complaint narratives that mention COVID-19-related words

Industry Updates

Marqeta Raises $150 Million at a Valuation of $4.3 Billion

California-based payment card issuer, Marqeta, raised $150 million from an undisclosed U.S. institutional investor at a valuation of $4.3 billion. Marqeta intends to use the funding to further develop its payment platform whereby it issues payment cards and simplifies payment processing.

Marqeta sees an opportunity to issue a payment card on every continent and is already backed by Goldman Sachs and Visa. As Chief Executive Jason Gardner put it, “the idea of payments are going to change. You’re going to see more e-commerce and that leads to curbside pickup and touchless payments.”

New Mobile Banking Registrations in April Surge 200%

According to Fidelity National Information Services (FIS), new mobile banking registrations in April increased by 200% with mobile banking traffic increasing by 85%. With many physical bank branches closed, mobile banking has become the go-to method for accessing many banking services.

This massive increase in mobile banking usage will likely stay. A survey conducted by Novantas showed that only 40% of respondents expected to return to their physical bank branch in the post-COVID-19 world. FIS division executive, Maria Schuld, agrees that “there’s no going back. After the current crisis abates and lockdown orders are relaxed, we expect more U.S. consumers than ever before will be using their mobile devices to handle a wide range of their banking and payments needs.”