Weekly Fintech Focus
- FDIC seeks input on new technology certification program.
- CFPB takes action to help employers develop emergency savings programs to boost worker financial resilience.
- The OCC seeks comments on its proposed True Lender rule.
- New York proposes amendments to its gift card regulations that would prohibit or limit fees and expirations in addition to providing for a new cash-back redemption right.
FDIC Seeks Input on New Technology Certification Program
As part of its FDiTech initiative, the Federal Deposit Insurance Corporation (FDIC) announced a notice and request for information (RFI) seeking input on a possible public/private partnership to set standards and create a voluntary certification program to promote the adoption of innovative technologies at FDIC-supervised financial institutions, particularly community banks. The RFI seeks input about how to use standards and certification to help financial institutions better assess the risks of fintech companies as third-party providers of technology and services to the financial institutions.
In the RFI, the FDIC describes how a fintech could build a product, like a credit underwriting model, and build it to meet certain standards or obtain certification under the proposed FDIC technology program. Then, financial institutions could speed up their third-party due diligence by relying on the fintech’s certification of its credit underwriting model to quickly onboard the third-party service into the financial institution.
The FDIC aims to promote the efficient and effective adoption of technology without increasing costs or regulatory burden. In addition to the proposed technology certification program, the FDIC seeks input on what other alternatives the FDIC should consider in supporting financial institutions’ efforts to efficiently and effectively assess risk when evaluating third-party providers.
CFPB Takes Action to Help Employers Develop Emergency Savings Programs to Boost Worker Financial Resilience
The Consumer Financial Protection Bureau (CFPB) issued a Compliance Assistance Statement of Terms (CAST) template to assist employers with creating an automatic savings program in an effort to help employees build emergency savings and increase their financial resiliency. Employers using the CAST template would then be able to leverage it in their application for CFPB approval to offer their automatic savings program.
Under the employer’s autosave program, employees would be able to build emergency savings by allocating a portion of their earnings to an existing account at a financial institution of their choice. These autosave programs would be structured similar to automatic 401(k) retirement savings programs, and employees would receive advance notice of the criteria and their right not to participate.
Approvals based on the CAST template will benefit from protection against liability under the compulsory use provisions of the Electronic Funds Transfer Act, and its implementing regulation, Regulation E.
OCC Seeks Comments on Proposed True Lender Rule
On July 20, 2020, the Office of the Comptroller of the Currency (OCC) released a notice of proposed rulemaking on how to determine when a national bank or federal savings association is deemed the “true lender” in the context of a third-party relationship.
Under the proposal, a national bank or federal savings association is the “true lender” if, as of the date of origination, it either (1) is named as the lender in the loan agreement, or (2) funds the loan.
This bright-line rule will clarify when a loan is deemed to be made by a national bank or federal savings association; removing uncertainty that remained following the OCC’s Madden fix rule that confirmed that the assignee of a loan made by a national bank or federal savings association may charge the same interest rate that the bank or savings association was authorized to charge under federal law.
The OCC seeks comments to this proposed rulemaking and has requested that all comments be received no later than September 3, 2020. Among other channels, comments may be submitted to email@example.com.
NY Proposes Changes to Prohibit and Limit Gift Card Fees and Expirations
Senate Bill 8780 in New York seeks to amend the general business law in relation to fees for gift cards. If promulgated, it will amend section 396-I of the general business law of New York and will substantially prohibit or limit fees, expirations, and additionally provide for a cash-back redemption right.
Excluding qualifying one-time initial activation or issuance fees on open-loop gift certificates, the bill would prohibit a wide range of fees on gift certificates, including, among others, activation fees, retroactive fees, redemption fees, service fees, dormancy fees, administrative fees, renewing fees, and reloading fees. The bill would also prohibit expiration of the gift certificate or underlying funds, except for those associated with promotional gift certificates. Lastly, the bill provides for a cash-back redemption of all non-open-loop gift certificates that have a remaining value of less than five dollars.
While this bill largely tracks gift certificate regulations that a handful of other states have enacted, it materially deviates from the norm with respect to its limitation on one-time issuance fees. Specifically, the bill would cap issuance and activation fees on open-loop gift certificates to the lesser of four dollars ($4.00) or five percent (5%) of the face value of the gift certificate. Such limitation on fees may impact the profit margins on large open-loop gift card distributors and retail resellers.