FTC Orders an End to Illegal Mastercard Business Tactics and Requires it to Stop Blocking Competing Debit Card Payment Networks

On December 23, the Federal Trade Commission (FTC), in a 4-0 vote, ordered Mastercard to start providing competing payment networks with the customer account information they need to process debit payments, alleging that the company has violated the Durbin Amendment and federal regulations.

According to the FTC, Mastercard has allegedly been using its control over the tokenization process to keep competing networks out of the e-commerce debit payment business, in violation of provisions of the 2012 Dodd-Frank Act known as the Durbin Amendment and its implementing rule, Regulation II. Generally, the Durbin Amendment requires banks to enable at least two unaffiliated networks on every debit card and prohibits payment card networks from inhibiting merchants from using other networks.

E-commerce transactions that involve payment cards in e-wallets often replace the cardholder’s primary account number with a different number, known as a token, and store that number in the e-wallet. This “tokenization” process aims to protect the primary account number during certain stages of the transaction, as well as to reduce fraud. When a debit cardholder makes a debit purchase using an e-wallet, the merchant receives the token from the cardholder’s device and sends it to the merchant’s bank. The merchant’s bank then sends the token to a payment card network for processing, which converts it to the associated primary account number (PAN).

With respect to Mastercard-branded debit cards in e-wallets, not only does Mastercard’s policy require that a token be used, but banks that issue such cards also nearly universally use Mastercard to generate the tokens and store the corresponding PANs, according to the FTC. As a result, the FTC alleged that merchants are dependent on Mastercard to convert the token to process e-wallet transactions using Mastercard-branded debit cards, because competing payment networks do not have access to the tokens stored by Mastercard. The FTC also alleged that Mastercard refused to provide conversion services to competing payment networks for e-wallet debit transactions conducted online and in apps (rather than in person), making it impossible for merchants to route e-wallet transactions on any network other than Mastercard.

Under the FTC’s proposed order, if a competing network receives a token to process a debit card payment, Mastercard is required to provide that network with the customer’s PAN that corresponds to the token. The order also prohibits Mastercard from taking any action that prevents other payment networks from providing their own tokens or tokenization services.

The proposed order is subject to a 30-day public comment period, after which the FTC will decide whether to make it final. The FTC’s statement on its proposed order didn’t say whether it had reached a similar agreement with Visa.

Weekly Fintech Focus

  • The CFPB shuts down an online lender for repeated failures related to deceptive marketing claims.
  • Some major credit bureaus announce plans to incorporate BNPL installment plans in credit reports.
  • FTC Chair Lina Khan provides comments on the CFPB’s inquiry into big tech platforms’ engagement in payments and financial services.

Continue Reading Fintech Legal Report – Week of January 7, 2022

On December 7, 2021, the U.S. Treasury Department’s Financial Crimes Enforcement Network issued a highly-anticipated proposed rule that would implement key provisions of the Corporate Transparency Act, a law enacted earlier this year as part of the Anti-Money Laundering Act of 2020.

Click here to view the update.

Weekly Fintech Focus

  • The CFPB sent orders to five large BNPL companies seeking information on their business practices and regulatory posture.
  • The CFPB published its Fall 2021 rulemaking agenda, giving some insight into what the next year holds for CFPB activity.
  • The CFPB renewed its call for tech workers to become whistleblowers related to potential violations of consumer financial laws.
  • The CFPB published updated FAQs related to EFTA and Regulation E.

Continue Reading Fintech Legal Report – Week of December 17, 2021

Weekly Fintech Focus

  • The CFPB and OCC are taking a keen interest in bank overdraft practices.
  • The CFPB is working to encourage coordination with states on enforcement actions and to target repeat corporate offenders.
  • CFPB and HUD once again encourage the use of Special Purpose Credit Programs to remedy historical discrimination.
  • The Kansas City Fed issued a report on Buy Now Pay Later programs.
  • The FTC and DOJ meet with G7 counterparts to discuss competition issues for digital markets.
  • The FTC spotlights a rapid increase in gift card scams.

Continue Reading Fintech Legal Report – Week of December 10, 2021

Under the leadership of its new Director, Rohit Chopra, the Consumer Financial Protection Bureau (CFPB) appears poised to take a more active supervisory and enforcement posture, including with respect to Fintech – a sector that has not historically been a focus for the agency.  Since taking office on October 12th, Director Chopra has made various public statements indicating concerns about the growing role of technology companies in providing financial services to consumers.  To that end, his first official action was a sweeping information request issued to large tech firms that offer payments products, seeking information about, among other things, data privacy and security practices.  Although it is not clear what actions the CFPB may take, there is no doubt that Fintech is in the agency’s crosshairs like never before.

For more information, please visit Perkins Coie’s White Collar & Investigations Blog, White Collar Briefly.

Weekly Fintech Focus

  • Acting Comptroller of the Currency gave a speech describing his vision for supervising crypto and fintech firms in similar ways to banks.
  • The FTC issued enforcement policy guidance related to subscriptions and negative option marketing to tighten compliance.
  • The FTC issued a final rule amending the GLBA Safeguards Rule to cover “finders” and to significantly increase certain requirements for financial institution security requirements.

Continue Reading Fintech Legal Report—Week of November 5, 2021

Weekly Fintech Focus

  • In a broad order, CFPB seeks information from big tech payment platforms about their products, practices, and customer data.
  • CFPB cracks down on prison financial services company for unfair and abusive acts and practices.

Continue Reading Fintech Legal Report—Week of October 22, 2021