Government Relations Newsletter: Vol 12 Iss 2 "Quick Hits Before Level Up 24"

Regulatory Quick Hits to Prepare You for Level Up 24 

By: APP Government Relations Strategic Interest Group (SIG)

As we head to APP Level Up 24, recent developments in Washington and by state regulators have left no shortage of regulatory updates and legislative proposals that impact merchant processing and related services.  Here are a few issues that have been among our most-discussed topics in recent months and make great conversation starters among your friends at APP.

Larger Participant Rule. In November 2023, CFPB released a proposed rule for larger participants of a market for general-use digital consumer payment applications. This proposed rule would enable CFPB to establish supervisory authority over certain nonbank entities that provide funds transfer and digital app wallet functionalities for consumers’ general use in making payments to other persons for personal, family, or household purposes (for example, digital wallets, P2P apps, payment apps, etc.). For those entities that meet the definition of a larger participant in this market, those entities would be subject to CFPB’s supervisory authority under the Consumer Financial Protection Act (CFPA) for purposes of: (1) assessing compliance with Federal consumer financial law; (2) obtaining information about such persons’ activities and compliance systems or procedures; and (3) detecting and assessing risks to consumers and consumer financial markets.  The comment period closed in January with just over 60 comments received.

Open Banking.  In October of 2023 CFPB also issued a widely anticipated proposed rule (the Personal Financial Data Rights rule) to implement the open-banking provision of Section 1033 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  As proposed, the rule would require covered entities to make available to consumers, upon request, transaction and other data concerning a consumer financial product or service that the consumer obtains from the covered entity.  CFPB has touted that the proposed rule would ensure that consumers: “Get their data free of junk fees,” “have a legal right to share their data,” and can “walk away from bad service,” while also protecting the interests of consumers and financial firms through preventing “unchecked surveillance and misuse of data,” giving consumers “meaningful” control of their data, pivoting away from risky data collection practices, and having “fair, open, and inclusive” standards. The comment period closed in December 2023 and over 11,000 comments were received.

            Negative Options.  The FTC released a proposed amendment of the existing Negative Option Rule which was announced in spring 2023.  The comment period is now closed and nearly 17,00 comments were received. The proposed rule would expand the scope of the FTC’s Negative Option Rule to cover all forms of negative option marketing, including prenotification and continuity plans, automatic renewals, and free trial offers including those made in all media forms (including internet, telephone, in-person, and printed material). Among other things, Sellers of Negative Options would be required to provide a simple cancellation mechanism, limit additional offers when a customer tries to cancel unless the customer has affirmatively consented to receive such additional offers, and provide annual reminders to customers enrolled in programs involving anything other than physical goods before those programs are automatically renewed.  This rulemaking may have specific impact on merchant service providers that charge fees on a recurring basis, as the FTC has already alleged (though not proven in court) that merchant processors may be subject to the Restore Online Shoppers Confidence Act (ROSCA), which governs negative option sales made over the Internet.  Moreover, language in the proposed rule suggested that payment processors could be responsible for facilitating recurring charges that are not made in compliance with the rule.

Beneficial Ownership/Corporate Transparency Act. As of January 1, 2024, entities that are created or registered to do business in the United States are required to comply with the Financial Crimes Enforcement Network’s (FinCEN’s) Beneficial Ownership Information Reporting Rule under the Corporate Transparency Act (CTA).  The CTA was enacted to combat financial crimes (including money laundering, terror financing and tax evasion).  The law requires each “reporting entity” to file an electronic report to FinCEN providing information regarding the entity’s beneficial owners. This law applies to most corporations, limited liability companies, limited liability partnerships and other entities that are formed under the laws of a state or Indian tribe or that are formed under the laws of foreign country but registered to do business in the U.S. or any Tribal jurisdiction. Only certain entities that meet specific criteria are exempt. Learn more about the CTA by checking out the article: “Things to Know About Beneficial Ownership Reporting Requirements” written by APP’s Government Relations Strategic Interest Group member Jon Genovese.

Future of the CFPB. We are still awaiting a decision from the U.S. Supreme Court in CFPB v. Community Financial Services Association of America, Ltd. where the Court is considering whether the CFPB’s funding structure (whereby the CFPB is funded through the Federal Reserve, rather than the normal annual appropriations process) is unconstitutional.  A Texas federal appeals court had ruled that the CFPB funding structure violates the appropriations clause (Article I, Section 9) of the Constitution.  The U.S. Supreme Court is considering whether the Texas federal appeals court erred in its holding. There will likely be a decision from the Court early this summer.

Faster Payments. In 2023 the industry saw increased adoption and usage of faster payment options.  In December 2023, the Federal Reserve announced that 331 institutions in 45 different states are sending or receiving payments on the FedNow® Service instant payments network, having just launched in July 2023 with 35 participants.  Participants utilizing FedNow® Service range in size from under $500 million to over $3 trillion in assets. There was also an uptick in the Clearing House’s Real Time Payments, RTP® network, usage. The Clearing House announced that the RTP® network surpassed the one million daily payment milestone on September 1, 2023. The Clearing House also noted that over 150,000 businesses are sending payments over the RTP network, a 50% increase from December 2022. OCT Transactions/Push-to-Card (i.e., Visa Direct and Mastercard Send) transactions are also gaining traction.  For instance, Visa has posted that there was 7.5B global Visa Direct transactions processed in 2023 which was up from 5.9B transactions processed in 2022 (excluding Russia).  Providers should also be mindful of changes made to their flow of funds in order to accommodate faster or instant/near real-time payouts to merchants and other payees, as state money transmission and lending laws may be implicated. 

State Surcharge Laws. In 2023, New Jersey’s new surcharge law went into effect which prohibits sellers from imposing a credit card surcharge that is greater than the actual cost of acceptance and has specific disclosure requirements. While the enactment of the New Jersey law made headlines, the law’s requirements track with the already existing card brand rules on the subject.  However, on February 11, 2024, New York’s new surcharging law went into effect, which replaced the prior surcharge ban which had been famously attacked by merchants at the U.S. Supreme Court. While New York’s new law suggests that surcharging is now an accepted practice within the state, a close reading of the statute along with the regulatory guidance issued by the state reveals that the law does not permit surcharging as surcharging is generally known within the payments industry. Instead, surcharging in New York is only permitted to be conducted through commonly understood cash discounting practices. Namely, merchants must clearly and conspicuously post the total price for using a credit card, inclusive of the surcharge, in a dollar and cents format or offer a two-tier pricing system where both the total higher credit price and the lower cash price are listed. 

            We look forward to seeing you at APP Level Up 24.  Be sure to join our Government Relations Strategic Interest Group at 11:55am of Day 2 of Level Up 24 (Track B) for discussion on some of these and various other issues impacting payments regulation and law enforcement.  This panel will be moderated by Chris Geron of Elavon and Co-Chair of APP’s Government Relations Strategic Interest Group and will feature three industry experts and members of the Government Relations Strategic Interest Group who will offer unique perspectives and insights on these topics: Scott Talbott of the Electronic Transactions Association, Nicole Meisner of Taft Law, and Robyn Mitchell of North American Bancard.