Should Congress Create a New Federal Charter for Non-Bank Payments Companies?
Release Date: 11/14/2024
An Empirical Study of Boilerplate in Consumer Contracts
Consumer Finance Monitor
On January 4 of this year, we released a podcast show entitled; “A look at a new approach to consumer contracts”. Our special guest at that time was Professor Andrea Boyack, a Professor at the University of Missouri School of Law. That podcast was based on a then recent law review article published by Professor Boyack entitled “The Shape of Consumer Contracts, 101 Denv L. Rev. 1 (2023). Today, we are joined again by Professor Boyack who has written a follow-up article entitled: “Abuse of Contract: Boilerplate Erasure of Consumer Counterparty Rights,” University of Missouri School of...
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Should Congress Create a New Federal Charter for Non-Bank Payments Companies?
Consumer Finance Monitor
In this podcast show, we explore with our repeat guest, Professor Dan Awrey of Cornell University Law School, his working paper “Money and Federalism” in which he advocates for the enactment of Federal legislation creating a Federal charter for non-banks engaged in the payments business, like PayPal and Venmo. The and will likely be published in a law review at some time in the future. The abstract of Professor Awrey’s article describes in general terms what we discussed: The United States is the only country in the world in which both federal and state governments possess independent...
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CFPB’s Proposed Mortgage Servicing Rule Amendments: Understanding the Impact on Loss Mitigation, Foreclosure, and Language Access
Consumer Finance Monitor
This summer, the CFPB issued its long-awaited proposed rule amending the mortgage servicing rules under Regulation X, with a focus on loss mitigation procedures, foreclosure protections, and language access. These changes were previewed by the CFPB as a means to streamline, and add flexibility to, the loss mitigation process, in light of the industry’s successful efforts during the COVID-19 pandemic. However, the CFPB’s proposal also significantly expands borrower protections during the loss mitigation process, creates extensive new operational challenges for servicers, and leaves many...
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State Fair Access and Debanking Laws Bring Country’s Political and Cultural Divisions to the Fore
Consumer Finance Monitor
Our podcast listeners are very familiar with federal fair lending and anti-discrimination laws that apply in the consumer lending area: the Equal Credit Opportunity Act (ECOA) and Fair Housing Act (FHA). Those statutes prohibit discriminating against certain protected classes of consumer credit applicants. For example, the ECOA makes it unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction, on the basis of race, color, religion, national origin, sex, marital status, or age (provided the applicant has the capacity to contract); the...
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How the CFPB Is Using Interpretive Rules to Expand Regulatory Requirements for Innovative Consumer Financial Products; Part Two—Earned Wage Access
Consumer Finance Monitor
Today’s podcast, which repurposes a recent webinar, is the conclusion of a two-part examination of the CFPB’s use of a proposed interpretive rule, rather than a legislative rule, to expand regulatory requirements for earned wage access (EWA) products. Part One, which was released last week, focused on the CFPB’s use of an interpretive rule to expand regulatory requirements for buy-now, pay-later (BNPL) products. We open with a discussion of EWA products, briefly describing and distinguishing direct-to-consumer EWAs and employer-based EWAS. We review some of the consumer-friendly features...
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How the CFPB Is Using Interpretive Rules to Expand Regulatory Requirements for Innovative Consumer Financial Products; Part One - Buy-Now, Pay-Later
Consumer Finance Monitor
Today’s podcast, which repurposes a recent webinar, is the first in a two-part examination of the CFPB’s use of an interpretive rule, rather than a legislative rule, to expand regulatory requirements for buy-now, pay-later (BNPL) products. Part Two, which will be available next week, will focus on the CFPB’s use of a proposed interpretive rule to expand regulatory requirements for earned wage access (EWA) products. We open with an overview of what interpretive rules are and how they differ procedurally and substantively from legislative rules. The intended use of interpretive rules is to...
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The Regulation of Negative Option Consumer Contracts – Silence as Consent
Consumer Finance Monitor
Our podcast today focuses on negative option consumer contracts, i.e., agreements that allow a seller to assume a customer’s silence is an acceptance of an offer. Such contracts are ubiquitous in today’s marketplace. Today’s guests are Kaitlin Caruso, a professor at the University of Maine Law School, and Prentiss Cox, a professor at the University of Minnesota Law School. They have written an article entitled, “Silence as Consumer Consent: Global Regulation of Negative Option Contracts.” The article is available on SSRN and will soon be published in the American University Law...
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Have State-Chartered, FDIC-Insured Banks Finally Achieved Interstate Usury Parity with National Banks?
Consumer Finance Monitor
In today’s podcast, which repurposes a recent webinar, we examine the impact, if any, of a landmark opinion rendered by Judge Daniel Domenico of the Federal District Court for the District of Colorado in a case challenging recently enacted Colorado legislation on interstate loans made from outside Colorado to Colorado residents. We also address the effects this decision and the outcome of this litigation may have on interstate rate exportation by state-chartered banks across the country. We open with a brief history of the interest rate exportation authority of national and state-chartered...
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Regulators Escalate Focus on the Risks of Bank Relationships with Fintechs and Other Third Parties
Consumer Finance Monitor
On July 25, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency (collectively, the agencies) issued a “Joint Statement on Banks’ Arrangements with Third Parties to Deliver Bank Deposit Products and Services” to “note potential risks related to arrangements between banks and third parties to deliver bank deposit products and services to end users”. On the same day, the agencies issued a “Request for Information on Bank-Fintech Arrangements Involving Banking Products and Services...
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The Demise of the Chevron Doctrine – Part II
Consumer Finance Monitor
On June 28, in Loper Bright v. Raimondo, et al., the Supreme Court overturned the Chevron deference doctrine, a long-standing tenet of administrative law established in 1984 in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. This doctrine directed courts to defer to a government agency’s interpretation of ambiguous statutory language as long as the interpretation was reasonable. However, legal scholars now express widely divergent views as to the scope and likely effects of Loper Bright’s overruling of the Chevron doctrine on the future course of regulatory agency...
info_outlineIn this podcast show, we explore with our repeat guest, Professor Dan Awrey of Cornell University Law School, his working paper “Money and Federalism” in which he advocates for the enactment of Federal legislation creating a Federal charter for non-banks engaged in the payments business, like PayPal and Venmo. The article may be accessed online at SSRN and will likely be published in a law review at some time in the future. The abstract of Professor Awrey’s article describes in general terms what we discussed:
The United States is the only country in the world in which both federal and state governments possess independent and yet overlapping authority for bank chartering, regulation and supervision. The roots of this unique dual banking system can be traced back to the Constitution, written almost a century before banks rose to the apex of the financial system and became the dominant source of money. Beginning with the landmark Supreme Court decision in Maryland v. McCulloch, the system has been a wellspring of jurisdictional conflict. Yet over time, this highly contested and highly fragmented system has also produced strong federal oversight and a financial safety net that protects bank depositors, prevents destabilizing runs, and promotes monetary stability.
This system is now under stress. The source of the stress is a new breed of technology-driven financial institutions licensed and regulated almost entirely at the state level that provide money and payments outside the perimeter of both conventional bank regulation and the financial safety net. This article examines the rise of these new monetary institutions, the state-level regulatory frameworks that govern them and the nature of the threats they may one day pose to monetary stability.
It also examines the legal and policy cases for federal supremacy over the regulation of these new institutions and advances two potential models, one based on complete federal preemption, the other more tailored to reflect the narrow yet critical objective of promoting public confidence and trust in our monetary system.
Professor Awrey explained why existing state money transmitter statutes under which non-bank payments firms are generally licensed provide insufficient protection for consumers who use these firms. State money transfer statutes were created many years ago to protect consumers that were using Western Union. These laws were not designed to protect consumers that deploy non-bank Fintech companies using new technologies to transfer funds. These companies don’t have access to the Federal Reserve’s central payments system that banks have access to. These non-bank companies, unlike banks, are subject to federal bankruptcy law. That increases the likelihood that consumers can lose their funds deposited in one of these non-bank companies in the event of its failure.
Professor Awrey concludes that the answer to this problem is the enactment of federal legislation which would create a federal charter for non-bank companies engaged in transmitting payments. A company that is granted such a charter would have access to the Fed’s payment rails and would be exempt from the federal Bankruptcy Code. Such a company would be very restricted in the types of investments it may hold. The federal charter would ideally preempt many state laws, including state money transmitter laws.
We also spent some time at the beginning of the show discussing the status of FedNow, the instant payments system launched by the Federal Reserve System in July 2023. Professor Awrey was previously a guest on our podcast show on September 14, 2023 entitled “What is FedNow and its Role in the U.S. Payments System.” At that time, Professor Awrey predicted that FedNow was too little, too late and too expensive for small banks. Professor Awrey’s opinion is unchanged. He noted that the Fed has so far refused to share any data about FedNow usage.
Alan Kaplinsky, Senior Counsel and former practice group leader for 25 years of the Consumer Financial Services Group, hosted the podcast show.