CFPB Turns Two with a Bang – What Now?

The Consumer Financial Protection Bureau (CFPB or the Bureau) hit its second birthday this week in grand style. Has it really been just two years? I don’t believe I would be in minority in feeling CFPB has been around much longer given all the Dodd-Frank rules it has cranked out and all the press it has received over the controversial recess appointment of Rich Cordray in January 2012. But, who’s counting, right?

Speaking of Rich Cordray, his recent formal Senate confirmation was perhaps the biggest birthday present of all to the Bureau. Majority Leader Harry Reid (D-NV) had to threaten the Senate with the “nuclear option” (a change of Senate rules to allow “majority” rule) over several stalled Obama nominees to key administration positions.  The Senate was close to DEFCON 1 before a handful of Republicans told Harry to take his finger off the button because they would allow votes on the nominees. Cordray was the first nominee to get confirmed. House and Senate republicans have been pressing for structural changes to CFPB pretty much after the ink was dry on the Dodd-Frank Act. Senate Republicans were united in 2012 and 2013 that no CFPB Director nominee would be confirmed unless the CFPB became a commission (like the FTC or FCC) and received its appropriations from Congress and not the Federal Reserve. Two federal courts even called into the question the “recess” appointment of Cordray as they ruled that President Obama’s recess appointments to the National Labor Relations Board were unconstitutional. The Supreme Court even agreed to hear the case in October. All this legal uncertainty is fairly moot given the Senate’s confirmation (and the Supreme Court’s recent proclivity to threading the needle on touchy constitutional issues).

But, enough about history. What does the future hold for the Bureau? I don’t buy quite into the hype by some that the Bureau is coming out swinging against banks now that Cordray has lost his “recess” tag. I expect the Bureau will be sensitive and responsive to the concerns from Capitol Hill. It will certainly be responsive to the Government Accountability Office (GAO) as it begins to examine its data collection practices. As requested by Sen. Mike Crapo (R-ID), ranking Republican on the Senate Banking Committee, GAO will review identity, account and transaction data the Bureau collects during its supervision of banks or through other direct request. The Bureau claims that the transaction data is de-linked with any personally-identifiable information. We’ll see what GAO comes up with (presumably in 2014).

The Bureau also released its updated regulatory agenda through the end of the year. Expect to see a notice of proposed rule-making on extending Reg E protections to general-reloadable prepaid cards in addition to new proposed rules on debt collection and payday loans. I suspect CFPB will continue to tinker with the Dodd-Frank mortgage rules to take effect in January 2014. It certainly doesn’t want to be tagged with tanking the housing market if no one can get a loan. If you really want to peer into CFPB’s future, follow its consumer complaint portal progress reports. CFPB has stated that the trends it sees through the complaint portals will drive its enforcement and regulatory agenda.

Industry and CFPB need to work together more than ever to ensure balance is struck between consumer protection and a healthy financial services industry. Consumers are hurt if the pendulum swings too hard one way. Keep checking with this blog for progress reports. 

The “Preemption Problem” – How TANF Blocking Could Get Out of Hand

It’s been about 15 months since Congress passed a bill that included a requirement that welfare cash assistance (TANF) be blocked at ATMs and point-of-sale devices located in liquor stores, casinos and adult entertainment establishments. The law specified that states submit TANF blocking plans to the federal government by 2014 or be subject to reductions in the program’s block grant assistance.

Last April, the U.S. Department of Health and Human Services sought public to understand the challenges states and vendors may have implementing these plans. EFTA wrote DHHS and the Office of Family Assistance in June. HHS has yet to publish any final rule.

Congress did not invent the TANF blocking idea. As in most cases of federal law making, Congress adopted the approach taken in some states (California notably here). Congress must decide during the legislative process whether to preempt the states from passing stronger (and in many cases different) laws than the federal standard. It’s not the chicken and egg debate, but more of a the ceiling and floor debate. With apologies to Bard William Shakespeare, to preempt or not to preempt, that is the question. In the case of TANF blocking, Congress opted to preempt current and future states laws on TANF blocking. Thus, we have a floor and not a ceiling.

Many state legislatures were already well into their respective sessions when the TANF blocking law was enacted last year. So, state legislative action on TANF blocking was light in 2012 at best. However, 2013 has been a different story. State legislatures have had time to prepare for the issue and may have viewed enacted legislation as an important step in certifying to HHS that a TANF blocking plan indeed does exist. That’s all well and good. But, Houston, we are beginning to see a problem.

Certain states have proposed to expand the scope of the current federal law. This makes compliance and operational execution more and difficult and costly for companies who contract with states to deliver Electronic Benefit Transfer (EBT) cards services. Let’s take the case of Indiana. Last year, Indiana passed a law merely requiring signage at ATMs and POS terminals that cash assistance could be not be drawn at the following locations: liquor stores, race tracks, off-track betting sites, casinos, gun stores, nightclubs, bars and bingo halls.

 Just recently, Gov. Mike Pence signed into law a bill requiring ATM and POS owners, vendors and third party processors to disable access to EBT benefits at these venues or suffer stiffen penalties (possibly even criminal penalties). To make matters more difficult, the Indiana law is giving a very short (and impossible) timeframe to comply with the law (July 1, 2013). One state greatly expanded the scope the banned locales, imposed harsher penalties and gave an impossible compliance timeframe. One state down and 49 more to go.

I’m not predicting Armageddon here. I’m not suggesting that limiting access to public assistance funds at certain locations isn’t a worthy debate. Legislators and businesses providing EBT services to states serving needy individuals need to be active dialogue on what works best and is most cost-effective. Complying with a patch-quilt of state laws is never easy. There’s a solution out there and it’s not in arbitrary deadlines and stiff penalties.

A Landmark Day in Payments-No, not the Sequester

Mandatory budget cuts, known as the sequester, are scheduled to go into effect later today.  While this is dominating the news, another issue of importance to EFTA members also goes into effect.  Beginning today ALL federal benefit payments will be made electronically, as the government will cease to make benefit payments by check.

In December 2010, Treasury adopted a final rule to gradually end the practice of issuing paper checks for federal benefit payments. In May 2011, all people newly applying for benefits had to opt for either direct deposit or Treasury’s recommended prepaid card (DirectExpress®).  Benefit programs at issue here are: Social Security, Supplemental Security Income, Veterans Affairs, Railroad Retirement, Office of Personnel Management and Department of Labor (Black Lung).

Other important federal benefit programs are not affected directly by the Treasury mandate but have already made great strides in eliminating the issuance of paper checks. These are Supplemental Nutrition Assistance Program (SNAP), formerly known as food stamps (Agriculture Department), Temporary Assistance for Needy Families (TANF) (Health and Human Services) and Unemployment Insurance (Labor).

Treasury has established a website that includes more information on the March 1 deadline.

Returning the issue of sequestration, its impact on the financial services industry and EFTA members ought to be minimal. The Federal Reserve, FDIC and OCC are all exempt from budget cuts. Thus, bank examinations and most rule-making should not be impeded.  

Although the Consumer Financial Protection Bureau (CFPB) receives its funding from the Federal Reserve, according to a February 22 article in The Hill newspaper, the CFPB will face cuts of $34M from its $448M budget. On the program front, SNAP and TANF are exempted from automatic cuts but not the Women, Infant & Children (WIC) program.

Sequestration issues could be addressed in March when Congress addresses the continuing resolution to fund the government through the end of the fiscal year (September 30, 2013). Never a dull moment in our nation’s Capitol.

Handicapping the CFPB in 2013

2013 began with a bang for the Consumer Financial Protection Bureau. In January, the Bureau released several mortgage-related final rules as mandated by the Dodd-Frank Act. The mortgage industry has been in a mad rush to put together webinars to detail ability-to-repay, appraisal reform and high-cost mortgage requirements. It is not an exaggeration to note these mortgage rules consumed much of the Bureau’s bandwidth in its brief existence.

So, just as the Bureau comes up for air, it gets rocked by an somewhat related court case concerning another federal agency, the National Labor Relations Board. How are the two agencies connected by this court case? Let’s hit the rewind button.

It’s no deep Washington secret that current presidents are having a more difficult time getting various federal nominees through the US Senate. It’s also no secret that modern presidents have utilized “recess” appointments more and more (as permitted by the U.S. Constitution). Enter the controversial CFPB and the quest to have the Senate confirm a Director as required by Dodd-Frank. The Bureau existed for almost 18 months without a confirmed Director. Elizabeth Warren ran the CFPB during its incubation period as a special advisor to the President. Having a director in place was important to the Bureau because it would assume certain authority (such as the authority to supervise non-bank entities like debt collectors and credit bureaus) only with a confirmed Director.

It became very apparent to President Obama and others the Senate would not have 60 votes necessary to bring the nomination of Elizabeth Warren to the Floor for a vote. In 2011, President Obama nominated former Ohio Attorney General Rich Cordray to be the CFPB Director. The Senate Banking Committee approved Cordray’s nomination out of committee, but many Republican senators wanted to consider structural changes to the CFPB before moving on Cordray’s nomination. For example, altering the Bureau from control by a single Director to a five-member commission. And making the Bureau subject to annual Congressional appropriations versus receiving its funding from the Federal Reserve. Senate Democrats believe the Bureau is just fine as Dodd-Frank created it, so Cordray’s nomination was at a stalemate in the late stages of 2011.

On January 4, 2012, President Obama rolled the dice. Believing the Senate was in “recess,” the President appointed Cordray as the director of the CFPB. At the same time he made recess appointments of three nominees to the NLRB. The legal community hit an uproar shortly thereafter on both sides of the issue. In April 2012, a Washington state-based company, Noel Canning, was the lead plaintiff in the case against the Administration’s NLRB recess appointments. In January of this year the U.S. Circuit Court of Appeals (DC) unanimously ruled against President’s Obama recess appointments to the NLRB.

The three-judge panel declared the Senate remained in “pro forma” sessions when the appointments occurred and was not technically in recess. The Obama Administration announced its intention to appeal the ruling to the U.S. Supreme Court. The NLRB decision called into question the validity of Richard Cordray’s recess appointment to be the CFPB Director. The Cordray question is being addressed in a separate lawsuit still pending before another court. On January 24, 2013, President Obama announced his decision to re-nominate Cordray as CFPB Director subject to Senate confirmation. Congress will consider legislation again in 2013 to alter the Bureau’s structure (five-member commission as opposed to a single director) and subject the Bureau to annual Congressional appropriations.

So, where does this leave the CFPB in 2013? I doubt the Bureau will be affected much at all in the short term. It will continue on with its examination of banks and non-banks. It will take some high-profile enforcement actions. It will put forth some challenging proposed rules on overdraft protection and general purpose prepaid cards. Even if the district court decides Cordray’s appointment was unconstitutional sometime in 2013, the appeals process could take years. Will the court strike down all the Bureau actions and rules taken while Cordray served as Director? And, what of the fate of Cordray? This is the biggest unknown. Will the Senate confirm him without any changes to the Bureau itself? Does he leave at the end of 2013 as his recess appointment expires and Obama puts forth another nominee?

If you have answers to these questions, go buy a lottery ticket quickly.

Yet another state is moving to block the access and use of TANF benefits. Oklahoma State Sen. Rob Standridge has introduced a bill that mirrors the 2010 federal law that restricts were TANF EBT benefits can be accessed or used. Commonly called welfare or public assistance, TANF is the federal program that provides cash subsidies to eligible families. The bill would also limit where a range of other state cash programs also delivered on the state EBT card could be accessed.

Like the federal legislation the Oklahoma bill would prohibit TANF EBT benefits in liquor stores, casinos and "[a]ny retail establishment which provides adult-oriented entertainment in which performers disrobe or perform in an unclothed state for entertainment." 

Welfare Fraud: Let's Get the Story Right

By now you’ve probably heard or read the news stories about the use of state Electronic Benefits cards in vice locations like liquor stores, gaming halls, and strip clubs. Bill O’Reilly of Fox News, the New York Post the National Review and influential blogger Michelle Malkin have all weighed in on this misuse of taxpayers’ dollars this week.

Let me say from the start, I think it’s reprehensible that an adult would take money intended to help poor children—to provide clothing, shelter and the necessities of life—and use that cash for their own gratification-booze, broads and bingo.

But to read or see the stories this week you would think that 435 Congressmen, not to mention countless staff in multiple executive agencies, the White House, states, contractors and program regulators neither knew nor cared about what was going on. Nothing could be further from the truth.

The Electronic Funds Transfer Association and its eGovernment Payments Council have worked diligently with various government agencies over an extended period of time to solve this problem. Here’s the backstory you didn’t hear from the media this week:

In December 2011 EFTA and eGPC representatives met with the General Accountability Office to define the problem of misuse of welfare funds and talk about what solutions would be practical in solving it.

In January 2012 eGPC launched a survey of the 50 states to determine the extent of the problem and steps that states had taken to resolve it, since states are empowered by law to administer the electronic benefits programs.

In February 2012 eGPC began work on a white paper, Restricting Access to Tanf Funds at Specific Merchant Locations. Tanf is the acronym for the program that distributes cash subsidies to poverty-stricken families.

Also, in February Congress passed, and the president signed, the Middle Class Tax Relief and Job Creation Act.  Section 4004 of that bill specifically made accessing or using Tanf benefits in liquor stores, casinos or strip clubs illegal.

On April 17 of last year EFTA met with regulators from the Department of Health and Human Services, the federal agency in charge of the Tanf program to discuss how DHHS would work with states to enforce the law. Chairing the meeting was Mark Greenburg, Deputy Assistant Secretary for Policy, Administration for Children and Families. ACF is the branch of DHHS responsible for Tanf.

A week later, EFTA hosted a webinar on the issue to explain to explain the new law and what states could do to comply with it. Mr. Greenburg, who would be in charge of regulating states’ compliance with the law, participated in the webinar, a sign that DHHS considered this a serious regulatory matter.

On April 25, 2011 DHHS published a request for public comment on the new law and how states should go about enforcing it.

Two days later eGPC released Restricting Access to TANF Funds at Specific Merchant Locations.

In May, the eGPC conducted another survey of states, this time to gauge exactly the extent of the problem on a state level.

On June 4, 2012 EFTA, on behalf of itself and its eGovernment Payments Council, responded to DHHS’ request for public comment with a 12-page reply. The comment letter included the results of the May survey of states, technical information, and recommendations on how to best enable compliance with Section 4004.

In addition, scores of interested groups, companies and individuals submitted commentary to DHHS on compliance with Section 4004.

Finally, in July of last year the GAO issued its long-awaited report, Tanf Electronic Benefit Cards: Some States Are Restricting Certain TANF Transactions, but Challenges Remain.

Since then DHHS regulators have been engaged in the federal regulatory process: drafting regulations to ensure compliance with the law, reviewing them, putting them out for public comment one last time, and issuing the final regulations. This isn’t bureaucracy. It is part of our system of getting laws enacted and enforced in a fair, transparent and democratic way. I’m sure enactment of laws is faster and easier in Cuba or China.

So images of pole dancing, cheap liquor and slot machine tendonitis  may make for good copy, but they do very little to inform the debate on welfare fraud. And while most sane people want these tax dollars spent the way Congress intended them, stories of Tanf-financed strip trips do nothing to advance that cause.

Next time one of these stories comes up let’s hope the media takes 20 minutes to dig in and find the real backstory.  

Welfare Card Restrictions Redux

An update on the status of implementing restrictions on where and how EBT payment cards used for the federal/state TANF program, known colloquially as welfare, has been posted at the EFTA's eGovernment Payments Council website, www.electronicbenefitstransfer.org, You can access the information there or by clicking this link.

CFPB Update

The 112^th Congress may be winding down, but the Consumer Financial Protection Bureau (CFPB) keeps chugging. Before Congress scurried off home for electioneering in September, CFPB Director Richard Cordray paid a visit to both the Senate Banking Committee and House Financial Services Committee for a biannual update on the Bureau’s activities. House Financial Services Committee Chairman Spencer Bachus (R-AL) even quipped that Director Cordray “made some news” during his appearance on September 20. Yes, it’s news when an Administration official appears before Congress and says something of interest.

The Consumer Financial Protection Bureau is poised to
issue two important proposed rules on overdraft
protection and prepaid cards.

What did Cordray say of interest? At issue is the 2009 CARD Act’s “ability to pay” rule. The Federal Reserve Board had responsibility for the implementing this provision of the CARD Act (the CFPB had not existed at this time). The Board created a uniform standard requiring all consumers to demonstrate “an independent ability to repay.” The Board’s rule took effect October 1, 2011 and almost immediately Congress began asking questions on the rule’s impact on stay-at-home spouses and their ability to obtain credit. Dodd-Frank gave the CFPB rule-making authority over Regulation Z (Truth in Lending). At another House Financial Services Committee hearing during the summer, Gail Hillebrand of the CFPB did not appear very sympathetic to opening up the rule again. But Cordray believe enough evidence had been produced to warrant a new rule that would disadvantage stay-at-home spouses who may ample “household income” to secure credit. CFPB will likely issue the revised rule for public comment later this year or early 2013.

Senate and House leaders also expressed concerns with CFPB’s final rule on international remittance transfers (Sec. 1073 of Dodd-Frank). Several House members wrote Cordray in August asking for a delay in the effective date (February 2013) while the CFPB studies its impact on consumers. The CFPB’s rule on international remittance transfers required several disclosures to be made to consumers including exchange rates and fees charged by other entities and taxes to be charged by foreign governments. The only relief CFPB has given to exempt those financial institutions providing less than 100 remittances annually from the new disclosure rules. I do not expect this will be the last we hear of this issue. How far will consumer choice be limited as institutions exit the business because compliance requirements are not financially viable? Stay tuned.

Looking ahead to 2013, the CFPB is poised to issue two important proposed rules on overdraft protection and prepaid cards. EFTA has provided comment to the Bureau on both subjects in 2012 as part of an Advanced Notice of Proposed Rule-Making. Gov. Mitt Romney also called out the Bureau for slow progress on issuing rules on qualified mortgages. Expect some busy beavers in the hallways and offices of the CFPB in the weeks and months ahead.

Choppy Waters Ahead for Interchange

October 1 marked the one-year anniversary of the Durbin Amendment’s limitation on the amount large financial institutions ($10 billion or greater in assets) can collect in interchange (24 cents) for debit card transactions. Government agencies and industry typically wait several years for an important regulation to sort itself out in the marketplace. But, there’s nothing typical about the Durbin Amendment and one really needs a scorecard to understand who’s on first and what’s on second.

This week, retailers and merchants argued in DC federal court that the Federal Reserve Board’s final rule implementing the Durbin Amendment completely missed Congressional intent. The Durbin Amendment instructed the FRB to set debit interchange rates at par with the cost of clearing an electronic check and that it be “reasonable and proportional” to cost of processing the transaction. The FRB initially proposed to the set the rate at seven cents. But, after a public comment period, the Board settled on 21 cents with an ad valorem and fraud adjustment (effectively 24 cents). Thus, the merchants and retailers want the Board to start anew. In the past, courts have been reluctant to take this type of action under the Administrative Procedures Act. It is difficult to predict when the court will issue a ruling. And, expect the losing party to appeal.

Meantime, in New York, retailers and merchants are throwing cold water on a $7.5 billion proposed settlement with Visa and MasterCard on credit card interchange. The proposed settlement was agreed to in July and must be blessed by a judge before taking effect. Even Senator Durbin took the Senate Floor to suggest the proposed settlement was a grand give-away to the Visa, MasterCard and the banks. The proposed settlement would allow merchants to “surcharge” customers using credit cards as well as temporarily reducing interchange rates. Durbin, the American Bankers Association and the Retail Industry Leaders Association all traded letters to excoriate one another. It’s getting both nasty and personal.

Back in Washington, retailers are boasting in the press that Congress is ready to take on credit card interchange reform. The financial services community isn’t so sure given the bruising battle over the original Durbin Amendment in 2010 and the effort to repeal it in 2011 (unsuccessful obviously). Will Congress ever touch credit card interchange? Check back with me after the November elections.

As long as Dick Durbin remains a US Senator and as long as debit and credit card interchange rates remain above zero, the financial services industry needs to be vigilant on Capitol Hill and the media about the value of  electronic funds transfer (safe, secure and fast). And, EFT networks require investments to maintain and grow. 

Examining Social Security's Electronic Payment Program

The Subcommittee on Social Security of the House Ways and Means Committee scheduled a hearing on Wednesday, Sept. 12 to take a look at the impact on Social Security payees of direct deposit of benefits. Among the topics on the table were exemptions from the mandatory electronic payment requirement and the fraud experience following the electronic payment mandate. The scheduled witness list was short and included Margot Saunders of the National Consumer Law Center and representatives of the Social Security Administration.

Before we look into the issues before the Subcommittee, a little history is in order. In 1996 Congress passed the Debt Collection Improvement Act. The DCIA required all federal payments, including Social Security benefits, to be made through electronic funds transfer (EFT) beginning in January 1999.  The law gave broad authority to the Treasury Dept. to grant so-called hardship waivers that would allow Social Security payees to continue receiving checks rather than electronic payments. That ultimately proved the law’s undoing.

To implement the law, Treasury  launched a program dubbed “EFT99.” The goal of the program was to meet the mandate of the DCIA to convert Social Security and other benefit programs to electronic payment by 1999. To do this Treasury contracted with a number of financial institutions to issue EFT99 debit cards that Social Security payees without a deposit account could obtain at a participating financial institution in order to access their benefits.

But perhaps EFT99 was a little too far in front of the electronic payment tsunami we’ve seen over the last decade. In 1999, shortly before the deadline for converting to electronic payments, Congress bowed to pressure on the mandatory nature of the program. As a result Treasury then instituted a program of self-certifying exemptions from the electronic payment requirement.  In effect, the “mandatory” program became an opt-in, rather than an opt-out, program. Banks that had expressed an interest in participating in EFT99 folded their cards and left the table. The opt-in program left them no way to evaluate the risk or the rewards of participating in the government’s program.  Social Security beneficiaries who wanted to participate had limited access to banks that would issue the EFT99 cards. The program foundered, despite Treasury’s game attempts to save it through advertising and outreach to payees.

In 2001 the Government Accountability Office flatly observed that no amount of effort could make the program effective. Treasury pulled the plug.

I bring up EFT99 as a cautionary tale of what happens when legislators or regulators bend to the will of parochial interests at the expense of the public at large. In 2005 Treasury attempted a reset of electronic payment of social security with the launch of the “Direct Express” campaign targeted once again at Social Security payees to emphasize the benefits of electronic payment.  In 2008 Treasury launched the Direct Express® Debit MasterCard. Following the successful example of state electronic benefits transfer projects, Treasury contracted with one bank to handle the program. However, issuers of private label prepaid cards can participate in the program, as long as those card programs meet Treasury’s standards.

Direct Express is a reloadable, debit card that allows payees to receive their Social Security allotments on an electronic card, even if they don’t have a bank account.  Payees can use the card wherever its brand is accepted. They can also get cash at ATMs or by requesting cash back when they make a purchase with the card. 

After 16 years of trying, the Direct Express card program has allowed the federal government to finally reduce the government’s cost of check processing, estimated to be $125 million, according to Saunders’ written testimony. But success always has its skeptics.  Critics have blasted the program for its hard-nose approach to minimizing the remaining number of check payments, for allowing debit card providers other than the contracted bank into the program, and for allegations of fraud and theft of payees’ identities.

In her prepared testimony Saunders generally praised the Go Direct program for its “laudable goal of saving money, saving trees and improving the security of the delivery of federal benefits.” However, she testified that the program needs “an articulated waiver procedure” for those payees for whom electronic payment won’t work. This could be because of a disability or geography. In fact, previous posts to this column have explained the hardships that the Department of Health and Human Services’ new restrictions on TANF EBT transactions might cause in some geographic areas.

When Treasury’s final regulations become effective next year only payees 92 years old and older and those who live in areas where electronic payment infrastructure is not convenient will be allowed to continue receiving paper checks. I don’t have any problem with those parameters. Frankly, I think there are a lot of people who are 70 years short of their ninety-second birthday who should probably think twice about having a debit card. But Saunders raises another interesting issue: the cumbersome, bureaucratic procedures for requesting a waiver.

Her testimony outlined the waiver process: Call and have a chat with a customer service rep. Then articulate exactly why you need a waiver. Then, once in hand, fill out the form. Take the completed form and find a notary to stamp it. Then mail it off to the Social Security Administration. Then wait. 

It’s not beyond possibility that a ninety-something year-old payee might get a waiver out of this world before she gets a waiver out of the Direct Express program.

There is a line between an efficient program and a bureaucratic one. And that line isn’t real fine. In fact, it’s pretty easy to see. I could never support any changes to the Direct Express program that results in another EFT99 opt-in fiasco. But Direct Express is hardly the camel’s nose under the tent flap. And it is nothing like EFT99. It is a well-conceived, well executed card program. Having a reasonable, well-articulated exception policy and an efficient adjudication process for waiver requests seems reasonable, provided it does not impact the objectives or ROI of the program.  

If the waiver process somehow starts reminding observers of EFT99, Treasury can always tighten ratchet down on requirements. It is Social Security and the churn in the program is not unsubstantial.

That’s my take. What’s yours?

The Boys are Back in Town

After a five week recess, two party conventions and a nasty Gulf hurricane, Congress is back in session on September 10. How long will they stick around? What can they do before taking off to campaign back home? [Quick fact: The boys may be back in town, but women currently constitute 17% of the 112^th Congress. Apologies to Thin Lizzy.]

At most, Congress will be in session three weeks with a scheduled adjournment date of October 5. The only “must do” agenda item is to pass a measure to fund the government when the new fiscal year begins October 1. At this writing, no individual appropriations bills have been sent to the President’s desk for signature into law. No one is even sure if a lame duck Congress can agree on 2013 spending levels. The budget can could be kicked into early 2013 and a new Congress. It’s happened before in recent years. The only positive news here is that the House and Senate agreed to the temporary funding measure back in July.

When we last saw the Senate in session, no agreement could be reached to move forward on comprehensive cyber-security legislation. News reports popped up periodically in August that some Senators believed a deal could be reached in September. Count me in the doubtful column. We do know, however, the Obama Administration is actively considering either a revised Homeland Security Presidential Directive 7 or an entirely new executive order on cyber-security. PaymenTrends will keep close tabs on all things cyber. We should also bear in mind that Congress may be in and out of session with a blink of an eye, but federal agencies such as the Consumer Financial Protection Bureau remain open for business. CFPB is currently digesting public comments on overdraft protection and prepaid cards (just to name two).

I do want to give a “shout out” to one piece of legislation that has passed the House of Representatives 371-0 and that has more than 60 Senate cosponsors. This legislation (H.R. 4367/S. 3204) would eliminate the requirement that an ATM need a physical placard fee notice to accompany the on-screen fee notice to a consumer. This is one issue where Republicans and Democrats have united behind common-sense legislation to eliminate a burdensome and unnecessary regulation. The Senate needs to act on S. 3204 before leaving for home in October.

EFTA’s Legislative & Regulatory Council will be tackling all these issues (CFPB, ATM signage, overdraft protection, cyber-security) this September 27 in Washington DC. Speakers include Stuart Pratt, President & CEO of the Consumer Data Industry Association, Nicole Muryn, director of regulatory and legislative affairs for BITS and Catherine Galicia, counsel to Chairman Tim Johnson of the Senate Banking Committee.

Federal Reserve Final Rule on Durbin Amendment (Reg II) Fraud-Adjustment

Last week, the Federal Reserve Board (Board) published the final rule on fraud-prevention cost adjustments allowed under Regulation II (the Durbin Amendment). As you may recall, the Board’s Durbin Amendment final rule issued last July allowed for a provisional, one cent fraud-prevention adjustment in addition to the 21 cent and ad valorem rates. The Board asked for additional information and comments on fraud-prevention standards in the marketplace and suggested it may increase the adjustment depending on the data received.

The Board’s final rule that takes effect October 1, did not change the one cent fraud-prevention adjustment standard. The final rule requires an issuer to develop policies and procedures reasonably designed to detect fraud in order to receive the fraud-prevention adjustment. Required elements of these policies and procedures should include:

• Identify and prevent fraudulent electronic debit transactions

• Monitor the incidence of, reimbursements received for, and losses incurred from fraudulent electronic debit transactions

• Respond appropriately to suspicious electronic debit transactions so as to limit the fraud losses that may occur and prevent the occurrence of future fraudulent electronic debit transactions

• Secure debit card and cardholder data

Issuers must inform its payment card networks annually of its fraud-prevention compliance program in order to receive the one cent adjustment under Reg II.

I will provide additional thoughts on the Board’s final rule during the next Legislative & Regulatory call on Wednesday, August 8 at 2 p.m. EDT.

GAO Weighs in on Congressional Effort to Block Use of Welfare in "Sin" Locations

As followers of PaymentTrends and its sister blog, The Wall, on the website of the eGovernment Payments Council know, EFTA and eGPC have been very active in working with states, transaction processors, the Department of Health and Human Services and the Government Accountability Office on the issue of restricting access and use of TANF, commonly called welfare, payments at businesses inconsistent with the mission of the TANF program.

In its Middle Class Tax Relief and Jobs Creation Act earlier this year, Congress restricted the use of TANF payments, prohibiting their access or use in liquor stores, casinos or adult-entertainment establishments. The GAO launched a study back in December 2011 of the issue. Recently the Office released the results of its study. You can find those results and corresponding analysis over on our sister blog, The Wall, part of the eGPC's website www.electronicbenefitstransfer.org.

House to Debate Bill Modernizing ATM Signage Requirements

On Wednesday, June 27, the House Financial Services Committee is scheduled to consider H.R. 4367 which seeks to eliminate Regulation E’s current dual fee notification requirement. If this bill becomes law this year, consumers will not be impacted. Any individual wishing to draw cash at an ATM or inquire on his or her balance will receive the required fee notice on the screen. And, he or she must affirmatively acknowledge the fee before the transaction can be executed.

Prospects for the committee approving H.R. 4367 on Wednesday are strong. The House bill currently has 120 cosponsors including more than half the Financial Services Committee. The Senate companion bill (S. 3204) has 16 cosponsors. The House and Senate bills are enjoying strong, bipartisan support. If the Committee approves H.R. 4367 on Wednesday, it moves to the full House for consideration (mostly likely in July).

In recent years, ATM owners and operators have been beset by a spate of lawsuits from plaintiff attorneys alleging Reg E violations. In many of these cases, unscrupulous individuals are physically removing (vandalizing if you will) the ATM stickers and forwarding photos to these attorneys. Many ATM operators  deploy small fleets of ATMs and face the option of costly litigation or settlement (not a good option either way for small business in America).

Please come back next week for a status on the Committee’s consideration of H.R. 4367 is its next steps along the legislative process.

May Legislative Roundup

There are a wide variety of legislative and regulatory initiatives in which EFTA is involved this spring. These include a movement to change the Electronic Funds Transfer Act to eliminate the requirement that usage fees be posted on the outside of an ATM. This is a vestigial requirement that has outlived its usefulness as modern ATM technology permits a much more detailed, convenient notice on the ATM screen itself as part of an ATM transaction.

Also on the EFTA legislative and regulatory calendar are regulations governing the restrictions on the use of TANF benefits at liquor stores, casinos and adult-oriented entertainment clubs, cybersecurity and overdraft protection.

In an informal interview Kurt Helwig, EFTA CEO, and Dennis Ambach, the organization's senior director for government relations, discuss prospects and strategies for these issues.

We pick up the interview with a discussion about pending legislation in the Senate and House (S. 3204 and H.R. 4367) that would eliminate the dual ATM notice requirement. Can the bills, now under consideration, become law?

Coming to Grips with Overdraft Protection

The Electronic Funds Transfer Association has put together a task force of industry veterans to tackle the tough issue of overdraft protection. The task force's mission is to focus on the legal and operational issues of extending overdraft protection.

In a quick, three-minute video, Kurt Helwig, president and CEO of EFTA talks about the issue.

Spring Legislative Calendar for the Electronic Payments Industry

Dennis Ambach is the senior director for government relations for the Electronic Funds Transfer Association. On a recent visit to Capitol Hill he talked about pending legislative issues of importance to the electronic payments industry.

Time's Running Out to Comment on the Impact of Overdraft Protection

June’s end also marks the end of the Consumer Financial Protection Bureau’s extended comment period on the impacts of overdraft programs on consumers. What’s CFPB’s end game here? Will ATMs and point-of-sale (POS) devices need to deliver a real-time “insufficient funds” warning to consumers before a transaction causing an overdraft takes place?

The CFPB’s notice for comment on overdraft is fairly sweeping in scope. Questions range from quantifying overdraft opt-in rates, the economics of overdraft programs and long-term impacts to consumers. Of particular concern to EFTA members are questions related to consumer alerts and balance information. EFTA membership hits all the touch points of a shared network transaction: the bank, the processor, the network switch, card processor and host processor. If the CFPB were ever to require some type of overdraft notification at an ATM or POS, EFTA members would be in ground zero for compliance.

But, let’s not get too ahead of ourselves here. EFTA will provide the CFPB with comments before the June 29 deadline. Though not finalized, EFTA will emphasize three main points in the comment letter:

·       Most POS devices at retail stores or gas pumps currently lack the ability to deliver any meaningful message to the consumer with respect to a possible overdraft occurrence

·       ATMs are a bit more sophisticated than POS terminals but, again, delivering an overdraft notice message in a shared network transactions (versus on us) is challenging

·       A greater burden will be placed on community and independent banks versus the larger institutions

Once the comment period closes on June 29, the CFPB will take several weeks (probably months) to read over and formulate a proposed rule on overdraft protection. At this writing, the CFPB has received more 235 comments (see them here at regulations.gov). EFTA’s final comment letter will be posted soon.

Restricting Access to TANF Benefits

EFTA and its eGovernment Payments Council have provided their comments to the Department of Health and Human Services on the agency's impending rules for restricting access to TANF benefits. To see the EFTA/eGPC comment letter, click here.

eGPC has spent a great deal of time over the last six months on this issue. This included two nationwide surveys, a white paper, and a webinar. Our goal has been to inform the rules-making process so that the rules developed by DHHS actually accomplish the goals of the legislation in such a way that the administration of public funds for eligible households is not adversely affected.

Our fear has been that without a firm understanding of the problem and how public benefits are administered any resulting restrictions on TANF use may be only sporadically effective and could be discriminatory against TANF participants who play by the rules. Compliance with the Section 4004 requirements, as they're called, could also sap valuable resources from the administration of public aid in many states.

We believe that the most effective way to achieve the goals of the Middle Class Tax Relieve and Job Creation Act (Section 4004) is to give states maximum flexibility in developing and managing their own plans that work best for their states and their program participants This is definitely not a situation where one size fits all.

That's how we see it. Check out our comments and let us know if you agree.

LinkedIn, eHarmony and the Politics of Cybersecurity

Another week, another major data breach hit the airwaves. The most recent causality was LinkedIn. Six million passwords were reportedly hacked. Internet dating Web site, eHarmony, also reported hacked passwords posted online.

Rest assured whenever a major data breach is reported, a slew of Senators and Representatives fire off press releases [old school] and tweets [new school] arguing for their data security bill. In reality, data security has taken a back seat to its bigger and more ominous brother, cybersecurity. For companies in the financial services space, good data security is already the law (Gramm-Leach-Bliley’s Safeguards Rule and more than 45 state data breach notification laws).

As a reminder, the following is a roster of data security bills reported by the Senate Judiciary Committee last September:

·       S. 1151, the Personal Data Privacy and Security Act, sponsored by the Committee Chairman Pat Leahy (D-VT).

·       S. 1535, the Personal Data Protection and Breach Accountability Act of 2011, sponsored by Sen. Richard Blumenthal (D-CT)

·       S. 1408, the Data Breach Notification Act, sponsored by Sen. Diane Feinstein (D-CA)

All three bills would require companies to implement data security programs to protect sensitive personal information as well as setting a national standard for breach notification. S. 1151 and S. 1535 provide for criminal penalties for failing to notify individuals of a data breach. S. 1535 allows for private rights of action against companies failing to notify of a data breach. The Senate Commerce Committee continues to discuss its data security and breach notification bill (S. 1207). On the House side, the Energy and Commerce Committee has yet to schedule a markup and vote on H.R. 2577, the SAFE Data Act authored by Rep. Mary Bono Mack (R-CA). Her subcommittee approved H.R. 2577 in July but negotiations continue on the preemption, data minimization and liability provisions in the bill. It is uncertain whether the full Committee will markup H.R. 2577 this summer.

Even in an active Congress, passing cybersecurity, data security or privacy legislation would all be a tall order. Consensus just does not exist on whether more regulation will be of any benefit. Meantime, companies (especially in financial services and payments) spend great resources (human and capital) to stay one step ahead of the fraudsters, hackers and government officials wanting to punish companies for lax data security.