Key Takeaways from ACI Emerging Payments Conference
Last month, Baird Holm co-sponsored the ACI Emerging Payments Conference in Chicago, where issues like the rollout of EMV cards, advances in tokenization technology and changes to regulations governing prepaid cards were top of mind.
Jonathan Wegner, joined by three other attorneys specializing in prepaid matters, delivered a presentation detailing changes to Regulations E and Z proposed by the Consumer Financial Protection Bureau that extend those rules related to a much broader array of prepaid products. Under the proposed rules, prepaid cards, codes and other devices that access a prepaid account would be expressly required to provide error resolution rights, periodic statements, and initial and annual disclosures as well as online transaction histories. Furthermore, the rule would require prepaid accounts to provide multiple layers of disclosures in standardize formats, a first for deposit products generally in what may be a harbinger of things to come from the Bureau for other consumer banking products.
The panel highlighted the breath and scope of the proposed prepaid rule, which defines the term “prepaid account” to cover not only general purpose reloadable cards but also certain non-reloadable products that do not qualify for the express exemptions established by the 2009 CARD Act (e.g., loyalty cards, gift cards, etc.). Most concerning, the proposed rule would treat any account that offers overdraft protection services as a credit card, which would require issuers of such products to provide not only the multiple layers of disclosure mandated for prepaid cards, but also disclosures required for credit cards under Regulation Z, such as the standard “Schumer Box” and other customary credit card account opening disclosures.
The proposed rule also places significant restrictions on the ability of issues that would offer overdraft protection services by mandating that credit features cannot be offered until thirty (30) days after account registration, prohibiting direct debit of overdrafted amounts and fees unless agreed to in writing by the customer, and other requirements that contravene the historical operation of overdraft protection services. In short, the proposed rule would regulate overdraft services in such a manner as to make the product unsustainable in the marketplace.
In addition to prepaid matters, the conference also focused on emerging BSA/AML compliance risks and best practices being adopted by emerging payment product providers. A panel focusing on functionality of Apple Pay products focused on questions that are arising in the industry with respect to whether Apple qualifies as a banking service provider or technology company for purposes of regulation of their payment services. The lack of clarity with respect to the nature of Apple’s service creates ambiguity as to the level of oversight and supervision banks partnering with Apple must undertake when offering Apple products to their customers, and there does not appear to be a clear consensus as of yet among regulators as to the legal status of Apple’s products.
Another panel discussing money transmission licensing issues focused on the shifting trends in regulatory enforcement by state regulators. The panel noted that traditional exemptions relied upon by financial technology companies, such as the “authorized delegate” and “agent of the payee” models, are being more closely scrutinized by stated regulators. The panel noted that these changes impact both startup companies, for which licensing is both expensive to undertake and difficult to maintain, and banks that work with startup companies with innovative financial technologies.