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Credit Unions, Small Banks Encourage Fed Payments System Operational Role
On April 18, three industry organizations representing community banks and credit unions—the Credit Union National Association (CUNA), the Independent Community Bankers of America (ICBA), and the National Association of Federally-Insured Credit Unions (NAFCU)—sent a letter urging the Federal Reserve System (Fed) to provide central bank settlement services in support of private sector development of future payment systems, rules, and standards. The letter also urges the Fed to take on three operational roles in addition to settlement capabilities: (i) to serve as an “on-ramp” to real-time payments; (ii) to serve as a real-time payments operator, much as it currently is an operator for checks, automated clearinghouse payments, and wire transfers; and (iii) to maintain a “payments directory” that would link together financial institutions and private-sector payments directories. The organizations argue, among other things, that the Fed’s commitment to these operational roles is critically important to achieving the “much-needed goals of safety, equitable access, and ubiquity” in developing an improved payments system. The letter emphasizes that the organizations are not requesting that the Fed develop rules or standards for real-time payments, but rather take the position that such efforts “should be left for private sector rules and standards organizations.”
As previously covered by InfoBytes, the Fed created the Faster Payments Task Force and the Secure Payments Task Force in June 2015 to lead industry efforts toward a speedier and better payments system. The CFPB also issued a set of guiding principles aimed to help private industry better protect consumers as new, faster electronic payment systems continue to emerge. (See InfoBytes coverage) The April 18 letter “applaud[s] the formation of both [Task Forces]” and “strongly encourage[s] the ongoing commitment of the [Fed] to lead and catalyze payments industry activities until the desired outcomes stated in the 2015 Strategies for Improving the U.S. Payments System paper are achieved.”
GAO Publishes Study Examining Fintech Industry Regulation
On April 19, the U.S. Government Accountability Office (GAO) published a study examining four “subsectors” within the fintech industry—marketplace lenders, mobile payments, digital wealth management platforms, and distributed ledger technology (also known as blockchain)—and highlighting the types of products and services offered and how they are regulated. The report, Financial Technology – Information on Subsectors and Regulatory Oversight, is the first in a series of planned reports on fintech, following a request by Congress for a review of issues related to the industry. From July 2016 to April 2017, GAO reviewed agency publications, guidance, final rulemakings, initiatives, and enforcement actions, and also conducted interviews with representatives from the federal prudential regulators, state supervision agencies, and trade associations in order to compile the findings in the report. The report provides an overview of the technologies associated with each subsector, identifies primary users of the products and services, notes potential benefits and risks, and highlights industry trends and current regulations and oversight. Notably, GAO stated it made no recommendations in this report.
Arizona Enacts Laws Providing for Legal Recognition of Certain Electronic Signatures and Other Records
Last month, Arizona Governor Doug Ducey signed into law two pieces of legislation (S.B. 1084 and S.B. 1078), which formally grant legal recognition of electronic records and signatures under state law. Specifically, the new laws—each of which were passed unanimously by both houses of the Arizona legislature—formally acknowledge the legality of certain electronic records and signatures for the purpose of “satisfy[ing] any law that requires a record to be in writing or to be retained or both.” S.B. 1084 further details the requirements that must be satisfied when creating, sending, and accepting electronic signatures or records in order to qualify for legal recognition under the new law. As previously reported in InfoBytes, Arizona also recently enacted H.B. 2417, which recognized blockchain signatures and smart contracts under state law.
OCC's Office of Innovation Announces Dates of “Office Hours,” Accepting Meeting Requests
On April 10, the OCC’s Office of Innovation announced that May 16 and 17, 2017, will be the dates of its first “Office Hours” in San Francisco, California. “Office Hours” offers fifteen one-hour meetings with the OCC’s Acting Chief Innovation Officer Beth Knickerbocker along with other OCC experts, and will provide an opportunity for attendees to discuss matters relating to financial technology, new products and services, bank or FinTech partnerships, as well as other items related to financial innovation. Meeting requests may be submitted here and are due by April 25, 2017.
NYDFS Authorizes Coinbase to Offer Trading of Digital Currencies in New York
On March 22, the New York State Department of Financial Services (NYDFS) announced the approval of Coinbase, Inc.’s application to offer Ether and Litecoin to New York customers. “Ether” is a “digital cryptography-based asset” of the Ethereum network, “similar to how bitcoin is the digital cryptography-based asset of the Bitcoin network.” Litecoin, developed as a modification of the Bitcoin protocol, is the first alternative virtual currency to Bitcoin to gain public acceptance. NYDFS also approved Coinbase’s linked debit card service “Shift Card”—a VISA debit card that allows Coinbase users in select U.S. states and territories to use Bitcoin anywhere VISA is accepted. As discussed in a previous InfoBytes post, NYDFS recently issued a virtual currency and money transmitter license to Coinbase, which permits the company to operate as a service for buying, selling, sending, receiving, and storing Bitcoin. Financial Services Superintendent Maria T. Vullo noted, “DFS has proven that the state regulatory system is the best way to supervise and cultivate a thriving fintech industry, like virtual currency. New York will remain steadfast in pushing back against federal encroachment efforts like the OCC’s proposal to impose a one-size-fits-all national bank charter that increases risk and seeks to usurp state sovereignty.”
Virtual Currency Added to Utah’s Unclaimed Property Act
In March, Utah passed SB 175 amending its Unclaimed Property Act. Among the changes incorporated through the new law was the expansion of the law’s coverage to include “virtual currency”—a term the law defines as “a digital representation of value used as a medium of exchange, unit of account, or store of value, which does not have legal tender status recognized by the United States.” Notably, this definition explicitly excludes “(i) the software or protocols governing the transfer of the digital representation of value; (ii) game-related digital content; (iii) a loyalty card; (iv) membership rewards” and “(v) a gift card.” Virtual currency subject to Utah law must be turned over to the state’s treasury after it has been “presumed abandoned” for a prescribed period of time. The law contains a detailed test for when property has been presumed abandoned, when the clock starts ticking, and under what circumstances that clock may be paused and/or reset. In a March 15 press release, Utah Treasurer David Damschen, “applauded the final passage of SB 175,” but also explained that “there are certain changes in the law related to properties held by the banking and insurance industries that we may still have to make,” including, for example “certain prepaid debit card account balances.”
New York AG Announces Settlements with Three Mobile Health Application Developers over Misleading Marketing Practices and Privacy Policies
On March 23, the New York Attorney General’s (NYAG) office announced settlements with U.S.-, Austria-, and Israel-based mobile application (app) developers who allegedly participated in misleading marketing practices and the mismanagement of consumer information—both of which are violations of New York Executive, Education, and General Business Laws. Two of the three developers claimed their health-related apps accurately measured heart rates, and a third allegedly claimed its app would measure a fetal heartbeat. However, all three failed to test the apps for accuracy, conduct comparisons to other approved products, or obtain approval by the U.S. Food and Drug Administration. The developers have agreed to provide additional testing information, will correct misleading advertisements, obtain affirmative consent from consumers for developers’ privacy policies, and will pay $30,000 in combined penalties to the NYAG’s office. Furthermore, all three developers have also made changes to their privacy policies and disclose the collecting and sharing of information that “may be personally identifying” including “users’ GPS location, unique device identifier, and ‘deidentified’ data that third parties may be able to use to reidentify specific users.”
Arizona Governor Signs Blockchain Records Bill
On March 29, Arizona Governor Doug Ducey signed H.B. 2417, which recognizes blockchain signatures and smart contracts under state law. H.B. 2417 amends Title 44, Chapter 26, of the Arizona Revised Statutes, and defines “blockchain technology” as “distributed ledger technology . . . protected with cryptography . . . [that] provides an uncensored truth.” The amendment, cleared by the Senate in a 28-1 vote on March 23, addresses signatures and records and states “a signature that is secured through blockchain technology is considered to be in an electronic form and to be an electronic signature.” Furthermore, the amendment also discusses the legality and enforceability of a smart contract, defined by the bill as an “event-driven program, with state, that runs on a distributed, decentralized, shared and replicated ledger . . . that can take custody over and instruct transfer of assets on that ledger.” Smart contracts, therefore, “may exist in commerce . . . and may not be denied legal effect, validity or enforceability,” thus presenting a new option of delivering information via blockchain.
FTC Releases 2016 Annual Highlights
On March 28, the FTC released its 2016 Annual Highlights Report, which outlines the agency’s ongoing efforts over the past year to protect consumers and promote competition. Acting Chairman Maureen K. Olhausen stated, “2016 was a historic year for the FTC. We obtained almost $12 billion in redress for consumers, and took action in more than a dozen merger cases to preserve competition.” Key highlights in four sections—enforcement, policy, education, and stats and data—covered multiple sectors such as health care, technology, and other consumer products and services. Regarding enforcement highlights in 2016, the report covered a range of administrative and court actions related to, among other things, privacy and data security issues, particularly in the mobile marketplace, as well as the Commission’s largest false advertising settlement in its history with a global auto manufacturer. The policy section of the report highlights eight amicus briefs filed on topics such as reverse payments and the FDCPA, as well as its efforts to provide guidance and recommendations on topics such as sharing economy platforms, big data, and fraud. The education section covers topics such as consumer guidance on fraud, scams, and deceptive business practices prevention, and notes that it published almost 200 blog posts for consumers. Notably, according to the stats and data section of the report, the FTC received more than three million consumer complaints in 2016, consisting of 858,090 debt collection complaints, 503,967 “other” complaints, and 406,578 imposter scam complaints.
Treasury Renews Unchanged Information Collection on Designation of Financial Market Utilities; Seeks Public Comment
On March 28, the Treasury Department issued a request for comment on its plan to renew an information collection, without change, on the designation of Financial Market Utilities (FMUs) as systemically important financial institutions. According to the Treasury’s notice, the information will be used by the Financial Stability Oversight Council (FSOC) to “determine whether to designate or rescind the designation of an FMU under Title VIII” of the Dodd-Frank Act. The request for comment allows FMUs to submit written materials to the FSOC before the Council makes a designation decision and also permits an FMU to request a hearing or submit materials to contest the FSOC’s proposed determination. Comments on the information collection must be received by April 27, 2017 as instructed on the notice’s publication in the Federal Register.