CFPB Finalizes Rule on Federal Oversight of Popular Digital Payment Apps to Protect Personal Data, Reduce Fraud, and Stop Illegal “Debanking”
The Consumer Financial Protection Bureau (CFPB) today finalized a rule to supervise the largest nonbank companies offering digital funds transfer and payment wallet apps. The rule will help the CFPB to ensure that these companies – specifically those handling more than 50 million transactions per year – follow federal law just like large banks, credit unions, and other financial institutions already supervised by the CFPB. The CFPB estimates that the most widely used apps covered by the rule collectively process over 13 billion consumer payment transactions annually.
While banks and credit unions offering consumer payment services are subject to CFPB supervisory examinations, many of these very large technology firms handling billions of transactions are not. The CFPB has closely observed developments in this emerging market, including by monitoring consumer complaints and launching an inquiry into Big Tech and peer-to-peer platforms offering popular payment apps. The final rule will enable to the CFPB to supervise companies in key areas including:
- Privacy and Surveillance: Large technology companies are collecting vast quantities of data about an individual’s transactions. Federal law allows consumers to opt-out of certain data collection and sharing practices, and also prohibits misrepresentations about data protection practices.
- Errors and Fraud: Under longstanding federal law, consumers have the right to dispute transactions that are incorrect or fraudulent, and financial institutions must take steps to look into them. The CFPB is particularly concerned about how digital payment apps can be used to defraud older adults and active duty servicemembers. Some popular payment apps appear to design their systems to shift disputes to banks, credit unions, and credit card companies, rather than managing them on their own.
- Debanking: Given the volume of payments consumers make through many popular payment apps, consumers can face serious harms when they lose access to their app without notice or when their ability to make or receive payments is disrupted. Consumers have reported concerns to the CFPB about disruptions to their lives due to closures or freezes.
In the final rule, the CFPB made several significant changes from its initial proposal. The transaction threshold determining which companies require supervision is now substantially higher, at 50 million annual transactions. Given the evolving market for digital currencies, the CFPB also limited the rule’s scope to count only transactions conducted in U.S. dollars.
CFPB Supervision has also created a supervision technology program which assesses, among other things, technology and technology controls and its impact on compliance with Federal consumer financial law.
Today’s final rule is the sixth rulemaking by the CFPB to define larger participants operating in markets for consumer financial products and services. The first five rules covered larger participants in consumer reporting, consumer debt collection, student loan servicing, international money transfers, and automobile financing.
The rule will be effective 30 days after publication in the Federal Register. Read the final rule.
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CFPB Finalizes Rule on Federal Oversight of Popular Digital Payment Apps to Protect Personal Data, Reduce Fraud, and Stop Illegal “Debanking”
The Consumer Financial Protection Bureau (CFPB) today released the annual report of the CFPB Student Loan Ombudsman, highlighting the severe difficulties reported by student borrowers due to persistent loan servicing failures and program disruptions. The report details how millions of student borrowers have received relief through new income-driven repayment plans, cancellation programs, and various adjustments and program automation processes. However, borrowers tell the CFPB how servicing breakdowns, including inaccurate information provided by servicers, improperly processed payments, and delayed income driven payment applications have stymied their return to repayment.
Today’s report focuses on the 2023-2024 Award Year (July 1, 2023 – June 30, 2024) and analyzes more than 18,000 student borrower complaints—the highest complaint volume the CFPB has received since it began collecting student borrower complaints in March 2012. Many of the servicer failures detailed in these complaints are persistent problems that have been well-documented by the CFPB, including errors with billing and auto pay, servicers providing incorrect information about accounts and repayment options, and months-long delays in the processing of income-driven repayment applications.
During the past year, 28 million federal student loan borrowers returned to repayment following the end of the COVID-19 payment pause. To assist struggling borrowers, the Department of Education implemented reforms resulting in billions of dollars in loan cancellation for almost 5 million borrowers and restored eligibility for 3 million formerly defaulted borrowers. However, servicing failures and legal challenges have hampered the implementation of critical loan relief efforts, including the Saving on a Valuable Education (SAVE) plan. Today’s report details challenges facing student borrowers, including:
- Servicer failures are causing borrowers to pay inflated amounts that jeopardize their financial well-being: Borrowers described problems with billing, including inaccurate or late statements; errors with auto pay, including thousands of dollars incorrectly debited from accounts; and payments that were not properly applied to their balances. They also said servicers failed to give accurate guidance about income-driven repayment plans and imposed costly delays in processing refunds and applications for loan relief. For example, borrowers reported delays of nine months or more in receiving large refunds of up to $60,000. Among the dozens of individual consumer disputes highlighted in the report, there was an average of more than $14,000 disputed per borrower. These servicing issues are resulting in borrowers having difficulty meeting their other financial obligations like rent and car payments, being shut out of mortgages and homeownership, and forgoing saving for retirement, among other financial difficulties.
- Legal challenges to the SAVE program are delaying loan relief: Because of ongoing litigation, enrollment in and implementation of SAVE is on hold. The eight million borrowers already enrolled in SAVE are no longer able to make payments, enroll in most other income-driven repayment plans, or gain credit towards cancellation while the litigation is ongoing. The hundreds of thousands of additional borrowers waiting to enroll in income-driven repayment plans are similarly left with few options.
- Customer service “doom loops” and inaccurate communications are harming borrowers: Student borrowers reported encountering customer service problems such as website access issues. Borrowers reported being shuffled between servicers repeatedly without receiving help, waiting months for responses, and receiving inaccurate or misleading communications, such as miscalculated payment amounts and inaccurate due dates. Across the consumer complaint narratives highlighted in the report, borrowers waited an average of eight months for servicers to resolve their issues. Read more
The Financial Crimes Enforcement Network (FinCEN) recently updated its Frequently Asked Questions (FAQs) regarding the Beneficial Ownership Information (BOI) Reporting Rule. The October 3, 2024 FAQ updates provided crucial clarifications on several aspects of the FinCEN rules. This summary highlights certain of the new and updated FAQs that we think will most greatly impact parties as they assess their filing obligations.
Access to Information (A.3 and A.6)
In updated FAQ A.3, FinCEN clarifies who may access filed information, including:
- federal governmental agencies engaged in national security, intelligence or law enforcement;
- officials at the Department of the Treasury;
- state, local and tribal law enforcement agencies with court authorization;
- foreign law enforcement and other parties by request through a U.S. federal agency for authorized activities related to national security, intelligence and law enforcement;
- financial institutions with due diligence obligations under applicable law; and
- federal regulators or other appropriate regulatory agencies that supervise or assess financial institutions.
In addition, in new FAQ A.6, FinCEN clarifies that filed beneficial ownership information reported to FinCEN is exempt from disclosure under the Freedom of Information Act (FOIA).
Conversion and New Reporting Requirements (C.18)
New FAQ C.18 addresses whether converting from one entity type to another (e.g., an LLC to a corporation) creates a new domestic reporting company requiring an initial BOI report. FinCEN clarified that the question of whether a conversion creates a “new” domestic reporting company depends on whether or not the applicable state or tribal law considers the conversion as creating a new entity. If a new entity is, in fact, created, that entity must file an initial BOI report. FinCEN further clarified that even if the conversion does not create a new entity, the converted entity may need to submit an updated BOI report to reflect changed information (e.g., the legal name or jurisdiction of formation). For example, if “Company, Inc.” converted to an LLC (but applicable state or tribal law considers the new entity to be a continuation of the old entity), its name may have changed to “Company, LLC,” and thus it may be required to file an updated BOI report because the name change is a change to required information previously submitted to FinCEN. Similarly, if a reporting company changes its jurisdiction of formation (for example, by ceasing to be a California corporation and becoming instead a Texas corporation), it must submit an updated BOI report to FinCEN.
This FAQ highlights the importance of reviewing state or tribal law and promptly updating BOI reports after conversions.
Defining Beneficial Owners and Substantial Control (D.1)
Two new subparts to FAQ D.1 clarify that (a) an individual can be a beneficial owner through substantial control, ownership or both, (b) there is no maximum number of beneficial owners who must be reported and (c) every reporting company is expected to have at least one beneficial owner due to substantial control.
Beneficial Ownership in Community Property States (D.18)
New FAQ D.18 addresses beneficial ownership in community property states. It clarifies that if state law dictates that both spouses own or control at least 25% of a reporting company’s equity interests, then both should be reported as beneficial owners unless an exception applies. This FAQ highlights the need to consider state-specific marital property laws when determining beneficial ownership.
Pooled Investment Vehicles (L.10)
New FAQ L.10 addresses the pooled investment vehicle (PIV) exemption, and whether a company would qualify for the PIV exemption if it is operated or advised by certain specific types of exempt reporting adviser (ERA). FinCEN notes that the PIV exemption from the beneficial ownership information reporting requirements only applies to PIVs operated or advised by certain types of entities, including (a) an investment adviser registered with the Securities and Exchange Commission (SEC) under the Investment Company Act of 1940 or the Investment Advisers Act of 1940, and (b) an ERA relying on the “venture capital fund adviser” exemption. The FAQ clarifies that PIVs managed by other types of ERAs (or advisers registered with states) are not exempt from the BOI reporting requirements.
Large Operating Company Exemption and Personal Residences (L.11)
New FAQ L.11 addresses the large operating company exemption for companies run from personal residences, clarifying that to qualify for such exemption, a company operating from a personal residence must itself rent or own the space used for business and that this space must be physically distinct from any other unaffiliated entity’s place of business. The company also must meet the other requirements for the exemption, such as having (a) more than 20 full-time employees and (b) over $5 million in gross receipts or sales in the prior year as reflected on the company’s tax return.
Subsidiary Exemption Clarifications
Updated FAQ L.6 clarifies the criteria necessary for reliance on the subsidiary exemption. In a prior version of FAQ L.6, FinCEN provided that a reporting company only qualifies for the subsidiary exemption if its ownership interests are 100% owned or controlled by one or more exempt entities (such that partial control by an exempt entity, with the remaining interests controlled by a non-exempt entity or an individual, would not suffice for purposes of the exemption).
The updated FAQ notes that the subsidiary exemption applies even if the subsidiary’s parent entities are exempt from the BOI reporting requirements for different reasons (e.g., one parent is an exempt large operating company and the other is an exempt public utility); provided that all of the subsidiary’s ownership interests are owned or controlled by specified exempt entities. Note that not all exemption types are listed (as eligible parents). The updated FAQ also clarifies that the exempt parent entities need not be affiliated with each other in order to qualify for the exemption.
Conclusion
The October 3, 2024 FinCEN updates provide valuable guidance on beneficial ownership reporting. Businesses and legal professionals should carefully review these FAQs and ensure that their compliance practices align with the latest FinCEN interpretations. Staying informed about these updates is crucial for navigating the evolving landscape of FinCEN reporting and minimizing potential reporting errors.
The National Credit Union Administration (NCUA) Board held its eighth open meeting of 2024 and approved the Central Liquidity Facility’s budget for 2025–2026. The Board also received a briefing on the performance of the National Credit Union Share Insurance Fund for the third quarter of 2024.
Central Liquidity Facility Budget Approved
The Board unanimously approved the 2025–2026 Central Liquidity Facility’s budget of $2,307,863 for 2025 and $2,448,263 for 2026.
“The CLF is a beneficial tool, and it should be part of any credit union’s liquidity risk management plans for a variety of contingencies, not merely during times of crises,” NCUA Chairman Todd M. Harper said. “Although it’s not required by our rules, having small and mid-sized credit unions with less than $250 million in assets join the CLF provides them access to this vital federal liquidity backstop during times of stress. Once markets freeze up, it’s difficult for institutions to quickly access emergency liquidity from market sources. Joining the CLF in advance of a liquidity event can better assist credit unions of all sizes to navigate unanticipated market situations.”
The CLF currently has 431 regular members and 11 corporate credit union correspondents. The CLF’s capacity stands at $21.7 billion compared to $20.1 billion approximately one year ago.
“While the CLF is growing in capacity, the congressional restoration of the expired CLF statutory enhancements — like the agent-membership provisions for corporate credit unions to serve a subset of their members — would serve the whole system well,” said Chairman Harper. “That’s why the NCUA Board continues to call upon Congress to reinstate these provisions. In fact, we’re unanimous in our views here.”
The 2025–2026 CLF budget justification is available on the NCUA’s website(Opens new window). The document includes information on the spending categories, sources and uses of funds, and planned activities.
Number of CAMELS Code 4 and 5 Credit Unions Increase in Third Quarter
The Chief Financial Officer briefed(Opens new window) the NCUA Board on the performance of the Share Insurance Fund for the quarter ending on September 30, 2024. The Share Insurance Fund reported a net income of $72.2 million for the third quarter of 2024, $22.6 billion in assets, and $145.8 million in total income for the third quarter of 2024.
“Overall, the Share Insurance Fund’s performance in the third quarter of 2024 was strong. Yet, we continue to find ourselves in a good news, bad news scenario,” Chairman Harper said. “Since December 2022 until today, the fund has experienced a nearly $1 billion dollar increase. This change resulted in the fund’s total assets reaching nearly $22.6 billion. Adding to the financial strength of the fund, quarterly investment income has risen a healthy $12 million since the first quarter of 2024.”
The Chairman added, “We continue to see signs of financial strain on credit union balance sheets and consumer financial stress. And, we’re seeing this play out in the number of credit unions and the percentage of assets held by composite CAMELS code 3, 4, and 5 credit unions. Of greatest concern for me has been the large number of troubled CAMELS code 4 and 5 credit unions, especially the nine troubled complex credit unions with more than $500 million in assets. These conditions are another reason why our supervision of these and all federally insured credit unions must remain risk focused. They also highlight the need for the NCUA’s examiners to be ready to act expeditiously when identifying problems.”
Additionally, for the third quarter of 2024:
- The number of composite CAMELS code 3 credit unions decreased in second quarter from 743 to 730 at the end of the third quarter. Assets for these credit unions decreased from the second quarter to $189.8 billion from $191.1 billion.
- The number of composite CAMELS codes 4 and 5 credit unions increased in second quarter from 136 to 138 at the end of the third quarter. Assets for these credit unions decreased from $19.6 billion to $19.1 billion.
As of the end of the third quarter of 2024, two federally insured credit union failures cost the Share Insurance Fund approximately $2 million in losses.
The third quarter figures are preliminary and unaudited. Additional information on the performance of the Share Insurance Fund is available on the NCUA’s website.