Fintech Legal Report – May 2022 | Perkins Coie

Weekly Fintech focus

• The CFPB plans to review the CARD Act rules.
• Treasury Department Proposes Clarifications to Regulatory Treatment of Earned Pay Access Programs.

CFPB Director Chopra plans to review CARD Act rules

The day after a tough hearing with the Senate Banking Committee, on April 27, 2022, the House Financial Services Committee held a hearing where Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra spoke to lawmakers about his plans to examine whether the CFPB should audit and potentially audit earlier written rules to implement the Act on Credit Card Liability and Disclosure (CARD Act).

These rules cover various consumer protection requirements and restrictions such as limits on interest rate increases and certain fees. In particular, Chopra’s comments suggest that the CFPB may pursue tougher restrictions on issuer fees as part of a broader effort to manage what he refers to as “junk fees.” Chopra did not provide a specific definition of what fees the agency might scrutinize, but his responses to inquiries from lawmakers indicated that it could cover a wide range of fees imposed on bank accounts, credit cards and other financial products, such as late fees. fees and other charges that do not compensate for a particular service.

Chopra believes such fees are excessive and ill-informed, but he noted that interchange fees and overdraft fees would not be a priority during this review.

In addition to focusing on said frivolous fees, Chopra discussed the idea of ​​the CFPB potentially looking to ban medical debt from consumer credit reports and emphasized that the CFPB is “heavily focused” on the expected rule that will address third-party access to consumers’ financial data. Chopra expects to see progress with such rulemaking within a year.

The Treasury Department is proposing a clarification of “earned wage access” treatment

Earlier this year, the Treasury Department proposed several changes to the Internal Revenue Code to address problems that arise when employers and third-party payers allow employees to receive payments of earned wages before their regular pay dates. These schemes, referred to as ‘on-demand pay’ or ‘earned salary access’, have proved increasingly popular in recent years.

Under current law, employees with access to an on-demand pay plan can be in constant “constructive receipt” of their pay as they are earned (ie on a daily basis). This has led to uncertainty as to whether employers should or must reconfigure their payroll systems to make payroll deposits and withhold and pay employer’s tax on earned wages on a daily basis. According to the Treasury Department, some employers and third-party payers have treated the arrangement as a loan, and others have avoided the “constructive receipt” issue altogether to avoid the burden of reconfiguring payroll systems.

The Treasury Department proposed amendments to the Internal Revenue Code to provide clarity on the matter, namely by (1) providing that the pay period for such arrangements is treated as a weekly pay period, (2) standardizing the definition of such arrangements, and (3) expressly clarifying that The schemes are not loans.

The proposed changes, if passed, would take effect after December 31. Whether the changes will be adopted is unclear. The changes were proposed in the Treasury’s General Explanations of the Administration’s Fiscal Year 2023 Revenue Proposals (often referred to as the “Green Book”), which explains the revenue proposals in the President’s proposed budget for fiscal year 2023. Such changes would require congressional action to be implemented.

In the absence of such action, the proposal may be better viewed as the Treasury Department’s (non-binding) position in a long-running debate that the arrangements should not be considered “credit extensions” as proposed by the CFPB, Regulation Z, and most recent state legislation.

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