Legislative & Regulatory Update

Transcription

1 Legislative & Regulatory Update 4th Quarter 2011 Electronic Transactions Association th Street NW, Suite 402 Washington, DC

2 LEGISLATIVE & REGULATORY UPDATE New federal activity came in the form of copyright infringement legislation in both chambers of. Although copyright protection proposals have circulated in the past few years, this year was the first that such proposals involved third-party payments processors in an enforcement capacity against foreign websites believed to be promoting counterfeit goods. The primary advocacy effort of the quarter was a letter to the House Judiciary Committee in advance of a hearing on the Stop Online Privacy Act (SOPA) outlining the difficulties payments processors would encounter if expected to comply with provisions of the bill. As the bill moved through the process of committee consideration it changed markedly; the initial concerns of third-party payments processors are no longer as serious as first articulated in the original bill. ional consideration of copyright infringement legislation will continue in 2012, as will work on data security bills. In light of the changes proposed by the IRS to 6050W merchant reporting, ETA expects to continue to provide information and guidance to members regarding compliance with these rules. FEDERAL LEGISLATIVE, REGULATORY, AND JUDICIAL ACTIONS 6050W Merchant Reporting Internal Revenue Service : IRS delays penalties on 1099-K reporting The IRS announced a delay in penalty provisions and merchant backup withholding requirements for one year, until Jan. 1, 2013, provided good faith efforts were made by required filers. Acquirers are still required to file the 1099-K merchant reporting form for tax year 2011 by Feb. 28, 2012 (if filing by paper) or by April 2, 2012 (if filing electronically). ETA Action: ETA sent a letter to the IRS on October 20 explaining various difficulties of implementation and requesting a one-year delay in implementation of the MCC reporting requirement. ATMs : Lawsuit charges price-fixing on ATM fees by Visa, MasterCard, member banks This suit, a class antitrust action, was filed just days after ATM operators filed a separate class antitrust case against Visa and MasterCard in the same court (National ATM Council, Inc. v. Visa Inc., D.D.C., No. 1:11-cv ABJ, 10/12/11). The suit claims units of Bank of America, Wells Fargo, and JPMorgan Chase are working with Visa and MasterCard to prevent independent ATM operators from offering discounted fees. The banks, according to the complaint, have allowed Visa and MasterCard to set the rules for use of PIN debit cards. That policy shelters those firms from the natural and beneficial price competition that otherwise would exist in the market, limits the power of independent operators to offer lower fees, and translates into higher prices for consumers, the suit said. By eliminating or severely restricting such power, the imposed restraints effect a non-competitive price-setting arrangement that prohibits discounting, steering to less expensive competitive networks and other 1

3 pricing behavior characteristic of a free and competitive market, the complaint said. At the center of the suit are ATM access fees on foreign ATM transactions transactions where a customer uses an ATM at a bank outside the network. The proposed class includes all who paid an access fee on transactions beginning on Oct. 1, Bank Fees : Sen. Whitehouse introduces S. 1829, the Empowering States Rights to Protect Consumers Act This bill would amend the Truth in Lending Act to allow States to set the maximum annual percentage rates applicable to consumer credit transactions, and any fees associated with such a transaction : Rep. Cicilline introduces HR 3190, to prohibit debit card fees This bill would amend the Federal Deposit Insurance Act to prohibit insured depository institutions from charging consumers fees for the use of debit cards. Consumer Financial Protection Bureau : Senate Republicans block Cordray nomination Forty-five Republican senators blocked a confirmation vote for former Ohio Attorney General Richard Cordray to be the first director of the CFPB. The prolonged stalemate over the new consumer watchdog continued as Senate Republicans reiterated their demands for structural changes to the bureau. Copyright Infringement : Chairman Smith considers a hearing on DNS blocking in SOPA As House Judiciary Committee Chairman Smith adjourned the committee s markup of SOPA until the next legislative session, he stated that he would consider holding an additional hearing on technical concerns raised in response to a section of the bill that would encourage internet service providers to block the domain names of websites suspected of trafficking in copyright-infringing property and 16: House Judiciary Committee attempts to mark-up SOPA Chairman Smith introduced a new, revised version of SOPA as a manager s amendment for the committee to consider in mark-up as an attempt to provide clarity on some of the controversial components of the bill. Much of the language that was troubling to third-party payments processors had been changed or removed from the bill by the manager s amendment. The mark-up of the stillcontroversial bill lasted two days and did not reach a conclusion before the adjournment of for the year : Sen. Wyden and Rep. Issa circulate draft of OPEN Act A group of legislators began to circulate a draft of alternative copyright infringement legislation called the Online Protection and Enforcement of Digital Trade Act, or OPEN Act. The draft bill follows up on the expressed objections to SOPA of a bipartisan group of members. 2

4 : House Judiciary Committee hearing on H.R. 3261, the Stop Online Piracy Act (SOPA) This bill is intended to equip U.S. law enforcement agencies, and rights holders, with tools to combat copyright infringement that takes place over the Internet, often by foreign actors. Critics argue that the bill is troubling because it would place new burdens on internet companies and third party payment processors, resulting in an uncertain legal environment that could stifle innovation. A witness from MasterCard, Linda Kirkpatrick, Group Head of Customer Performance Integrity, spoke of the extensive efforts her company has taken on its own to combat online piracy. In her written testimony, Kilpatrick identified a number of key areas where we believe that changes to the bill would ensure that MasterCard can continue to play an appropriate and effective role. One area mentioned was the five-day window within which a payment processor must cut off the funds to a website after being served notice by a rights holder. This would be difficult to comply with, and is an artificial deadline according to MasterCard. ETA Action: ETA sent a letter to the Committee in advance of the hearing outlining problems that third-party payments processors would have if required to comply with the bill. Data Security / Breach Notification : Senate seeks bipartisan support for S. 1207, the Data Security and Breach Notification Act of 2011 Democrats on the Senate Commerce, Science, and Transportation Committee are revising S to get support from Republican members of the panel. Under the legislation, firms would be required to safeguard sensitive consumer information and, in the event of a data breach, notify affected individuals within a certain time period. A draft version of a substitute amendment excluded some controversial provisions calling for data brokers to meet new privacy requirements; but other key issues, including concerns over how broadly personal information is defined under the bill, remain unresolved. Senate Majority Leader Reid has asked relevant committees to work together to craft a single, comprehensive cybersecurity package that can be sent to the floor for a vote in early Interchange : Merchants file lawsuit against Federal Reserve Board for Durbin rules Three retail trade groups and two merchants filed suit against the Fed, arguing that the Fed failed to follow the law when setting debit card interchange price controls and related regulations that implement the Durbin Amendment in the Dodd-Frank Act. Plaintiffs in the suit are: the National Retail Federation (NRF), the Food Marketing Institute (FMI), the National Association of Convenience Stores (NACS), the department store chain Boscov s, and Miller Oil Co. The suit, filed in U.S. District Court in Washington, D.C., asks the court for a declaratory judgment that would force the Fed to reconsider its rulemaking. Parts of the Fed s final rule in question are arbitrary, capricious, an abuse of discretion and otherwise not in accordance with law, according to the suit : H.R.3156, the Consumer Debit Card Protection Act, introduced Reps. Chaffetz and Owens introduced this bill to repeal previous restrictions on debit interchange fees contained in the Dodd-Frank Act. 3

5 Internet Gambling House Energy and Commerce hearing on Internet Gaming The Subcommittee on Commerce, Manufacturing, and Trade identified fundamental issues to sort out if lawmakers intend to move forward with legislation that would create a federal licensing and tax regime for internet gambling services. Those issues include: 1) whether such a regime would be limited to online poker or would reach other online gambling services; 2) what federal agency, or combination of federal agencies, would be charged with setting up a regulatory system; 3) how a federal system would interact with state and tribal gambling programs; and 4) state opt-out rights, and responsibilities for setting up consumer protection mechanisms : House Energy and Commerce hearing entitled, Internet Gaming: Is There a Safe Bet? Advocates for online gaming and consumer protection testified to the Subcommittee on Commerce, Manufacturing, and Trade that online gambling services in the United States are broadly available to U.S. residents who could benefit from clear, stringent regulations. Subcommittee Chair Bono Mack convened the hearing to explore the possibility of regulated federal internet gambling, and what such regulation would entail. It was noted that although the 2006 Unlawful Internet Gambling Enforcement Act (UIGEA) aimed to curtail internet gambling by restricting the payments for gambling services, U.S. consumers still have the ability to gamble online, and many U.S. residents do so. Financial institutions have complained that the law unfairly charges them with a law enforcement-like role in blocking illegal gambling. Oversight of Merchant Acquiring Federal Trade Commission : FTC includes Internet in mail-order rules, adds payment methods The FTC announced that it will include all sales made over the Internet under rules governing mailorder sales. The commission finds that is has reason to believe that unfair or deceptive acts or practices involving Internet sales are prevalent notwithstanding the number of reliable Internet retailers, the agency said in a Federal Register notice. These proposed amendments (to the Mail Order Merchandise Rule) are necessary to remedying unfair and deceptive acts or practices and ensuring that buyers receive timely delivery or timely refunds. In addition to covering all Internet sales, the new rules would shorten the maximum time allowed to make a refund from one billing cycle to seven days. The list of payment methods covered by the regulations cash, check, money order and credit cards would also be expanded to include debit cards, gift cards and services such as Pay Pal : FTC announces new joint task force to monitor third-party payments processors Karen S. Hobbs, senior attorney in the FTC s Division of Marketing Practices, announced that the government has formed a task force to monitor third-party payment-services providers. This group is an offshoot of an existing inter-governmental group formed a few years ago to monitor payments issues. The goal of the new task force is to prevent fraudulent merchants from getting merchant accounts and to shut down such merchants as quickly as possible if they defraud consumers. 4

6 The task force will include officials from the FTC, the Justice Department, the Federal Bureau of Investigation, the U.S. Treasury Department s FINCEN anti-money-laundering unit, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation. ETA Action: This announcement occurred at ETA s Compliance Day conference in Chicago, IL, where Karen Hobbs was a featured speaker. Prepaid Cards : Sen. Menendez (D-NJ) introduces S.2030, the Prepaid Card Consumer Protection Act This bill is similar to one introduced by the Senator last year that saw no action in the Senate Banking Committee. The bill, among other things, would outlaw fees such as charges to check account balances, call customer service, and close accounts. It would also require card issuers to provide clear, upfront disclosure about all of a card s fees that a consumer can view before purchasing a card. Issuers would need to package cards with wallet-sized summary of fees, such as charges for activating the card and quarterly service. The bill would require that consumers be protected in event that their card is stolen, lost or the issuer goes bankrupt : H.R. 3482, the Tax Crimes and Identity Theft Prevention Act, introduced Rep. Castor s bill would require the Secretary of the Treasury to take action to correct a tax return or tax information affected by the misuse of a taxpayer s identity within 90 days after receiving notice of such misuse from the taxpayer. There is a provision in the bill that calls for a study on the use of prepaid debit cards and commercial tax preparation software in tax fraud. STATE LEGISLATION AND REGULATION California : Gov. Brown vetoes bill restricting debit card paychecks Senate Bill 931 would have limited the fees issuers can charge when workers access their wages on payroll debit cards. Banks said the fees would have resulted in a de-facto ban on the cards. Brown said the bill went too far. I strongly believe that reasonable protections are needed for those who use pay cards, Brown said in his veto message. I will work with the bill s proponents and the financial institutions to forge a better solution that I can sign into law. North Carolina : Automatic Renewal Credit Card Contracts Committee meets A Legislative Research Commission created by the North Carolina General Assembly met to study automatic renewal provisions in contracts that provide credit card or other payment system processing for merchants. The Commission is authorized to review current practices in the formation of these contracts, determine whether current practices should be amended by law, and examine any other issue the Commission deems relevant to the study. The Commission may make an interim report to the 2011 General Assembly, including any proposed legislation, when it reconvenes for the

7 Regular Session and will make its final report, including any legislative proposals, to the 2013 General Assembly. ETA Action: ETA is in communication with a group of companies in the payments processing business who are monitoring the Commission s work. This will continue in 2012 and a more active stand on the issue will be considered if determined to be necessary. INTERNATIONAL REGULATION AND LEGISLATION : EU agrees on 2014 for SEPA to eliminate bank debit fees The European Parliament and EU member states agreed on a Feb. 1, 2014, deadline for elimination of all fees for direct debit payments. The new regime means that bank cross-border payments in the 32 countries will only need the use of International Bank Account Number (IBAN). The use of a Business Identifier Code (BIC) will be still required in some cases but will be phased out by February : EU releases unofficial draft of Data Protection Directive revision The European Commission plans to repeal the 16-year-old EU Data Protection Directive (95/46/EC) and replace it with a sweeping regulation that would include mandated data breach notification, large increases in the penalty authority of data protection authorities, and a default standard of explicit opt-in consent for data subjects, according to an unofficial draft regulation proposal. The draft is being circulated among Directorates-General of the Commission to allow them to submit comment before the draft is publicly released. Vice President and European Justice Commissioner Viviane Reding has said the proposals are slated for release in late January Under the draft regulation, companies would be required in certain cases to provide data breach notification to relevant data protection authorities and individuals within 24 hours of the discovery of a breach. The draft proposal would allow data protection authorities to fine a company up to five percent of its annual international gross income for the most serious intentional or negligent violations of EU data protection law. Opt-in consent from data subjects for the use of their personal data would become the default standard under the draft regulation. 6