Maryland Legal Alert for Financial Services
Maryland Legal Alert - December 2024
In This Issue
FDIC Extends Comment Period for Fintech Partnership Record-Keeping Rules
CFPB Supervision of Payment App and Digital Wallet Providers
FDIC Extends Comment Period for Fintech Partnership Record-Keeping Rules
As we reported in our October 2024 Maryland Legal Alert, the Federal Deposit Insurance Corporation (FDIC) proposed a new rule aimed at addressing risks associated with fintech partnerships. The proposed rule imposes stricter record-keeping requirements by mandating that federally insured depository institutions (IDIs) either maintain a ledger of beneficial owners of accounts accessed by third-party fintech providers or have unrestricted access to a ledger maintained by a third-party fintech provider to reconcile accounts each day and track end-user funds on a real-time basis. This rule would only apply to for-benefit-of (FBO) accounts with a “transactional feature” (i.e., accounts in which customers can make purchases or transfer funds). The FDIC exempted certain third-party FBO accounts, such as custodial trust accounts and accounts set up by broker-dealers.
The proposed rule seeks to address the delays that often occur when attempting to pass through deposit insurance to customers of third-party fintech providers in the event of an IDI failure (because the FDIC relies on the records of IDIs when making determinations regarding insurance coverage). Initially, comments on the proposed rule were to be received for 60 days following its notice in the Federal Register. However, on November 18, 2024, the FDIC announced a 45-day extension, extending the comment period through January 16, 2025.
For more information, contact Christopher R. Rahl or Tamia J. Morris.
Contact Christopher R. Rahl | 410-576-4222
Contact Tamia J. Morris | 410-576-4021
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CFPB Supervision of Payment App and Digital Wallet Providers
The Consumer Financial Protection Bureau (CFPB) issued a final rule on November 21, 2024, granting it authority over larger non-bank entities offering general-use digital consumer payment applications, including digital wallets and peer-to-peer payment applications. This rule defines the scope of covered entities as those processing 50 million or more consumer payment transactions annually, excluding small businesses under U.S. Small Business Administration (SBA) standards. The CFPB indicated that larger, non-bank entities will be provided notice of the CFPB’s intent to supervise its activities and will have the opportunity to dispute whether it qualifies as a large participant subject to the rule.
Notably, the rule excludes cryptocurrency transactions, transactions conducted in non-U.S. currencies, and merchants and marketplaces conducting payment transactions for sales through their own distinct platforms, focusing instead on applications facilitating personal, household, or family transactions.
The rule enables the CFPB to conduct proactive examinations and monitoring of covered entities for compliance with consumer financial protection laws. It highlights areas such as fraud prevention, privacy rights, unfair or deceptive practices, and consumer protections against service disruptions. Although the rule does not introduce new consumer protection requirements, it emphasizes stricter oversight of compliance systems and procedures. Additionally, the CFPB made adjustments based on industry feedback, such as measuring consumer payment transactions by residency rather than physical location. The rule is set to take effect 30 days after its publication in the Federal Register.
For more information, contact Christopher R. Rahl or Tamia J. Morris.
Contact Christopher R. Rahl | 410-576-4222
Contact Tamia J. Morris | 410-576-4021
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