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Co v er St o r y

The SAFE Banking Act would substantive legislation during the next year and a half.
provide a safe harbor for banks "They [proponents of the Durbin bill] might have more
of an uphill battle than they did a year ago," said Paul
and credit unions doing business Davis, director of market intelligence at the advisory firm
with pot shops that operate Strategic Resource Management (SRM).

legally under state laws. Davis expects a bevy of legislative activity affecting
financial institutions and fintech. "The CFPB [Consumer
Financial Protection Bureau] and other regulators are
Law Firm. "Otherwise, they're forcing legal businesses to showing no signs of slowing down this year," Davis said.
act like criminal enterprises."
Interchange regulation will come up, again The CFPB was created under the Dodd-Frank Act and
given supervisory authority for FIs with assets over $10
Senator Dick Durbin's office confirmed the Illinois billion, including affiliates, as well as nonbank financial
Democrat will re-introduce the Credit Card Competition services firms.
Act "this Congress" but offered no further details. That
legislation would require that merchants be given the In a report released last fall, the CFPB said it has concerns
option to route credit card transactions through networks about buy now, pay later (BNPL) products and the potential
other than those owned by Visa and Mastercard. Many risks posed to consumers. The consumer watchdog agency
of these networks (such as ATM/POS networks) are said it was considering "interpretive guidance" to ensure
considered less expensive. providers understand they must abide by the same laws
and regulations that apply to credit card companies.
The Merchants Payments Coalition (a confederation of
merchant groups) used the occasion of a House hearing CFPB Director Rohit Chopra, newly confirmed to a five-
titled "Combatting the economic threat from China" to year term, even suggested routine examinations of BNPL
push for the Durbin proposal in the name of national companies, similar to the examinations banks and credit
security. unions undergo.
BNPL has existed under one name or another for
In a Feb. 14, 2023, letter to the House Banking Committee, generations, but really took off with ecommerce in response
MPC pointed to a little-known provision in the legislation to the COVID pandemic. A BNPL arrangement constitutes
that would prohibit card networks backed by hostile a short-term loan which, if paid over time and on time,
foreign governments (like China's UnionPay) from carries no interest. Instead, merchants pay between 4 and
processing payments in the United States. 8 percent of the ticket to the BNPL company.

"Currently, there is no federal law that prevents any The CFPB reported that in 2021 the five leading BNPL
financial institution from doing business with China providers—Affirm, Afterpay, Klarna, PayPal and Zip—
UnionPay to process payments," the group wrote. MPC originated a combined 180 million BNPL transactions
described the prohibition as a "vital provision of the totaling $24.2 billion, with an average loan size of $135. The
legislation that would significantly serve our national number of originations rose at a combined annual growth
security interests." rate (CAGR) of 227 percent between 2019 and 2021, the
CFPB said. In terms of value the CAGR was 245 percent.
The American Bankers Association is not in favor of the
legislation. "It is a tall order convincing Congress to enact Consumer Reports said 28 percent of adults it surveyed
card routing mandates that would lead to higher costs for in August 2022 had used BNPL at least once, up from 18
consumers, less access and less competition," said Sarah percent in January 2022.
Grano, ABA spokeswoman.
In remarks delivered last fall, Chopra said he's concerned
The organization launched a multi-media campaign about BNPL customers getting overextended. He pointed
opposing the scheme, with ads running on radio and TV to a CFPB finding that the charge-off rate on BNPL loans
stations in the Washington, DC metropolitan area, and rose from 2.9 percent in 2020 to 3.8 percent in 2021, and
elsewhere. "With inflation eating away at your food budget, that growth trajectory had continued "through the first
the big plan from big grocery is to make things even worse half of 2022."
by making it harder to earn credit card rewards when you
try to feed your family," one radio ad intones. "That isn't The Federal Trade Commission also raised concerns about
competition. It's a money grab by big grocery." BNPL. "If your business offers BNPL payment options as
CFPB, FTC, eye BNPL a retailer or BNPL company – or if you play a role in the
BNPL ecosystem as a marketer, collector, etc. – remember
With control of Congress split between the political that basic consumer protection ground rules of the FTC
parties, Washington insiders expect little in the form of Act apply," Helen Clark, an FTC attorney wrote in a blog
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