NACHA Government Relations Update - May 26, 2016

Posted May, 23 2016

NACHA Attends Luncheon with Federal Reserve Presidents Lockhart and Williams
Last week, NACHA attended a luncheon with John Williams, President and CEO of the San Francisco Federal Reserve Bank and Dennis Lockhart, the President and CEO of the Federal Reserve Bank of Atlanta to examine their views on the economy, economic growth indicators and the process by which the Federal Open Market Committee (FOMC) determines monetary policy.
Both Williams and Lockhart believe that the U.S. economy will continue to grow at a relatively stable pace in the 2 percent GDP range over the short term. They both were of the opinion that the U.S. economy is at or close to full employment and that renewed focus on fiscal policy initiatives in Congress is the best option to accelerate that growth. They emphasized that the opinions of the FOMC members are in a very small band without much dissent, and that the expectation of two to three additional interest rate increases over the next year is likely.
The independence of the Federal Reserve Board of Governors and FOMC decision making process was emphasized. They do not make political considerations when deciding monetary policy and do not discuss politics at their meetings.
U.S. Treasury Issues White Paper Re: Online Marketplace Lending
On May 10, 2016, the U.S. Department of the Treasury released a white paper entitled “Opportunities and Challenges in Online Marketplace Lending” in which it stated: "Policymakers should determine if small business borrowers of online marketplace lenders should receive similar protections to consumer borrowers, and clarify any current oversight and enforcement." The paper was written in consideration of information received from responses to the “Public Input on Expanding Access to Credit through Online Marketplace Lending” Request for Comment (RFI). Treasury also consulted with various agencies on this issue including the Consumer Financial Protection Bureau (CFPB), Federal Deposit Insurance Corporation (FDIC), Board of Governors of the Federal Reserve System (FRB), Federal Trade Commission (FTC), Office of Comptroller of the Currency (OCC), Small Business Administration (SBA), and Securities and Exchange Commission (SEC). Among recommendations outlined in the paper was Treasury’s creation of a marketplace lending regulation standing work group, facilitating coordination between agencies.
Office of Financial Policy and Research Designated a Division of the Federal Reserve Board
On May 11, 2016, the Federal Reserve Board announced that “the Office of Financial Policy and Research (OFS) has been designated a division of the Board and renamed as the Division of Financial Stability (FS)”, reflecting the increase in staffing and responsibility due to the “Board's commitment to identifying and analyzing risks to financial stability and to developing and evaluating macroprudential policy responses to those risks.”
Sens. Peters, Carper and Coons Urge GAO to Study Innovative Payments Regulation
On May 16, 2016, U.S. Senators Tom Carper (D-DE), Chris Coons (D-DE), and Gary Peters (D-MI) sent a letter to the U.S. Government Accountability Office (GAO) requesting additional information concerning state and federal regulation of innovation payment providers in regards to mobile payments. “Congress and federal regulators must ensure that laws and regulations related to mobile payments foster innovation while protecting consumers,” wrote the Senators. Included among questions asked in the letter were inquiries about adoption and promotion by federal agencies of new payments technologies; laws and regulations that may present barriers to innovation or consumer protection; security and fraud data; agency coordination of regulatory efforts; and duplicative compliance and enforcement systems.
House Oversight and Government Reform Committee Approves Federal Reserve Transparency Act of 2015
On May 17, 2016, The House Oversight and Government Reform Committee approved H.R. 24, the Federal Reserve Transparency Act of 2015, a bill sponsored by Rep. Thomas Massie (R-KY) that would require the Government Accountability Office (GAO) to complete an audit of the Board of Governors of the Federal Reserve and Federal Reserve banks and repeals certain restrictions on GAO audits of the Federal Reserve. The committee moved the bill in a voice vote.
This bill is a part of the “Audit the Fed” push in Congress to require more transparency from the Federal Reserve in their proceedings. Federal Reserve Chair Janet Yellen opposed the bill, stating that it could introduce politics into monetary policy decisions.  The bill and Committee release are below. 
"Committee Advances DC Budget Autonomy, Audit the Fed, and Other Legislation"

House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises
“Examining Legislative Proposals to Enhance Capital Formation and Regulatory Accountability”
Last week, members of the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises met to discuss bills they have offered as reforms to improve the competitiveness of U.S. capital markets and to remove unnecessary regulatory burdens that hinder capital formation, job creation, and economic growth. Given that many Subcommittee members introduced and were co-sponsors of the bills that were discussed, there was a supportive tone from them in this hearing. 
Full Hearing Report

CDT and New America Foundation Hold Briefing on Encryption
Last week the Center for Democracy & Technology (CDT) and the New America Foundation held a briefing on encryption sponsored by Senators Leahy (D-VT) and Lee (R-UT) entitled “Encryption is Key: How Undermining Encryption Would Harm Cybersecurity, Consumers, and the Economy.” The event was introduced as a chance to hear the perspective of former officials from government agencies who do not always see things the same way as the law enforcement community with respect to encryption.
Panelists included:
Opening Remarks: Kevin Bankston, Director at New America’s Open Technology Institute
Moderator: Nuala O’Connor, President and CEO, Center for Democracy & Technology
  • Julie Brill, former Commissioner, Federal Trade Commission; co-director of the Privacy and Cybersecurity practice, Hogan Lovells
  • Cameron Kerry, former General Counsel and Acting Secretary of the United States Department of Commerce; Distinguished Visiting Fellow, The Brookings Institution Center for Technology and Innovation; Senior Counsel, Sidley Austin LLP
  • Ari Schwartz, former Special Assistant to the President and Senior Director for Cybersecurity, National Security Council; Managing Director of Cybersecurity Services, Venable LLP 
As you might expect given the sponsors of the event, the panelists generally agreed that mandating backdoors in encryption technology would do little to achieve the objectives of law enforcement and would harm the U.S. economy from a competitive, innovative, and trust standpoint. They said that bad actors would simply use technology developed outside the U.S., noting ISIS uses encryption technology that would not be impacted if the U.S. were to mandate backdoors. Cameron Kerry, formerly of the Commerce Department, analogized what would happen if U.S. products contained backdoors to the U.S. unease about allowing Huawei to sell products into the U.S. market, noting that China and other countries may not want to purchase products the U.S. government had a backdoor into. Ari Schwartz discussed the need for encryption from a national security perspective, particularly for critical infrastructure such as power plants, the electric grid, medical facilities, or defense contractors. Schwartz also noted that just because a system is end-to-end encrypted doesn’t mean it’s secure. Schwartz said that if account credentials are compromised then end-to-end encryption does nothing to thwart a perpetrator, and more needs to be done like the use of multi-factor authentication. In her remarks, Julie Brill discussed the FTC’s use of UDAP (Unfair or Deceptive Acts and Practices) enforcement authority and the publication of best practices such as the mobile developer best practices as FTC efforts to educate developers and the public about security expectations. Specifically, she noted a best practice where developers should encrypt sensitive data both in transit and at rest.
During the Q&A, panelists said they believe that although the public debate around encryption trends toward traditional lines (law enforcement vs. privacy), they think we are making some progress in the debate as encryption is built into more parts of the economy. They said this change in the debate has been helped by educating law enforcement on how encryption works and different investigative techniques, but law enforcement training for computer crimes is still underfunded. Panelists also said that in some ways encryption will solve the debate for us because it will continue to improve and taking such a radical approach of creating backdoors will only disadvantage ourselves.
A reporter from Reuters also asked about the FBI’s claim that they did not submit the iPhone hack given to them by a third-party vendor to the Vulnerabilities Equities Process partially because they did not understand the vulnerability enough to do so. Ari Schwartz replied that when the process was developed they had not foreseen an agency taking that approach and that how the process works is something that should be looked at going forward.
Reps. McHenry and Hultgren Send Bipartisan Letter to GAO on Financial Innovation
On May 24, 2016, Representatives Patrick McHenry (R-NC) and Randy Hultgren (R-IL) sent a bipartisan letter with a total of twelve signatories to the GAO requesting that it report on the current state of financial innovation. The Representatives ask the GAO to opine on:
  • How regulatory fragmentation has harmed or otherwise slowed innovation
  • How have collaborations between banks and Fintech firms streamlined processes and made the delivery of financial products and services more efficient
  • What challenges exist for financial institutions and Fintech companies in the current regulatory structure
  • How can regulators encourage partnerships with Fintech ventures, and what best practices can U.S. regulators learn from international counterparts to encourage innovation – such as the FCA regulatory sandbox

CFPB Issues Spring 2016 Rulemaking Agenda
CFPB recently issued their Spring 2016 Rulemaking Agenda. Several highlights include:
  • Arbitration – a NPRM was issued May 5, 2016
  • Payday – Bureau plans to release a NPRM “in the next several weeks” (note, this is likely to be June 2, 2016 at a field hearing in Kansas City, Mo)
  • Prepaid – Bureau expects to issue final rule “this summer”
  • Mortgage servicing – Bureau expects to issue final rule “this summer”
  • Know Before You Owe – Bureau expects to release this summer a NPRM clarifying its rule combining TILA/RESPA disclosures
  • Overdraft – Bureau in “pre-rule making activities” (note, We do not anticipate anything in 2016, but likely early 2017)
  • Debt Collection – Bureau “currently developing proposed rules”
  • Larger participants – “continuing rulemaking activities,” Bureau expects next rule to include consumer installment loans and vehicle title loans – such a rule would subject “larger participants” to CFPB supervision
  • Women and minority owned/small businesses data collection – Bureau “in very early stages” to implement Section 1071 of Dodd-Frank
  • Longer-term initiatives – Bureau continues to classify credit reporting and student loan servicing in this category 

Legislative Tool Kit
House 2016 Calendar (also in bottom right hand bar)
Senate 2016 Calendar (also in bottom right hand bar)​​
Access: Public