Payment Processing & Cards

Requiring an employee or consumer to submit any dispute to binding arbitration as a condition of employment or purchase of a product or service is commonly referred to as “forced arbitration.”  Many times, the employee or consumer is required to waive their right to sue or to participate in a class action lawsuit.  Critics argue that these arbitration agreements disempower the middle class and some in Congress have taken notice.

Last Thursday, Congressman Jerrold Nadler (D-N.Y.) and Sen. Richard Blumenthal (D-Conn.) announced a package of bills at a press conference that could end the practice of forced arbitration.

“One of the systems that is truly rigged against consumers and workers and the American people is our current system of forced arbitration,” Blumenthal said while introducing the Forced Arbitration Injustice Repeal Act.  Under the bill, companies would no longer be able to enforce arbitration agreements in consumer, employment, civil rights, or antitrust disputes.  The Democrats also introduced the Ending Forced Arbitration of Sexual Harassment Act which would eliminate arbitration in disputes that involve sexual harassment.

According to Nadler, the goal of these proposals is to help workers and consumers obtain justice.  “All Americans deserve their day in court,” Nadler said.  “We make a mockery of this principle when we allow individuals to be forced to take their claims to private arbitration.”

These lawmakers aim to reverse the Supreme Court’s ruling in Epic Systems Corp. v. Lewis – that employers may require employees to settle collective disputes in individual arbitration, thereby barring them from banding together in class-action lawsuits against employers.  Justice Neil Gorsuch wrote the decision for the majority.  The ruling was a contentious 5-4 decision along party lines.

Blumenthal believes that the bills will pass because Democrats have a majority in the House of Representatives.  However, it is unclear whether these bills are dead-on-arrival in the Republican-controlled Senate.  Furthermore, it appears unlikely that President Trump will sign a bill reversing the decision written by his first nomination to the Supreme Court.  Therefore, it appears that, notwithstanding the present legislation, the enforceability of arbitration provisions is here to stay for the time being.

Troutman Sanders will continue to monitor and report on important developments involving the changing landscape of arbitration.

On February 25, the Federal Trade Commission and the Consumer Financial Protection Bureau reauthorized their Memorandum of Understanding, or “MOU.”

The MOU, which governs the FTC’s and CFPB’s joint operations, focuses on five key areas of cooperation:

  • Joint law enforcement efforts – The agreement requires one agency to give notice to the other prior to commencing an investigation. Both agencies are required to give the other details about the proceedings they are initiating, including the court in which the proceeding is being brought, the alleged facts surrounding the case, and the agency’s requested relief. Importantly, the agreement also allows either agency to intervene in any action commenced by the other agency, as long as the intervening agency shares jurisdiction.
  • Joint resolution efforts One agency must also notify the other prior to proposing or entering into any consent decree or settlement with an MOU Covered Person. Each agency must also notify the other prior to issuing no-action letters, warning letters, or closing letters.
  • Joint rulemaking efforts – The agencies must consult and notify one another prior to issuing proposed rules or agency guidance under statutes such as the Omnibus Appropriations Act of 2009, the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, the Telemarketing and Consumer Fraud and Abuse Prevention Act, and UDAAP.
  • Supervisory Information and Examination Schedules – The CFPB must provide, and the two agencies must confer as to, the CFPB’s plans to examine MOU Covered Persons, and the CFPB must provide the FTC with Confidential Supervisory Information relating to MOU-covered persons subject to FTC jurisdiction, upon request from the FTC.
  • Consumer Complaints – Under the agreement, the agencies are to direct consumers to the agency best suited to resolve their complaints and are to make consumer complaints available to one another.

According to the FTC, the MOU is an agreement for “ongoing coordination between the two agencies under the terms of the Consumer Financial Protection Act,” aiming to avoid duplication of law enforcement and rulemaking efforts between the FTC and CFPB.  The full MOU is available here

The Supreme Court agreed to hear a consumer’s appeal from the Third Circuit’s ruling that his claims under the Fair Debt Collection Practices Act were time-barred despite being brought within one year of discovering the violation.  The circuits have been split on whether the one-year statute of limitations under the FDCPA begins to run when an alleged violation takes place or when it is discovered.  The split has caused a lot of uncertainty about potential liability under the FDCPA and, on February 26, the Supreme Court granted certiorari in a case squarely presenting the issue.

We previously reported on Kevin Rotkiske v. Paul Klemm, et al., No. 16-1668 (3d Cir. May 15, 2018).  There, Kevin Rotkiske sued Paul Klemm, claiming that a judgment obtained by Klemm against Rotkiske in 2009 violated the FDCPA.  However, Rotkiske did not file his FDCPA claims until 2015 – five years outside of the FDCPA’s one-year statute of limitations.  In response to Klemm’s motion to dismiss, Rotkiske asserted that his FDCPA claims were timely because he did not find out about the judgment until 2014.  The trial court dismissed Rotkiske’s claims and he appealed.

The Third Circuit affirmed the dismissal and held that the plain language of the statute controls.  In particular, the FDCPA requires that actions for violations of the statute must be brought “within one year from the date on which the violation occurs.”  15 U.S.C. § 1692k(d).  Although the language leaves no room for argument, the plaintiff’s bar has claimed over the years that the discovery rule should apply.  The Fourth Circuit and the Ninth Circuit have agreed.  On the other hand, the Eighth Circuit, Eleventh Circuit, and now Third Circuit have rejected this reading of the statute and have held that the one-year statute of limitations begins to run from the time of the alleged violation, not its discovery.

In his petition to the Supreme Court, Rotkiske argued that the result reached by the Third Circuit was unjust and “absurd.”  In response, Klemm emphasized that courts could prevent any unfairness by applying the doctrine of equitable tolling in FDCPA cases involving a defendant’s fraudulent or concealed conduct which would effectively stop the statute of limitations from accruing until the violation is discovered.

It is hoped that a Supreme Court decision in this case will bring long-awaited certainty to the issue of the FDCPA’s statute of limitations.

A group of 21 states and the District of Columbia submitted a comment letter opposing the Consumer Financial Protection Bureaus effort to revise and boost its Policy on No-Action Letters (NAL Policy) and the creation of a CFPB Product Sandbox.  The NAL Policy and Product Sandbox will allow companies to provide innovative financial services and products under a relaxed regulatory regime.  In a February 11 letter, the states express concern that relaxed regulation could lead to consumer harm and are asking the CFPB to reevaluate its proposed policies given the significant risks to consumers and the entire U.S. financial system.

As an initial matter, the participating states doubt whether the CFPB can take such action without the formal rulemaking procedures required by the Administrative Procedure Act because the proposals create substantive CFPB policy.  Under the revised policy, the immunity granted to companies ties the states hands because approvals or exemptions granted by the CFPB … confer on the recipient immunity from both federal and state authority.  However, even if the CFPB does have the authority to take the action without formal rulemaking, the states point out that there are other issues that are of importance.

A company could apply to the CFPB for a no-action letter that would give the company an official assurance by a duly authorized CFPB official that the CFPB will not pursue enforcement measures against the company.  The purpose is to foster technological innovation, but it is effectively a get-out-of-jail-free card for a company trying new products and services.  The revised NAL Policy would also speed up the time in which the CFPB would grant or deny an application for a no-action letter to 60 days.

The Product Sandbox would grant companies similar relief under the NAL Policy, but would also provide two forms of additional exemption relief:  “1. Approvals by order under three statutory safe harbor provisions (approval relief); and 2. Exemptions by order from statutory provisions under statutory exemption-by-order provisions (statutory exemptions), or from regulatory provisions that do not mirror statutory provisions under rulemaking authority or other general authority (regulatory exemptions).”  The Product Sandbox also fosters technological innovation by allowing companies to test new disclosures for financial services and products.

Given the effects of the 2008 financial crisis, the states oppose the revised policy because the potential benefits are outweighed by the risks.  The states point out various issues that undermine the potential effectiveness of the proposed policy, focusing primarily on the potential for consumer harm and the lack of understanding of emerging technology.  For example, marketplace lenders may rely on machine-learning or other types of artificial intelligence to make underwriting decisions, but the lenders may be unable to determine why a particular decision was made. The states claim that until technology and its implications for consumers are better understood, it is ill-advised to give companies such broad relief from enforcement actions.  The states assert that the CFPBs commitment to fostering technological advances should not be used in a way that jeopardizes consumer protection.


The House of Representatives’ Financial Services Committee convened for a hearing last week entitled “Challenges and Solutions: Access to Banking Services for Cannabis-Related Businesses.”  At the hearing, the Committee focused on a “discussion draft” of the Secure and Fair Enforcement Banking Act of 2019 (the “SAFE Banking Act), which seeks to harmonize federal and state law concerning cannabis-related businesses and allow these businesses to access banking services. Although virtually identical to the legislation introduced by Rep. Ed Perlmutter (D-Colo.) in 2017, this draft added two sections to address the Department of Justice’s rescission in 2018 of the Cole Memo, a non-binding policy memorandum issued by former Deputy Attorney General James M. Cole on August 29, 2013. 

The Memorandum published by Democratic staffers of the Committee states that a growing number of financial institutions have expressed interest in providing banking services to state-authorized cannabis businesses as many states have authorized some degree of public cannabis use, such as for medical purposes.  However, federal law, including the Controlled Substances Act, currently bans the cultivation, possession, and distribution of marijuana, except for the purposes of sanctioned research. To complicate matters, current federal anti-money laundering laws require that financial institutions aid in the investigation and prosecution of those who violate federal drug laws. With this tension between federal and state law, many financial institutions have avoided offering banking services to cannabis businesses, citing legal and compliance risks. 

Perlmutter, who spearheaded the Safe Banking Act, testified at length at the hearing. He encouraged Congress to support the SAFE Banking Act because it will “improve transparency and accountability and help law enforcement root out illegal transactions to prevent tax evasion, money laundering and other white collar crimes” and “will help reduce the risk of violent crime in our communities” because cannabis businesses are targets for crime, robbery, and assault because they are forced to deal in cash only.  During the questioning of witnesses from the banking and law enforcement communities, Committee members expressed some opposing viewpoints, including the proposition that an amendment to the Controlled Substances Act is needed to resolve the conflict between federal and state law instead of a carveout for financial institutions. 

Troutman Sanders will continue to monitor the progress of the SAFE Banking Act in Congress and other issues relating to banking and payments associated with cannabis businesses.

2018 was a busy year in the consumer financial services world. As we navigate the continuing heavy volume of regulatory change and forthcoming developments from the Trump administration, Troutman Sanders is uniquely positioned to help its clients successfully resolve problems and stay ahead of the compliance curve.  

In this report, we share developments on consumer class actions, background screening, bankruptcy, FCRA, FDCPA, payment processing and cards, mortgage, auto finance, the consumer finance regulatory landscape, cybersecurity and privacy, and TCPA. 

We hope you find this helpful as you navigate the evolving consumer financial services landscape.

Access full report here.


After a botched $172.5 million initial public offering, CPI Card Group Inc. shareholders will receive an $11 million cash settlement, according to a proposed settlement reached on December 31.  The shareholders alleged that CPI oversold its chip-enabled credit cards ahead of its IPO. 

The shareholders claimed that CPI shipped more than 100 million extra cards to its customers before its October 2015 IPO without telling investors.  As an alleged result of the bloated inventory at financial institutions, stock prices dropped from $10 per share to $4.70 a share when the suit was filed in June 2016.  In their suit, the shareholders claimed that the registration statement and prospectus used for CPI’s IPO were false and misleading for representing the true state of demand for the cards, as well as failing to disclose significant risks.  

The proposed settlement followed a September denial of class certification. 

CPI produces 35 percent of all payment cards in the United States and serves top U.S. debit and credit card issuers, including JPMorgan Chase, American Express, Bank of America, and Wells Fargo. 

According to the terms of the settlement, funds will be distributed to class members based on their “recognized loss” as calculated by a federal statutory formula for damages.


Who should decide the “gateway” issue of arbitrability? That is, should a court or an arbitrator decide whether a particular issue is subject to arbitration?  According to the Fourth Circuit, it depends on the agreement to arbitrate.  

On January 4, the Fourth Circuit issued an opinion in Novic v. Credit One, No. 17-2168, 2019 WL 103878 (4th Cir. 2019), holding that the “delegation clause” in a credit card agreement dictated that the “gateway” issue of arbitrability was itself subject to arbitration.  Specifically, the arbitration provision of the agreement contained a clause that stated “[c]laims subject to arbitration include disputes related to enforceability or interpretation of this Agreement.”  

The case concerned a consumer, Charleene Novic, who obtained a credit card from Credit One.  After she accrued a past-due balance, Credit One sold the account to a debt collector.  Novic, however, argued that the past-due balance was the result of fraudulent charges.  The debt collector sued over the outstanding balance and Novic eventually prevailed.  Novic then turned her sights on Credit One, suing the company for alleged violations of the Fair Credit Reporting Act resulting from reporting of the past-due balance.  Credit One moved to compel arbitration under the cardholder agreement.  

The district court denied Credit One’s motion to compel, concluding that the company had lost its right to compel arbitration after it assigned Novic’s account to a debt collector.  Credit One appealed, arguing that an arbitrator should decide the “gateway” issue of whether Novic’s claims should be arbitrated as well as the actual merits of the case.  

The Fourth Circuit agreed with Credit One and vacated the district court’s ruling.  In its opinion, the Court held that parties may agree to arbitrate the threshold issue of arbitrability, which allows the arbitrator to determine his or her own jurisdiction. The Court cautioned, however, that any delegation of issue of arbitrability must be set out in “clear and unmistakable” language in the parties’ agreement.  After applying that standard to the card holder agreement at issue, the Court concluded that it “unambiguously require[d] arbitration of any issues concerning the ‘enforceability’ of the arbitration provisions .”  

The Fourth Circuit’s decision represents another affirmation of the strong federal policy favoring arbitration, and serves as a reminder that the “gateway” to a favorable result when compelling arbitration is the use of “clear and unmistakable” language in arbitration agreements.


After months of negotiations, on December 12, Congress overwhelmingly passed the Agricultural Improvement Act of 2018, which is also known as the “Farm Bill.”  For banks and payment processors, the Farm Bill’s passage is an important development because the bill includes language removing hemp from the list of prohibited substances under the federal Controlled Substances Act.

Hemp is a variety of the cannabis plant, but it does not produce a psychological “high.”  Instead, it’s used in manufacturing, including production of textiles, rope, and carpets, and for medicinal purposes.  Most states permit hemp’s use for both manufacturing and medicinal purposes.

But, for years, hemp has been classified as a controlled substance under the federal Controlled Substances Act, (21 U.S.C. ch. 13 § 801 et seq.), which created a federal law barrier to banks and payment processors working with hemp producers or merchants.

With the passage of the Farm Bill, however, that may be about to change.  Section 10113 of the Farm Bill removes hemp from the list of controlled substances under the federal Controlled Substances Act and amends the Agricultural and Marketing Act of 1946 to allow states to manage hemp production as long as hemp produced contains no more than a 0.3% concentration of tetrahydrocannabinol, or THC.

In accordance with the Farm Bill, a state that wants to manage hemp production within its borders must submit a plan for regulation and monitoring to the U.S. Secretary of Agriculture for approval.  However, a hemp producer in a state that does not submit a plan to the Secretary of Agriculture may still produce hemp as long as its production complies with the amended section 297C of the Agricultural and Marketing Act.

The Farm Bill further mandates that hemp producers complying with section 297C, as opposed to a state plan, must maintain information about the land on which the hemp is produced, test the hemp’s THC levels, establish procedures for disposing of any non-compliant hemp or hemp product, and submit to annual inspections.  Hemp producers operating under either an approved regulation-and-monitoring plan or section 297C are subject to licensing requirements as well as potential federal auditing.  Moreover, under the Farm Bill, states maintain authority to limit hemp’s production and marketing within their borders.  Thus, hemp producers, depending on where they operate, may still be restricted by state law.  States cannot, however, limit the transportation of hemp.

The Farm Bill creates an opportunity for banks and payment processors.  Banks and payment processors can now work with hemp producers and merchants without the looming threat of a federal law enforcement action.

The Farm Bill’s passage does not mean, however, that banks and payment processors can forego their regulatory compliance efforts.  A bank or payment processor must still ensure that any hemp producer or merchant is complying with the Farm Bill’s licensing requirement and TCH-level restriction.  In addition, a bank or payment processor that works with a hemp producer or merchant must still ensure that the producer or merchant is complying with any federally approved regulation-and-monitoring state plan or section 297C.  Indeed, those compliance efforts are critical, as violations can leave a hemp producer or merchant as well as its bank and payment processor subject to severe penalties, including a law enforcement action by the U.S. Attorney General.

President Trump signed the Farm Bill on December 20.

On December 10, the Bureau of Consumer Financial Protection issued proposed revisions to its 2016 Policy on No-Action Letters and proposed a BCFP Product Sandbox.

The proposed new policy has two parts: Part I is a revision of a 2016 policy on No-Action Letters, and Part II is a description of the BCFP Product Sandbox. The revised No-Action policy would eliminate the data-sharing requirement of the 2016 Policy, which required applicants to commit to sharing data about the product or service. The revisions to the 2016 Policy would also speed up the time in which the BCFP would grant or deny an application for a No-Action Letter to 60 days.

The BCFP Product Sandbox would grant companies similar relief under Part I of the proposed rule but would also provide two forms of additional exemption relief: “1. Approvals by order under three statutory safe harbor provisions (approval relief); and 2. Exemptions by order from statutory provisions under statutory exemption-by-order provisions (statutory exemptions), or from regulatory provisions that do not mirror statutory provisions under rulemaking authority or other general authority (regulatory exemptions).” The Product Sandbox approval relief and exemption relief would be for a period of two years; however, to take advantage of the Product Sandbox, applicants are required to commit to sharing data with the BCFP with respect to the products or services offered.

The proposed policy has the following goals: “1. Streamlining the application process; 2. Streamlining the BCFP’s processing of applications; 3. Expanding the types of statutory and regulatory relief available; 4. Specifying procedures for an extension where the relief initially provided is of limited duration; and 5. Providing for coordination with existing or future programs offered by other regulators designed to facilitate innovation.” The Product Sandbox will help foster innovation and gain insight into how regulations may need to adapt to allow pro-consumer innovation.

This proposed policy may be of particular interest to the fintech world in the business-to-consumer context, given the innovation and energy to adapt delivery of products and services over the Internet and the sometimes awkward fit between the remote delivery model and some regulations. Comments on the revised policy are due no later than 60 days after the proposals are published in the Federal Register.