Legislation on ESG, artificial intelligence and interchange fees are once again on the table during the 2024 legislative sessions.
By Walt Williams
Last year California lawmakers passed two laws that were the first of their kind in the nation. One requires corporations to disclose their greenhouse gas emissions. The other requires companies to publicly report the potential risks they face from climate change. The California Bankers Association weighed in on both pieces of legislation, and Jason Lane, CBA’s SVP and director of government relations, believes lawmakers could revisit aspects of that legislation in 2024.
“In signing the legislation, [Gov. Gavin Newsom] was pretty clear that he wanted to see the legislature focus on follow-up legislation to address some of the issues in implementing those measures,” Lane says. “So I think we’re hopeful that there will be a dialogue.”
This year, state legislatures across the country will take up thousands of proposed bills, many of which have the potential to affect the banking sector, either directly or indirectly. State lawmakers will consider proposals on interchange fees, property ownership and bank account access, just to name a few. And most, like California’s climate bills, are continuations of themes from the previous year.
One example is proposed regulation of artificial intelligence, with 25 states taking up AI-related legislation in 2023, according to the National Conference of State Legislatures. State legislatures were expected to delve into the topic once again in 2024, and California is no exception, according to Lane. One state bill — S.B. 896 — would prevent the use of AI algorithms in discrimination based on race or ethnicity. Another bill — S.B. 892 — would prevent state agencies from entering into contracts for AI services unless those services meet certain safety and nondiscrimination standards. The California bills and similar legislation across the country are prompted by concerns that the federal government has been too slow to protect consumers from the rapidly evolving technology.
“The public has been left vulnerable to the dangers AI poses because of congressional failure to act and the regulatory desert they’ve created,” S.B. 892 sponsor state Sen. Steve Padilla (D-San Diego) said in a statement. “We cannot wait for Congress to overcome their dysfunction, so California must step in and step up to lead.” However, a patchwork of state-by-state rules on AI could create compliance headaches and limit positive innovations.
Election year
One trend from last year was the large number of bills targeting environmental, social and governance practices in investment and financial services. The climate risk consulting firm Pleiades Strategy tracked at least 165 bills and resolutions concerning ESG, resulting in 19 new state laws as of June 2023. Twenty-five bills were introduced in Texas alone, although only one passed into law—a bill preventing insurers from using ESG considerations in setting rates.
Texas was the “tip of the spear” in the anti-ESG movement, says Anthony Pardal, VP in ABA’s Office of Strategic Engagement. However, the Texas Legislature does not meet in regular session during election years, and neither do the legislatures in Montana, Nevada and North Dakota, where several anti-ESG bills were introduced. Still, ESG should continue to be an issue in the coming year, according to Pardal.
“Those that work in and around state government anticipate that 2024 would be a big year given that it’s the lead-up to the 2024 election,” Pardal says. “You have each side likely laying their groundwork on issues that would either be sympathetic or hostile towards what is happening at the national level.”
Another trend carrying over from 2023 is a focus by state lawmakers on foreign ownership of private land. The Congressional Budget Office reported that in the first six months of the year, 15 states enacted legislation regulating foreign ownership of real property. Pardal says lawmakers originally were concerned about foreign ownership of agricultural land, but that concern has expanded to include any private property near sensitive areas like military installations and critical infrastructure.
More directly related to banking, Pardal says state lawmakers will likely once again introduce attempts to regulate credit card interchange fees. Last year, at least nine states introduced bills to remove sales taxes from interchange fee calculations, according to the National Restaurant Association, a group that lobbies in favor of the legislation. In 2024, at least three states — Pennsylvania, Florida and Georgia — are likely to introduce legislation to restrict interchange fees, Pardal says.
Fees, data, and senior protection
Pennsylvania lawmakers will be busy in 2024 trying to craft a state budget — a task made more complicated by the fact that the legislature has a Republican-controlled Senate and a Democratic House with only a one- seat majority. But they also plan to squeeze in several other policy priorities this year, with the House lawmakers late last year holding a hearing on a merchant-backed proposal to shift the cost of handling credit and debit card transactions back to financial institutions and their customers, says Jonathan Humma, VP for government relations at the Pennsylvania Bankers Association.
“We joined the financial trade associations in very strong opposition to that proposal, and we are actively educating lawmakers about the tremendous value that credit card and debit card transactions bring to both merchants and consumers. We emphasize the crucial role interchange fees play in covering expenses related to card issuance, customer service and fraud prevention,” Humma says.
Pennsylvania lawmakers also plan to explore new regulations on data privacy. H.B. 1201 would establish new standards allowing consumers to more easily opt out of using their personal information for marketing purposes. It would also give consumers the ability to demand that third parties correct mistakes in their personal information — or delete that info entirely. PBA was successful in getting an exemption in the bill for entities subject to the federal Gramm-Leach-Bliley Act, which requires financial institutions to safeguard their customers’ data, but the association will continue to monitor the bill, according to PBA President and CEO Duncan Campbell.
““We are seeing state-level data privacy legislation across the country,” Campbell says. “While the exemption is there, we would prefer the establishment of a consistent, federal standard.”
Roughly a dozen states have adopted consumer data privacy laws, according to Bloomberg Law. Florida joined the list last year with the adoption of a “Digital Bill of Rights,” taking the topic off the table for 2024. But Anthony DiMarco, EVP for government relations for the Florida Bankers Association, is still expecting a busy year ahead.
Among the banking-related bills Florida lawmakers will take up is S.B. 542, which would disqualify individuals from serving on a bank board of directors in the state if they served on a board of a bank that failed within the last five years. Then there are H.B. 585 and 587, two related pieces of legislation that would make it much harder for banks to close customer accounts and allow customers to request that state’s Office of Financial Regulation investigate the reasons for the closures. “OFR does not have the staff to look at all these reports, and then you have what banks are allowed to tell customers under the Bank Secrecy Act and anti-money laundering laws,” DiMarco says.
Florida lawmakers also plan to introduce legislation to curb elder financial exploitation—another issue carrying over from last year, with 34 states in 2023 weighing legislation and resolutions to address the problem, according to the National Conference of State Legislatures. Florida last year enacted a new law defining first, second and third-degree felonies for financial exploitation. This year’s proposals include possible legislation to allow financial institutions to delay financial transactions when exploitation is suspected. DiMarco says FBA is working with senior groups to make sure the proposed legislation is workable for banks.
“What’s your goal here: to have a bunch of hoops to jump through or stop exploitation?” he says. “I think the sponsors will understand that.”
