Cannabis and gambling: State ballot measures that matter to banks
As votes continue to be counted in a nail-biter presidential election, tallies Wednesday showed that cannabis legalization and interest rate caps on consumer loans remain popular even in Republican-leaning states.
In other state-level results that carry implications for the financial services industry, Californians passed a ballot measure that will tighten the nation’s most stringent consumer data privacy regime, and voters in three states approved initiatives to legalize sports betting.
The results are in line with voting trends in recent U.S. elections. Legalization of cannabis has proved to be a political winner with voters across the ideological spectrum, and they have taken a similarly hands-off stance on sports wagering.
But Americans have not shown libertarian tendencies on every issue. Bans on consumer loans with high annual percentage rates, for instance, have fared well with voters.
Below is a rundown of what Tuesday’s results mean for banks and other providers of financial services.
Voters in New Jersey, Arizona, South Dakota and Montana on Tuesday approved recreational cannabis use, bringing the number of states that have legalized adult use of marijuana to 15.
In addition, South Dakota and Mississippi legalized medical cannabis, which leaves just 13 states where the drug remains illegal under all circumstances.
“These state-level victories will mean tens of thousands of fewer arrests and new jobs, much-needed tax revenue and increased public safety,” Aaron Smith, CEO of the National Cannabis Industry Association, said in a press release. “There is still a lot of work to do, but the wind is at our backs.”
The state-level results could have implications for federal policy, which still criminalizes marijuana and is the main reason that many banks remain reluctant to do business with the cannabis industry. Despite bipartisan support on Capitol Hill, bills designed to provide greater comfort to banks have failed to get a vote in the Republican-led Senate.
But if Sen. Mitch McConnell remains majority leader — which looks likely, though several races have yet to be called — he could face greater pressure from GOP colleagues to address cannabis banking.
Sen. John Thune, the No. 2 Republican in the chamber, represents South Dakota, where 53% of voters supported recreational cannabis and 69% of the electorate embraced medical marijuana.
Meanwhile, the growing size of the U.S. cannabis market figures to factor into the decision-making at banks, credit unions and payments firms that are weighing the potential costs and benefits of participating. The ballot initiatives that passed Tuesday will add $9 billion in new revenue for the cannabis industry between 2022 and 2025, according to New Frontier Data.
Maryland, South Dakota and parts of Louisiana on Tuesday night joined a growing list of states that have legalized sports gambling.
Some big banks, including JPMorgan Chase, Bank of America and Capital One, are still blocking debit and credit card transactions on some sports betting apps despite a groundswell in the business, according to the gambling site FanDuel. The worry is that these sites can be used for money laundering, and banks do not want to run into trouble from federal regulators and prosecutors for unwittingly facilitating under-the-table funneling.
While banks are more open to clearing in-person betting transactions, the hope in the gaming industry is that as more states legalize sports gambling, more financial companies will be on board with allowing their cards to be used for online wagers.
In Louisiana, several parishes around New Orleans approved the sports gambling proposal, though state lawmakers must draft rules and regulations before bets can be made, as is the case in Maryland and South Dakota.
After Tuesday’s results, there are 25 states that have legalized sports betting in the two years since the Supreme Court allowed the measures to be taken up, according to the American Gaming Association, which has been in talks with banks to allow more transactions. Five of those states used the ballot box to legalize sports wagering.
Nebraska became the latest state to cap annual percentage rates on payday loans at 36%, as voters approved a ballot measure by a whopping 83% to 17% margin.
Payday lenders have been charging average annual percentage rates of 404%, according to the measure’s backers, which included various nonprofit organizations.
“Now all Nebraskans will have better access to credit that is fair and reasonable,” Kate Wolfe, the campaign manager for Nebraskans for Responsible Lending, told the Omaha World-Herald on Tuesday.
Kent Rogert, a lobbyist for the Nebraska Financial Services Association, which represents payday lenders, told the newspaper that his group will consider its legal options this week.
The Nebraska vote is the latest in a series of recent state-level setbacks for the payday lending industry. In neighboring South Dakota, voters approved a similar measure in 2016. Colorado, Virginia, Ohio and Montana have also enacted laws designed to rein in high-cost lenders.
If Joe Biden emerges victorious in the closely contested presidential race, payday lenders may also face new restrictions from the Consumer Financial Protection Bureau, which moved during the Trump administration to scale back an Obama-era effort to put federal rules in place.
Consumer data privacy
In the nation’s largest state, the backers of a data privacy ballot measure declared victory after partial results showed that they hold a sizable lead. On Wednesday morning, the measure held a 56% to 44% lead, according to the California secretary of state’s office.
“I look forward to ushering in a new era of consumer privacy rights,” Andrew Yang, the former Democratic presidential candidate who chairs the board of advisors for Californians for Consumer Privacy, said in a press release. “It will sweep the country and I’m grateful to Californians for setting a new higher standard for how our data is treated.”
The ballot measure builds on a groundbreaking data privacy law that California passed just two years ago. The new law will create a state agency to serve as a privacy watchdog, and it will offer more rights to consumers, including the right to correct inaccurate personal information and the right to opt out of advertiser use of precise geolocation data.
The new law also figures to create a raft of compliance work for banks, though the industry will retain an exemption for personal information collected, sold or disclosed pursuant to the Gramm-Leach-Bliley Act, a 1999 federal law.
Banks and credit unions that operate in California have already invested considerable time and money to comply with the 2018 law. Financial industry lawyers have said that the latest measure, the bulk of which will take effect on Jan. 1, 2023, will require more investments.