Today the Consumer Financial Protection Bureau (CFPB) outlined guiding principles for protecting consumers as the private sector develops new faster payment systems. These new systems are aimed at reducing “pocket-to-pocket” payment times between consumers and businesses or other entities. The CFPB wants to ensure any new payment systems are secure, transparent, accessible, and affordable to consumers. The systems should also have robust protections when it comes to fraud and error resolution.
“Companies developing new financial technologies should be building systems from the outset with consumer protections in mind,” said CFPB Director Richard Cordray. “It is a lot easier to build something right from the start than it is to retrofit it. The CFPB will continue our work to help ensure that financial services marketplaces are safe and transparent for consumers.”
When making payments today, consumers generally have multiple options which include providing cash, writing a check, swiping a credit or debit card, and entering information online for an electronic payment. In general, non-cash payments are primarily processed through one or a combination of payment systems, including the automated clearing house (ACH), PIN debit, the credit card network, wire network, or check services. For these non-cash payments, there can be a delay of several hours to several days between the time a consumer initiates a transaction and the party to be paid actually receives the money. And all existing payment systems – including those that involve the exchange of cash – expose consumers to some risk of loss or security, including in some cases, risks of unauthorized or fraudulent debits.
Payment system participants, including payers, payees, providers, institutions, and operators, are subject to rules and regulations that specify how the payment system works and ensure consistency and predictability to all parties involved. Generally, payment networks are governed by a combination of operator rules, private network rules, and government regulation. Operators have rules for the banks and other entities that connect to and use their respective networks. Payment system participants are also subject to a number of federal regulations, such as the Electronic Fund Transfer Act.
While American consumers benefit from and make use of these payment systems, there remain opportunities to improve efficiency, reduce transaction costs for consumers, and reduce credit and fraud risks. There is also greater opportunity for consumers to have real time information about their account balances so they can know when they do and do not have funds to transact.
Companies in the technology and finance fields are currently developing real-time or near real-time payment systems for the United States. Regulators, the financial services industry, and consumer groups are all contributing and weighing in. The CFPB wants to ensure that consumer protections are at the forefront as new and improved payment systems are developed. The protections recommended in today’s Consumer Protection Principles relate to privacy, transparency, costs, security, and consumer control. They also relate to funds availability, fraud and error resolution protections, and payment system accessibility.
The outline of Consumer Protection Principles is available at: http://files.consumerfinance.gov/f/201507_cfpb_consumer-protection-principles.pdf
The Federal Reserve Board and other prudential regulators – including the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the National Credit Union Administration, and state banking commissions – all regulate payment networks to combat money laundering and to ensure the safety and soundness of payment system participants. Other federal agencies, such as the Federal Trade Commission, also play a role in this space. Notably, the Federal Reserve has been engaged in an ongoing initiative to improve payment systems. A recent statement about that effort noted that among other objectives, the process would work “with payment stakeholders to identify effective approach(es) to implementing a U.S. payments infrastructure to support a safe, ubiquitous, faster payments capability that promotes efficient commerce, facilitates innovation, reduces fraud and improves public confidence.”
The CFPB has been advocating for the development of faster and safer consumer payment capabilities in new and existing payment systems. The CFPB sent a comment letter earlier this year in response to a faster payment proposal by the National Automated Clearinghouse Association (NACHA). The Bureau will continue to work with other regulators, entities that are developing the new systems, and other stakeholders to ensure that new payment systems address consumer needs and interests.