CFPB urges faster, safer consumer payments

Faster payments are fine so long as consumers don't become short changed by the process. That's the latest pronouncement from of the Consumer Financial Protection Bureau, which has just published a set of principles it wants to see new systems built around.

"Companies developing new financial technologies should be building systems from the outset with consumer protections in mind," CFPB Director Richard Cordray said upon publication of the guidelines. "It is a lot easier to build something right from the start than it is to retrofit it." He added that the agency "will continue our work to help ensure that financial services marketplaces are safe and transparent for consumers."

The CFPB is a quasi-independent federal agency charged with enforcing consumer financial protection laws. Created under the 2010 Dodd-Frank Act, the CFPB has been highly controversial, and several actions undertaken by the agency have direct consequences for payment companies.

A proposal now pending before the agency, for example, would extend to prepaid cards consumer protections that apply now to debit and credit cards. The agency also has underway reviews of credit card company practices and mobile financial services. And it has taken payment processors to task for accepting business from fraud it has taken down (see "CFPB sues ISOs, acquirer over client scams," The Green Sheet, April 27, 2015, issue 15:04:02).

In a speech to The Clearing House in November 2014, Cordray hinted that something like the new guidelines were coming. "[W]e have concerns that electronic payment systems can be misused to victimize consumers unless banks and the system administrators work to police and enforce safeguards," he said. "We must shine a light on the murkier corners of electronic payment systems and related practices, and we must be vigilant about preserving consumer protections."

Guiding principles

Several initiatives are underway to promote faster payments. NACHA – The Electronic Payments Association adopted rules to support same-day settlement of automated clearing house (ACH) payments. Two new settlement windows are being added to the ACH network's schedule to accommodate same-day payments. (A batch processing network, the ACH has historically operated on a next-day settlement schedule.)

Meanwhile, the Federal Reserve has been working with various stakeholders (financial institutions, technology companies and other regulators) to encourage improvements in the speed and safety of payments. And The Clearing House – a New York-based consortium that operates the largest and oldest private-sector check and ACH clearing operations in the country – embarked upon a multiyear effort to build a new real-time payment system for consumer and business transactions.

In Consumer Protection Principles: CFPB's Vision of Consumer Protection in New Faster Payment Systems, published July 9, 2015, the CFPB voiced general support for faster payments but insisted consumers must "remain top of mind" throughout the development and implementation of new systems.

"In publishing these Principles, we are not specifying how they must be achieved," the bureau wrote. "Rather we recognize that a variety of system components, including system architecture, operator covenants and warranties, and requirements for participants and intermediaries, rules and other mechanisms may play critical roles in providing consumer protection, utility and value."

Nine points

Here's what the CFPB wants to see with all new, faster payment systems.

1. Consumer control over payments, including procedures for easy revocation of authorizations.
2. Consumer control over how and when their financial data gets shared, and with whom.
3. Fraud and error resolution protections, including easy-to-use mechanisms for reversing erroneous and unauthorized transactions.
4. Transparency in terms of costs, risk, funds availability and security of payments.
5. Affordability, with fees disclosed clearly and in a manner that supports comparative shopping.
6. Broad access for all consumers, banked and unbanked, alike.
7. Faster guaranteed access to funds, which should result in fewer overdrafts and non-sufficient funds situations.
8. Strong, built-in protections to detect and limit errors, unauthorized transactions, fraud and data breaches.
9. Strong accountability mechanisms and monitoring systems that protect against misuse.

The Clearing House issued a statement on July saying it was on board with the CFPB's desired outcomes. "Protecting consumers' hard earned money and providing them a safe and efficient way to transfer funds is at the core of what banks have done for centuries," said Jim Aramanda, President and Chief Executive Officer of The Clearing House.

Editor's Note:

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