On July 9, 2015, the Consumer Financial Protection Bureau released its “vision” for faster payment systems, consisting of nine “consumer protection principles.” The principles build on concerns about payment systems raised by CFPB Director Richard Cordray in a speech last year. These well intentioned principles pose a number of practical problems and ignore the inherent interdependence of consumer and commercial benefits as payment systems evolve.
The CFPB’s nine principles stake out a bold policy stance aimed at ensuring that faster payment systems primarily benefit consumers. The principles are:
- Consumer control over payments;
- Data and privacy;
- Fraud and error resolution protections;
- Funds availability;
- Security and payment credential value; and
- Strong accountability mechanisms that effectively curtail system misuse.
Release of these principles follows initiatives by the Federal Reserve System, The Clearing House, and most recently NACHA, through its same-day ACH rule approved in May, to promote the development of faster payment systems.
Practical Concerns with the CFPB’s Faster Payment Systems Principles
The CFPB’s principles undoubtedly deserve consideration, and few industry participants would disagree with them at a high level. Though reasonable in theory, certain goals articulated by the CFPB may prove impractical, counterproductive, or unduly optimistic in practice. Here are four examples:
Data and Privacy
The CFPB generally wants consumers to be “informed of how their data are being transferred through any new payment system, including what data are being transferred, who has access to them, how that data can be used, and potential risks[,]” and wants systems to “allow consumers to specify what data can be transferred and whether third parties can access that data.”
This amount of disclosure and degree of consumer control is unrealistic for routine payment transactions, unnecessary in light of current and evolving security measures and fraud and error resolution protections, and likely to thwart the goal of faster payment processing.
Transparency and Funds Availability
The CFPB expects faster payments systems to provide “real-time access to information about the status of transactions, including confirmations of payment and receipt of funds” and to give consumers “faster guaranteed access to funds” to decrease the risk of overdrafts and non-sufficient funds (NSF) transactions.
Here and throughout its principles, the CFPB expresses its desire for faster payment systems to benefit consumers immediately. Implicit in this goal is a rejection of staged implementation of consumer protections, as in NACHA’s same-day ACH rule where same-day funds availability for consumers follows same-day settlement of debit and credit transactions. Additionally, real-time access to information about transaction status seems costly and unhelpful until consumers can act upon such information in real time.
The CFPB envisions affordable payment systems with fees disclosed to allow consumers to compare costs of different payment options.
The CFPB’s vision of comparative cost disclosures across the ecosystem of available payment options is unrealistic given the existence of competing independent payment systems, multiple payment channels and devices, and varying degrees of intermediation. The total cost to consumers of using different payment systems depends upon many unpredictable variables, making comparative cost disclosures little more than rough, imprecise estimates.
The CFPB expects faster payment systems to be “broadly accessible to consumers,” including “through qualified intermediaries and other non-depositories.”
This principle focuses on unbanked and underbanked consumers. Although broad accessibility should be encouraged, it is difficult to imagine a safe and widely accepted payment system evolving in which banks would not be heavily involved in the origination and receipt of transactions. Indeed, payment systems that have evolved independent of banks—such as virtual currencies—pose substantial consumer protection concerns.
Implications of the CFPB’s Principles
CFPB Director Cordray emphasized that “the primary beneficiaries” of faster payment systems should be consumers and the CFPB’s principles reflect this view. Creating faster payment systems is an enormously complicated industry-driven undertaking, the cost of which is borne by industry participants. As such, faster payment systems must offer tangible benefits to industry participants, not just to consumers, if they are to succeed. The CFPB’s principles would be more effective if they expressly recognized the need to balance consumer and commercial benefits.
Further, the CFPB may intend to use its principles as a chokepoint for policing consumer protection features in evolving payment systems. We hope the CFPB’s adherence to these principles does not become rigid and overzealous or threaten to derail useful payment system improvements before they get off the ground.