Proposed Regulation Could Hurt the American Consumers it is Supposed to Protect | Commentary
By H. West Richards
The way Americans pay for goods and services is undergoing unparalleled transformation. Consumers have unprecedented control over how they interact with merchants, and companies are able to deliver to their customers in faster, more efficient ways than ever before.
But a set of proposed regulations from the Consumer Financial Protection Bureau is poised to severely limit consumer access to important financial tools, stifle innovation and knock American companies out of their current global leadership role.
Members of Georgia’s congressional delegation have already joined in a challenge to the proposed regulations. The members, from both parties and from both the House and Senate, have united because they recognize the importance of financial technology innovations to consumers, and know how important it is to retain America’s leadership role in the industry. Other members of Congress should take note and follow their lead.
The CFPB’s proposed rule, if adopted as written, could severely diminish the quality of life for some of the most-financially vulnerable Americans by greatly limiting their access to prepaid cards. The CFPB closed its public comment period last week, but the American Transaction Processors Coalition is committed to partnering with the Network Branded Prepaid Card Association and others to educate the regulator and members of Congress about the wide-ranging rule’s potential unintended consequences.
The proposed regulation could have enormous consequences for the more than one-in-four U.S. households that are either unbanked or underbanked. The latest FDIC-sponsored National Survey of Unbanked and Underbanked Households reports that more than 67 million American adults either have no bank accounts at all, or depend upon alternative financial tools like prepaid cards to receive paychecks or purchase goods and services.
The CFPB, recognizing the growing importance of prepaid accounts, proposed an 870-page rule in a well-intentioned evaluation of the industry. We agree with many of the rule’s recommendations but are concerned that several of the proposed actions would not protect consumers and could in fact do them harm. The increased burdens from the proposed regulations could make it more expensive for consumers to purchase and use General Purpose Reloadable cards. Indeed, the proposed rule could effectively limit access to these beneficial products for millions of Americans.
The CFPB rule’s unintended consequences are not limited to unbanked and underbanked Americans relying on prepaid cards. The unnecessary and burdensome regulations also have the potential to stifle innovation in the digital transactions industry. Companies such as Uber are successfully meeting consumer demand with technological innovations that tie to the existing payment infrastructure, ensuring a seamless, simple and secure transaction. The proposed rule’s requirements could halt the innovation necessary to build next-generation businesses, while also knocking America’s payment processing companies off their current global leadership perch.
In particular, the definition of “Prepaid Accounts” in the proposed rule deviates widely from the CFPB’s May 2012 Advanced Notice of Proposed Rulemaking on GPR Cards, and seeks to also regulate digital currencies, mobile wallets and peer-to-peer payments. We generally agree that it is appropriate to apply many of the same protections to GPR Cards that the CFPB currently requires of payroll cards. But we believe the CFPB goes too far in regulating many of the other prepaid products included in the rule, which will stifle innovation in the industry. The CFPB should limit the rule’s coverage solely to reloadable prepaid accounts that are used as consumer asset accounts.
We are encouraged by the efforts made by Georgia’s congressional delegation, and invite other members to add their voices. As the CFPB moves to implement its proposed rule, it must continue its discourse with members of Congress, consumers, financial institutions and transaction processing companies. Failure to do so would jeopardize the ability of America’s most vulnerable citizens to gain financial footing, and would stifle the innovation investments necessary to maintain our leadership in the payment transaction industry.
H. West Richards is executive director of the American Transaction Processors Coalition.
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