What payments can expect from Washington this year


Rapid changes in the payments space have given regulators and legislators plenty to focus on, and this year, that’s likely to include buy now, pay later, peer-to-peer payment fraud and swipe fees.

“There’s just much more activity and concern about these payments issues than has been true maybe at any other time,” said Doug Kantor, general counsel for the National Association of Convenience Stores.

Recent actions, including the Federal Reserve’s debit rule clarification and the Federal Trade Commission ordering Mastercard to stop blocking merchants’ use of competing debit networks, suggest the payments industry faces more regulatory scrutiny than ever before. Kantor noted it’s rare that such industry events involving different federal entities would occur within months of each other.

Issues such as open banking, privacy and data issues and cryptocurrency also are expected to draw regulatory attention in the coming months. That’s against a backdrop in which Consumer Financial Protection Bureau Director Rohit Chopra has taken an interest in payments; the Biden administration is pursuing antitrust concerns; and a new chairman of the House Financial Services Committee, Patrick McHenry, (R-NC), has taken control of a powerful committee overseeing fintech and payments issues. The Senate remains under Democratic control.

Buy now, pay later

The CFPB’s inquiry with respect to the five biggest BNPL players and its subsequent report in September 2022 showed the agency is considering new rules directed at the installment trend, to ensure BNPL providers are adhering to laws that apply to credit card companies.

“The CFPB certainly seems motivated to bring BNPL under the regulatory umbrella that currently exists for similar products,” said Ed deHaan, professor at the University of Washington’s Foster School of Business.

Potential new BNPL guidelines could include disclosure requirements on the transactions, in an effort to increase transparency for consumers, attorneys and academics said. 

Michael Guerrero, a partner at law firm Ballard Spahr, also expects the CFPB might impose dispute protections for users, potentially looking at what’s provided to credit cardholders “as a guidepost,” as well as requirements for reviewing a borrower’s ability to pay and reasonable penalty fees.       

On that front, Affirm, the largest independent BNPL provider in the U.S., just this month gave the agency new reason to increase scrutiny. A “technical” snafu at Affirm last week led to erroneous, duplicative charges for some of the company’s customers on their installment loans, triggering overdraft fees in some cases from some banks.

Since the CFPB has expressed concern with loan stacking, deHaan said he expects the bureau to push BNPL providers to submit information to credit reporting agencies.

Although credit bureaus seem eager to take information from BNPL providers, few are reporting to the credit bureaus, said deHaan, who has conducted research on BNPL.

“That’s a major oversight in the industry,” he said. He expects that to be a significant regulatory shift this year. Spokespeople for credit reporting agencies Equifax, Experian and TransUnion didn’t immediately respond to requests for comment on the status of current BNPL loan reporting, but some have previously said they’re seeking to adapt their services to take the young industry into account. 

The regulatory response to BNPL could still be taking shape, as the CFPB keeps a close eye on consumers’ ability to repay loans. Some academics have warned that consumers could find themselves in a “debt spiral.

“The size of the problem – which I think is very much undetermined – is going to drive the size of the regulatory reaction, and the form of the regulatory reaction,” said Jeff Naimon, partner at law firm Buckley.

Swipe fees

Although Sen. Dick Durbin (D-IL) has said he will reintroduce the Credit Card Competition Act of 2022 this year, some industry observers are skeptical it will pass, given Republicans taking control of the House this year.

“With the change in control of Congress, I don’t know if there’s going to be an appetite to reintroduce that bill,” said Capco Managing Principal Daniela Hawkins.

The legislation, which seeks to inject more competition into an industry dominated by Visa and Mastercard, falls in line with the Biden administration’s focus of curbing market power in certain industries. 

Leaders of industry-friendly trade groups, including the Electronic Transactions Association and the Electronic Payments Coalition, expect the House of Representatives and its new Republican majority will be less receptive to the idea than the last Congress.



Source link