Payments 3.0: Nine Hundred Pages of Wisdom

In a world of soundbites and hyper partisanship, a two-volume, 900-page report is at a real disadvantage, especially if it comes from a previous administration.

Nonetheless, if the last four years have taught us anything, it’s that important topics might require more depth than your average tweet.

In January, in the waning days of Kathleen Kraninger’s tenure as director of the Consumer Financial Protection Bureau, the Taskforce on Federal Consumer Financial Law released its report and recommendations on how regulation and legislation surrounding financial services could be improved.

If behavior in Washington continues down its recent path, the report is likely to remain on a shelf or buried in a hard drive. That would be too bad, because even though people might disagree on some of the particulars, it outlines important concepts that would be useful for regulators.

The report encourages regulators to give up the notion that they only have two opposing choices: consumer protection or deregulation.

“Instead, the Taskforce believes that the overall objective of consumer financial protection policy should be to adopt rules, regulations, and practices that protect consumers from harm; improve consumer welfare overall; promote fair and transparent markets and eliminate practices that interfere with that goal,” the report says in volume I.

Back in 2014, when the prepaid-accounts rule was first proposed, the industry supported much of the proposal because it was designed to promote transparency and make it easier for consumers to find good products.

In a press release issued at the time of the first field hearing on the rule, Green Dot Corp. took a position similar to what the Taskforce would eventually adopt.

As part of his prepared testimony, then chief executive Steve Streit said, “A football game without rules and referees isn’t a sport; it’s a brawl. Like sports, to be successful, industry also needs rules and referees to ensure fairness, integrity, and safety for all participants.”

The report notes that well-designed rules protect both consumers and “upstanding businesses from market distortions caused by fraudulent businesses and the adverse effects on consumer confidence that those practices can cause.”

Another theme that runs through the report is consistency of regulation across product types. In volume II, it is most explicit about debit and prepaid cards.

“The Bureau should expand access to the payment system by unbanked and underbanked consumers and ensure consistent treatment of consumers and similar financial products by applying the same Regulation E rules to consumers using prepaid cards and debit cards,” it says.

Another section of the report notes that regulations on one product can influence the demand and use of a product that meets similar needs. It gives as an example: small-dollar loans, pawnbrokers, and deposit-advance products all operate in a similar space for consumers, despite being viewed as different products. It recommends that the CFPB reorganize around markets rather than products.

As fintechs, traditional banks, credit unions, and prepaid cards compete to meet the same needs for customers, a consistent regulatory framework is crucial for consumer protection and fair competition.

We are in a time of rapid change as technology advances and we chart a course out of one of the biggest disruptions of modern times. Our instincts want to engage the part of the brain that thinks and acts fast.

But as we face big decisions about where we go from here, it is important to slow down, re-examine our assumptions, and think what principles we should use to navigate into the future.

A 900-page, two-volume report might be the most advantageous thing in a world of sound bites and hyper partisanship.

—Ben Jackson, bjackson@ipa.org