Payments 3.0: Regulators: Square Off Or Partner Up?

Should an industry square off against its regulators or partner up with them?

The answer shapes consumers’ access to financial products, and thus their financial lives. An acrimonious relationship stifles innovation, leaving consumers with fewer options to meet their financial needs.

Unfortunately, many signs point to a lot of future grappling between payments providers and regulators.

An early sign of this growing acrimony was PayPal’s lawsuit in December 2019 against the Consumer Financial Protection Bureau. PayPal opted to sue the Bureau rather than work through the regulatory process to try to make changes to the prepaid rule. While it is impossible to read the minds of PayPal’s executives, it is clear they did not see any other path forward.

More recently, the American Bankers Association and six other trade groups in September sued the Bureau and director Rohit Chopra over a March update to the Unfair, Deceptive, and Abusive Acts and Practices (UDAAP) exam manual. The update expanded the statutory definition of “unfairness” to include discrimination. The plaintiffs said the Bureau had overstepped its statutory authority. (The Innovative Payments Association was not a party to this suit.)

At the same time, the Bureau’s approach to the industry has become increasingly unfriendly over the past two years. I detailed some of the changes in my July column. The upshot is that the Bureau is telling fintechs it will be watching them closely—but not working with them—to ensure consumer protections.

While regulatory agencies should not be captive to the industries they regulate, they need to understand those industries. They cannot get a full picture of an industry without a willingness to learn how it operates. Consumer advocates can provide important feedback, but they rarely, if ever, provide information about how consumers benefit from products or services.

In recent months, we’ve seen approaches to consumer protection that do not require brawls.

For example, the Biden Administration is taking great pains to understand cryptocurrencies while simultaneously looking to protect consumers and promote innovation. In March, an executive order launched a “whole-of-government approach to addressing the risks and harnessing the potential benefits of digital assets and their underlying technology.”

Crypto is not the only place where there are benefits and risks to new technology. Perhaps other regulators could follow the White House’s lead and consider new payments technology holistically before looking to regulate them or promulgate guidance that changes the interpretation of existing laws and regulations.

Another example of a public-private partnership is the Federal Trade Commission’s Scams Against Older Adults Advisory Group, of which the IPA is a member. The group was created as part of the Stop Senior Scams Act, passed in March. It has four priorities: “1) expanding consumer education efforts; 2) improving industry training on scam prevention; 3) identifying innovative or high-tech methods to detect and stop scams; and 4) developing research on consumer or employee engagement to reduce fraud.”

These goals require the participation of all stakeholder groups. Stopping financial crime requires a team effort, and the FTC recognizes the important role that industry plays on that team.

The Advisory Group can serve as a model for the ways in which the industry can engage with government agencies and consumer advocates to bring real solutions to problems. Other agencies might consider how they could form similar groups.

Payments providers meet people where they live as their customers face everything from economic hardship to fraud to new technology. Providers can share a lot of knowledge based on those daily interactions that can contribute to protecting consumers and the financial system. They should not be shut out.

—Ben Jackson bjackson@ipa.org