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Payments

i Overview

In the United States, the primary payment methods are cash, debit card, credit card, prepaid card, cheques and ACH transactions. The Federal Reserve estimates that in 2015 alone there were more than 144 billion non-cash retail payment transactions in the US, with a value of almost US$178 trillion. According to the Federal Reserve, the most common payment methods are card-based (debit, credit and prepaid), while ACH transactions have the highest dollar value for non-cash retail payments.

Although there is a great deal of industry interest and activity around online and mobile payments, to date, most online and mobile payments are processed using traditional payment infrastructures. Nevertheless, emerging payment solutions can leverage a number of enhancements over traditional payment methods, including improved customer interfaces, increased use of customer data, and integration with customer loyalty or reward programmes or other third-party services used by consumers. These enhancements have the potential to lessen friction and promote consumer conversion and usage rates. Many of the novel legal and regulatory issues surrounding emerging payments are related to these enhancements.

ii Recent developments

On 16 August 2017, the Department of Justice (DOJ) announced the end of Operation Chokepoint, a 2013 initiative of the DOJ that held banks and payment facilitators liable for dealing with 'high risk' merchants, such as pawnbrokers and payday lenders. Nonetheless, other federal agencies, such as the FTC and the CFPB, continue to hold payment service providers responsible for the actions of their merchants. For example, on 26 July 2018, the FTC testified before subcommittees of the US House Committee on Oversight and Government Reform that the FTC would continue to focus on payment processors who facilitate consumer fraud.

On 31 July 2018, the Department of Treasury (the Treasury) released a report identifying potential improvements to the regulatory landscape that could better support nonbank financial institutions, embrace financial technology, and foster innovation. The report made key recommendations to improve current US payment systems, specifically recommending that (1) states work to harmonise money transmitter requirements for licensing and supervisory examinations; (2) the CFPB provide more flexibility regarding 'the issuance of remittance disclosures'; and (3) the Federal Reserve facilitate a faster retail payments system, such as through the development of a real-time settlement service. The Treasury cited a report published by the Federal Reserve in 2017, which detailed strategies for improving the US payment system. The Treasury also noted that the increasing digitisation of payments is expected to reduce costs in payment processes for businesses and firms.

On 14 September 2018, NACHA announced the approval of three rules to improve same-day ACH capabilities of financial institutions: (1) as of 18 September 2020, same-day ACH transactions may be submitted to the ACH network for an additional two hours each business day; (2) as of 20 March 2020, the same-day ACH per-transaction dollar limit is increased to US$100,000; and (3) as of 20 September 2019, the speed of funds availability for certain same-day and next-day ACH credits will be increased by expanding the window of time for which funds from same-day ACH credits are processed.

On 3 October 2018, the Board of Governors of the Federal Reserve System (the Federal Reserve Board) invited public comment on two potential actions that the Federal Reserve could take to support faster payments in the United States that would 'promote ubiquitous, safe, and efficient faster payments in the United States by facilitating real-time interbank settlement of faster payments'. The Federal Reserve Board's request for comment was borne out of the recommendations of the Faster Payments Task Force, which was established in 2015 to support efforts to improve the speed, safety and efficiency of payments; the Task Force made specific recommendations for creating an ecosystem conducive to the development and adoption of faster payments solutions. Specifically, the Federal Reserve Board's request for comment asked whether the development of either of two services, which would be available 24 hours a day, seven days a week, 365 days a year, would help achieve this goal: (1) a service for real-time interbank settlement of faster payments; and (2) a liquidity management tool that would enable transfers between Federal Reserve accounts to support services for real-time interbank settlement of faster payments. The Federal Reserve Board noted the growing expectation of consumers and businesses to be able to send and immediately receive payments 'at any time of the day, any day of the year.'

On 25 January 2018, the CFPB finalised amendments to its prepaid accounts rule (prepaid rule), which was published in November 2016. The prepaid rule amends key provisions of the CFPB's Regulation E (Electronic Fund Transfers) and Regulation Z (Truth in Lending). It establishes a prescriptive 'pre-acquisition' disclosure regime, provides an alternative to written periodic statements, and contains modified error resolution procedures and cardholder liability limitations. It also extends modified versions of certain requirements under the Credit Card Accountability Responsibility and Disclosure Act (the CARD Act) to prepaid accounts, including a requirement to submit to the CFPB, and to post to a public website, certain prepaid account agreements. The prepaid rule will significantly alter the way prepaid card programmes are offered and managed in the United States.

The 2018 amendments addressed certain concerns about the prepaid rule raised by industry and delayed the general effective date for the prepaid rule until 1 April 2019. Specifically, the amendments finalise an exception to the requirements for a prepaid account issuer to provide error resolution and liability limitations for certain unverified prepaid accounts, provide additional flexibility with respect to the pre-acquisition disclosure requirements, and create a narrow exception to the credit-related provisions. While further amendments may be forthcoming from the CFPB, the prepaid rule is expected generally to take effect on 1 April 2019.