Fundamentally, payments are pocketbook issues that affect just about all of us. Questions such as “When do I get paid?” or “When is the mortgage due?” are payments questions, because often the underlying question is “How much money is available now to meet my obligations?” If the answer is none, then I may have to borrow money at a high interest rate or I may need to pay a bill late. Either choice is likely to be costly.
When money moves faster, in practice it may mean that consumers have more immediately available money. The greater transparency of faster payments – the fact that consumers will have real-time information about how much money is coming in and how much is going out – also will be tremendously helpful. Everyone will benefit, because knowing how much money you have is crucial to successful money management. In short, faster payments have the potential to save you and me and all consumers money, time, and worry. A few examples:
- Receiving wages in near real time could be a game-changer for consumers, particularly those on the financial edge. More than 53 million Americans earn income from work that’s not a traditional 9-to-5 job with predictable hours. That’s 1 in 3 workers, and that number is expected to grow. As more workers move away from traditional employment and into the 1099 economy, faster payments are likely to be essential for financial well-being. Workers traditionally paid by check may find faster payments a good deal, as real-time wage payments could eliminate reliance on expensive check cashing for immediate access to earned wages (check cashing services can cost up to 7% of the amount of the check). Real-time electronic payment for labor frees consumers to use that money right away, returning real money to (digital) pockets, without the risk of street crime that may accompany carrying cash.
- Bill pay is another crucial area. The ability to pay a bill at the last minute can help consumers avoid late fees and the punitive rate hikes that may follow a late payment. That’s a big deal. Consumers pay $2.4 billion per year in credit-card late fees, and $800 million in expedited-payment fees to avoid those late charges. Faster payments could put that money back in consumers’ pockets.
- Emergency payments can also benefit consumers. For example, an insurance payout after an accident or government relief after a natural disaster could be essential for getting folks back on their feet.
No matter what the use case, Consumers Union’s goal remains the same: to make sure that every way is safe to pay. To that end, we fought for the Consumer Financial Protection Bureau’s Final Prepaid Rule. Over more than a decade, Consumers Union documented the unfair discrepancy between the protections afforded bank debit card users and prepaid card users, and we are pleased that the final rule no longer relegates prepaid cards to second-tier bank account status. The final rule extends protections to mobile wallets that store consumer funds. This protection will, we believe, extend needed protections to consumers who use non-bank peer-to-peer payments, another use case for faster payments.
The ability to pay a bill at the last minute can help consumers avoid late fees and the punitive rate hikes that may follow a late payment. That’s a big deal.
Despite the progress that the final prepaid rule represents, we think there may be unresolved questions about applicable consumer protections for those using faster payments. To that end, we stand with the Faster Payments Task Force in recommending that stakeholders work together to identify and, if needed, resolve outstanding issues. The result of two years of work by more than 300 stakeholders, the Task Force recommendations are critical to ensure that consumers reap the benefits of moving money in real time.
Although all of the Faster Payments Task Force recommendations will – we hope – be adopted, several are core to ensure consumer safety. We firmly believe there is a role for regulators to ensure that appropriate safeguards are enacted. The Task Force recommended that the Federal Reserve should take a leadership role in bringing together the relevant stakeholders to ensure that any gaps in consumer protection are addressed, and we are working to see this work completed. The Task Force also recommended the establishment of baseline standards. We think a uniform baseline – in the words of the Task Force, “minimal acceptable standards for the end-user experience” – could be a really important step toward widespread adoption, because it will ensure uniform disclosure requirements and standard terms. These are essential for making sure that consumers can effectively comparison shop for the services that best meet their needs. It also improves consumer clarity – people will know what they can expect. This recommendation also benefits industry, as standard disclosures and uniform terms can ameliorate some of the concerns that have arisen in the past around unfair and deceptive acts and practices.
We are also eager to see the work of the Federal Reserve’s Secure Payments Task Force continue to move forward. My colleague Suzanne Martindale serves on the steering committee of that group, representing consumer interests. The Secure Payments Task Force’s job is to ensure that as we move toward faster payments, we don’t sacrifice security for speed. With hacking and other threats constantly evolving, it’s more important than ever to make sure the payments industry uses best practices to authenticate users who conduct transactions, protect sensitive data, and work together to prevent fraud on the payments system.
The combined benefits of faster payments create the opportunity to bring consumers back into formal relationships with financial institutions by reducing or eliminating the unpredictable fees and the delays in accessing funds that may drive them away from traditional checking accounts. That’s why it’s especially important that these services be done correctly, right from the start. We have some ideas in addition to the Task Force recommendations to add. Providers would well serve consumers by doing the following:
- Adopting the Consumer Financial Protection Bureau’s Faster Payments Principles
- Keeping faster payments free of overdraft and other punitive fees
- Providing dedicated, rapid response points of customer service, so if things go wrong, consumers know whom to contact and how to get their money back
As faster payments come to market, we expect to see innovative products. We hope that in addition to being safe, these may be offered at lower cost or may be more convenient to use than traditional banking or alternative financial services, leading to greater security and better options for all consumers, including the unbanked, the underbanked, and those who are unhappy with their current bank.
