By Robin Arnfield
With the advent of increased financial oversight prompted by the financial crisis, financial institutions are beginning to be regulated like utilities.
That was one takeaway during last month's ATM & Mobile Summit in Washington, D.C.
During a panel discussion, a handful of U.S. payments industry executives discussed upcoming regulations governing ATMS and mobile payments, agreeing that new regulations — for example, those contained in the Dodd-Frank Act — have led regulators to view FIs differently.
U.S. payments industry experts shared their views on the impact of upcoming regulations on ATMs and mobile payments in a panel discussion at the inaugural ATM & Mobile Executive Summit last month in D.C.
The panelists agreed that, since the financial crisis, the U.S. Government has had more oversight over financial institutions than previously, and that the effect of Dodd-Frank has been to regulate financial institutions as utilities.
"The Durbin Amendment is an example of utility regulation and price-setting by the U.S. government, and is just one of the elements in Dodd-Frank that turns a financial institution into more of a utility," said Lynne Barr, a partner at law firm Goodwin Procter.
Overdraft protection and the CFPB
Barr predicted that the Consumer Financial Protection Bureau will look at introducing overdraft protection regulation. "Bank examiners both at the CFPB and the prudential regulators are very interested in this topic," she said. "Overdraft protection will be on the CFPB's agenda in 2014."
Overdraft protection regulation is relevant to ATMs because of charges incurred on cash withdrawals from overdrawn checking accounts. Historically, customers who had insufficient funds in their accounts were unable to make ATM withdrawals. Now banks enroll checking account customers into overdraft protection plans, which charge as much as $35 to cover ATM withdrawals from accounts with insufficient funds.
Prudential regulators such as the Federal Reserve and the FDIC wield a great deal of power over banks of all sizes, even though they don't technically have the authority to enforce the consumer law, Barr noted.
"Consumer groups are very concerned about overdraft fees, particularly through ATM withdrawals and on prepaid cards," said Laura Udis, a senior advocate for financial services at the Consumer Federation of America.
Overdraft protection and Congress
In addition to action by the CFPB, Congressional overdraft protection legislation is on the horizon, said Kurt Helwig, president and CEO of the Electronic Funds Transfer Association. One possibility is the reintroduction of H.R.1261, the Overdraft Protection Act of 2013, by Congresswoman Carolyn Maloney, D-N.Y. The bill includes a requirement that ATMs and POS terminals warn customers when a transaction will trigger overdraft fees. The panel agreed that the bill, which is supported by the CFPB, is likely to be reintroduced in the next session of Congress.
The panel discussed the difficulty of providing real-time notifications to customers of their account status at POS terminals or at ATMs. "There will have to be multiple messages going back and forth between the host system, the issuer and the issuer's processor," said Joe Samuel, First Data SVP of global public affairs. "This would slow down processing time and lead to line-ups."
The panel thought that Sen. Tom Harkin (D-IA) might introduce a new bill to cap ATM fees before he retires in 2014. In 2010, the Senate blocked Harkin's Financial Reform Amendment, which would have capped ATM fees at 50 cents. The chances of a new ATM fee bill passing are not great, the panel concluded.
Durbin routing requirements and the Leon ruling
The panel debated the impact on EMV migration resulting from U.S. District Court Judge Richard Leon's ruling against the Federal Reserve's implementation of the Durbin Amendment's debit card interchange fee regulation. The Federal Reserve has lodged an appeal against Leon's ruling with the U.S. Court of Appeals for the District of Columbia, which won't hear the case until late Spring 2014 at the earliest, Barr said.
With the possibility of a further appeal to the Supreme Court by the Federal Reserve or by the retailers, the Federal Reserve won't issue its final debit interchange regulation before 2015 or even 2016, Barr said.
Both Barr and Helwig maintained that, because Leon's ruling jeopardizes Durbin's debit network routing requirement, EMV migration is on hold. But Samuel said EMV can still go ahead. "A common application identifier can be included on an EMV debit card's chip, which would enable transactions to be routed in multiple ways," he said.
The panel agreed that Visa and MasterCard's October 2015 liability shift deadline is unlikely to change. Starting then, liability for counterfeit card fraud will pass to acquirers who are unable to accept EMV card transactions at POS terminals.
"If issuers don't issue EMV chip cards and merchants don't install EMV card readers, there will be no liability shift," said Dave Willis, Navy Federal Credit Union SVP of debit cards and funds services.
Mobile payments, the CFPB and the FCC
Regulators scrutinizing mobile payments fees should take a broad view of the cost of mobile payment transactions, Helwig said. "The CFPB has been talking about the need to democratize mobile technology and drive down the costs," he said.
Helwig said regulators need to factor in costs such as mobile infrastructure and security to see the entire cost model, rather than take a snapshot of the cost of moving a mobile payment transaction from point A to point B.
Barr didn't think the CFPB will intervene to set mobile payment fees. "It doesn't have the authority to do this," she said. "Mobile carriers are already highly regulated as utilities, so it's highly unlikely the Federal Communications Commission or another entity will regulate the cost of transactions over mobile networks."
Udis speculated that regulators might act against unfair or unreasonable mobile payment fees such as charges for overdrafts from prepaid card accounts linked to cellphones.
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