WASHINGTON–Consumer groups are applauding the announcement by the Federal Reserve that it plans to develop a real-time payment system, but they are also calling on the Fed to ensure protection against scammers and criminals who use faster payment systems to receive and move money.
As CUToday.info reported here, the Fed said it is developing a new round-the-clock, real-time payment and settlement service, called the FedNow Service, to support faster payments in the United States.
Fraud Prevention ‘Critical’
“Faster payments can help consumers manage their money, pay bills in a timely manner, and get quick access to funds needed make ends meet, but fraud protection to prevent both hacking and payment scams is critical in designing a new payment system,” said Lauren Saunders, associate director at the National Consumer Law Center, in a statement. “The Fed’s decision to build a real-time payment system ensures that access will not be controlled by the biggest banks and that the system will be designed by a public agency with a mandate to consider robust consumer protection and the needs of all participants, including consumers, communities of color, small businesses, community banks, and retailers.”
The organization noted currently, both The Clearing House – a banking association and payments company that is owned by the largest commercial banks – and the Federal Reserve Board operate clearing houses used to make ACH payments, a 45-year old system that is the primary mode of moving money electronically today.
“But ACH payments typically take one business day to clear, meaning that a payment made on a Friday may not appear in the recipient’s account until Monday,” the group reminded.
Prior Comment
The group said speed is one important element of a new faster payment system, but not the only one. In comments to the Fed last fall, 30 consumer, civil rights, and community organizations highlighted prevention of overdraft fees, recourse in the case of fraud, privacy, data security, ubiquity, and access for all as essential elements that the Fed must address in a new payment system.
“A more ubiquitous system that enables anyone to pay or receive money from anyone can also be misused, and strong rules are necessary to keep out criminals and protect consumers who are defrauded,” Saunders explained. “We have seen far too much fraud with little recompense today with Venmo, Zelle, Cash, and other person-to-person systems that have prioritized speed and access over fraud protection. Security on the front end to prevent hackers from sending money from your account is important but the receiving end is critical as well, and institutions that give scammers access to receive money must take responsibility and compensate consumers who are defrauded by the institution’s customers.”