WASHINGTON—The CFPB’s final rule to supervise the largest nonbank companies offering digital funds transfer and payment wallet apps should help boost relationships between CUs and their members that use payments apps, says one analyst.
Brandy Bruyere, partner at Honigman, LLP, told CUToday.info the rule will force many of the top payments apps to be more responsive when consumers call in with questions, particularly regarding fraud loss, taking some of the burden off the shoulders of credit unions, and in the process make members happier.
Bruyere said she began hearing comments from CUs years ago about this, when the CFPB began asking fintechs to provide the agency with data.
“I heard about a lot of frustration. Because the member is duped, and whether it’s Cash App, Venmo or Zelle, they then come to the credit union to be made whole. Nobody was calling any of the payments providers, even though, under regulation E, they should be called,” she said.
Bruyere said she was aware that some of the apps have customer service numbers, but over the past two years those numbers did little to help consumers who experienced fraud on the app.
“The payments app companies are making money off this service, but have been making sure the risk of losses stayed with the traditional banks and credit unions,” she said. “The problem is if the member still calls the credit union to say, ‘I suffered a loss,’ and they may try to run it through the payment app, what ends up happening is when the losses occur, they tend to still come to the credit union or bank. And there's no way to hold the member accountable for being negligent, or anything like that. Once they claim it's unauthorized it's the credit union’s burden of proof to show it was authorized.”
Fintechs Should Do More
What Bruyere hopes the new regulation will do is make sure these apps are doing their part when consumers come to them first.
“That could be helpful,” she said. “I just don't know if this if this rule actually gets used. What we saw in 2017 was a revisiting (from the new administration) of pending rules. I think that's why this has a 30-day effective date. But what we also saw was if there were legal challenges to some of those new rules then, the CFPB did not defend rules that maybe the new administration didn't like.”
Bruyere said the new rule brings up an interesting situation, since there may not be consensus to overturn it.
Brandy Bruyere
“Maybe the payments providers, since this rule targets only the biggest fintechs, won't fight as hard, compared to if the rule included all of them,” she said. “They may also be waiting to see what the CFPB’s enforcement and supervision approach is going to look like under the Trump Administration.”
Back when Trump began his first term and replaced Richard Cordray with Kathy Kraninger, Bruyere said there was a lot of debate about whether or not a “cop was on the beat” anymore.
“But we still saw consent orders and enforcement actions under former director Kraninger,” she noted. “But they were just less focused on punitive and more focused on restitution—what were the real harms to the consumer. How did the financial institution make that consumer whole? We don’t know who will replace Chopra. But I am certain we won't see the same level of aggressiveness with enforcement supervision.”
Remove Angst
So, will this new rule remove some of the angst when credit union members call the CU after they experience fraud on one of these apps? Will the rule reduce the burden on credit unions when members try to investigate what's going on?
“I think so,” said Bruyere, adding that the burden of repayment will still likely fall with the credit union.
“Who did the consumer go to first—and that usually will dictate who's having to do the initial investigation and give any kind of repayment,” she explained.
Bruyere said the financial institution, despite big fintechs under the new rule having to be more responsive to consumers, will still likely be contacted first.
“They’ll probably notice the fraud first when they open their credit union account statement and see the unauthorized transactions,” Bruyere said. “If nothing else, I think credit unions at least want to feel like these app providers have some skin in the game and have some level of accountability—I think that's one of the goals of this rule. Whether it will actually result in savings to credit unions on fraud losses, I’m less optimistic about that.”