Bank Regulation

NACHA Talks Faster Payments, CLEARR Act And APIs At Capitol Hill Day

House Questions Big Tech Over Antitrust Concerns

Earlier this month, NACHA–The Electronic Payments Association sent its Government Relations Advisory Group on its annual pilgrimage to Capitol Hill. The purpose of Capitol Hill Day is to provide updates and continued education to Congressional representatives and staff regarding the ACH Network, payments, and the NACHA Operating Rules.

NACHA’s Bill Sullivan gave the recap to PYMNTS CEO Karen Webster. As always, Sullivan said, the event was popular for NACHA’s member institutions, since its outcomes directly affect every large, medium, or small bank and credit union in the nation.

Sullivan said that NACHA was pleased with the conversations that took place on Capitol Hill Day, which continued the tradition of cooperative interplay between NACHA and the federal government. The day is an annual opportunity for NACHA to “showcase boots on the ground across the country” and to act as a thought leader in the payment space, he said.

The ACH Network, conceived in the 1970s to replace paper checks for payroll, provides the backbone for the electronic movement of money and data in the U.S., now processing more than 25 billion Direct Deposit and Direct Payment transactions annually – a total of more than $43 trillion. And now, with Same Day ACH, the Network has evolved to deliver even faster payment processing.

“What NACHA has done that no one else in the U.S. has done successfully is deliver speed and ubiquity,” said Webster, opining that getting the country’s 10,000 to 15,000 banks and credit unions all on the same page to implement Same Day ACH was “no small feat” and may be the greatest testament to NACHA’s success over the years.

It certainly seems to have earned the respect of government officials. This year, NACHA was up against fierce competition for attention on Capitol Hill Day, with members of Congress busy debating the Financial CHOICE Act on the floor in preparation for a vote. Plus, the hearing for former FBI Director James Comey was scheduled for that morning. Yet not a single member missed their scheduled NACHA meeting.

The CHOICE Act rolls back regulations that Sullivan said can pin down a community bank and prevent it from serving its function.

“Community banks are spending more money and resources on hiring compliance people than they are on lending to their community,” he said.

Webster agreed: “We need to give banks some credit for doing a lot of things right, and a lot of things that they can’t do right are because they’re spending a lot of money on compliance instead of lending money or doing things that are innovative.”

Sullivan said the train hasn’t left the station for banks, because at the end of the day, even with all this exciting new technology, people still trust their banks more than they trust Apple or Google. That conclusion was supported by the recent VISA study about paying through connected devices.

In addition to the CHOICE Act, Sullivan also discussed with Webster some of the key topics addressed during this year’s Hill Day, which ranged from the CLEARR Act to APIs to faster payments, and even banking marijuana sales.

CLEARR Act

The Community Lending Enhancement and Regulatory Relief Act of 2017, a.k.a. the CLEARR Act, is a bill that amends the Federal Trade Commission Act to require the Federal Trade Commission (FTC) to submit an annual report to Congress about its investigations concerning unfair or deceptive acts or practices in or affecting commerce.

Sullivan said the Act contained a provision that would restrict a regulator from ordering a deposit account to be closed without stating a material reason in writing. This would help protect legal businesses that might be banking in industries that aren’t always seen as “above board,” he said, raising firearms as an example.

NACHA is agnostic in its governance. As long as a business is operating within its rules, it doesn’t care what industry it’s a part of. But not everyone is so agnostic. The CLEARR Act will protect those businesses from what Sullivan called “choke point legislation.”

API Standardization

During Hill Day, Sullivan and participants also shared information on NACHA’s API Standardization Industry Group. The API group has been working to identify pain points for not only financial institutions but for businesses and consumers and ways to leverage APIs to alleviate them. But introducing APIs will mean implementing cross-industry standards, and that will be no small feat. This is very much a developing topic, said Sullivan, with more to come at future meetings.

Faster Payments and the Fed’s Faster Payments Task Force

Of course, Hill Day participants also discussed faster payments and the developments in that space. One aspect they stressed was the security and protections faster payments can provide.

Sullivan noted that faster payments, such as Same Day ACH, protect organizations and the individuals they employ. To show how, Sullivan gave this example: “When we met with Bruce Poliquin of Maine, in his district there are two very large paper mills. If the paper mill doesn’t process their payroll on time or there’s an error in the payroll, those employees can still get paid on time with Same Day ACH.”

Receipt of Same Day ACH is mandatory, which provides for the ubiquity and value of this faster payment offering. And Sullivan reported that the banks have been prepared for the shift, and in compliance, per the NACHA Operating Rules.

He also noted that the efforts of the Fed’s Faster Payments Task Force could aid in ensuring ubiquity around some of the other faster payment offerings. The work of the Task Force may be vital in terms of making sure there are also standards and rules that allow for ubiquity across these newer, faster payment systems, Sullivan said.

Banking Around Legalized Marijuana

Hill Day participants also discussed other trending payments topics, such as banking the legalized marijuana businesses. Sullivan noted that this is a concern among some regional banks. But Sullivan doubts that the current federal administration and Congress will pass the legislation to bank marijuana. Currently, he said, these transactions get run through other fronts, such as bike repair shops. Webster added that the cash-only environment can be a magnet for criminals.

“We should have good enough compliance in place to be able to accommodate these kinds of transactions,” she said.

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Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. The July 2019 Pay Advances: The Gig Economy’s New Normal, a PYMNTS and Mastercard collaboration, examines pay advances – full or partial payments received before an ad hoc job is completed – including how gig workers currently use them and their potential for future adoption.

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