In a speech aimed at discussing electronic payment networks, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray did not miss the opportunity to make a statement to the banking industry along the way.
Cordray spoke Nov. 20 at The Clearing House, and the speech was aimed at discussing electronic payment networks.
In prepared remarks for the event, Cordray discussed the role the CFPB’s Consumer Response unit had played in bringing enforcement actions against companies it said were violating consumers’ rights, including a September lawsuit against the Hydra Group. But he quickly moved from the enforcement to banks.
“Surely, the financial institutions that accept these unscrupulous lenders and their payment processors as clients need to do a better job of ensuring that they are honoring the protections afforded consumers under the Electronic Fund Transfer Act,” Cordray said. “But more fundamentally, consumers expect their own bank or credit union to be on their side. They trust them to hold on to their money, and banks and credit unions need to be better about doing just that. Unfortunately, all too often the institutions are not living up to consumers’ expectations by failing to honor consumers’ stop payment and revocation orders or even refusing to allow consumers to close their accounts to halt the abuse.
“There is no room for these kinds of practices in the payment system or the banking system,” Cordray continued.
American Bankers Association Vice President Steve Kenneally issued a brief response: “ACH rules and the CFPB’s own Regulation E provide extensive protections against unauthorized transactions. A consumer who reports unauthorized ACH transactions within 60 days of receiving a statement has no liability.”
The theme of the CFPB holding banks and the lending industry responsible for third-party infractions is hardly new. Whether seen through enforcement actions using Operation Chokepoint to move back through the supply chain or in industries such as debt collection, the bureau has made it a point to instruct industry participants that they will be held responsible for oversight of third-party partners.
In its September enforcement action against U.S. Bank, one of the provisions the CFPB put on the institution was to strengthen its management and oversight of add-on service providers and add-on products, including an analysis by the bank of the service provider’s ability to comply with federal consumer financial laws and the bank’s policies and procedures before entering into a contract and periodic on-site reviews by the bank of the service provider’s controls, performance and information systems.
Cordray also took time at The Clearing House to address transparency in the ACH system, saying that differing rules between banks and credit unions over the availability of funds that are deposited or withdrawn from accounts through ACH systems could add to consumer uncertainty and increase the likelihood of overdraft and non-sufficient funds fees being charged.
“As you know, the consumer bureau is carefully studying whether regulatory changes are warranted to address some of these concerns. But we cannot ignore that one of the root causes seems to lie in the way that deposits and payments are processed by and between financial institutions today,” he said.
Finally, Cordray discussed faster payments, applauding The Clearing House’s recent announcement that it planned to build a real-time payment system.
“Yet my first admonition to you would be this: Make it an urgent priority,” he said. “As The Clearing House and others move forward into the world of faster and even real-time payments, I have another admonition for you as well: As you go about this work, it is essential that the interests of consumers remain at the top of your minds.”
Cordray said that faster payments should bring faster access to funds that a consumer deposits, as well as real-time access to information about the status of an account. He added that “robust consumer protections” should be in place to prevent fraud and unauthorized or erroneous transactions as money moves faster, and that the system should be open to all consumers, “not just to the most privileged.”
“With these guiding principles in mind, a faster payment system can be made to work for consumers as well as for financial institutions and their commercial clients,” Cordray said. “It can bring greater transparency and less need for people to go outside that system to obtain access to their funds and pay their bills. These would indeed be important advances for consumers.”