By William Sellery
Executive Directir, FiSCA
If 2013 is any kind of gauge, there is no doubt that 2014 will be another extremely active year for the Financial Service Centers of America.
Fortunately, in 2013, significant and worthwhile progress was made on a wide variety of issues. However, much work lies ahead. Looking to the future, 2014 could easily be a real turning point on several issues of major importance to our industry, from potential payday loan regulations, to the ability of government beneficiaries to choose a paper check, to addressing new fraud vulnerabilities from remote deposit capture, to responding to unwarranted bank terminations, among many issues currently being addressed.
Congress Role Vital
While there seems to be an increasing likelihood of even more day-to-day regulations — especially from the Consumer Financial Protection Bureau — the involvement of Congress will also continue to play a key role as many final decisions are made.
FiSCA has long recognized the link between public policy and our members’ businesses. Legislation, and its ensuing regulations, can dramatically affect how our members run their businesses on a day-to-day basis.
As we’ve always asserted, we want decisions to be based on facts, not misperceptions. Providing facts to decision-makers in Washington has always been one of the key goals of FiSCA. The importance of successfully providing those facts in a meaningful way, before proposals are finalized or decisions made, is magnified as federal actions increasingly address our products and services — and now even procedures and processes.
Recognizing the need to play a meaningful role in the debate of public policy issues, FiSCA has strategically structured itself to provide the right resources, at the right time, on the right issues. Springing from the original decision to move FiSCA’s headquarters into Washington, FiSCA is fully engaged on several levels to ensure that key facts, positions, and reasoning are brought forward on a timely basis for consideration of decision-makers.
Again, facts, not misperceptions, need to drive decisions. FiSCA is committed to making that happen.
Overall, since passage of the Dodd-Frank bill that legislatively created the CFPB, much of the immediate focus has shifted from legislative issues to the regulatory environment. Taking CFPB as the most prominent example, the new agency has regulatory authority over all our products and services under the guise of consumer protection – coupled with broad examination and powerful enforcement capabilities.
So it is critically important that decision-makers within CFPB clearly understand the nature of our business, how it works, and how our customers are appropriately protected.
Members Need Knowledge
In that regard, as an association, one of our missions is to assist our members to better understand the unfolding regulatory environment and to provide timely information on compliance procedures from the various agencies that regulate our business.
As we have indicated to many regulatory agencies over time, our members want to comply with all applicable regulations, but they need to know clearly what is expected of them. It’s critical when that knock on the door comes that you will have already implemented the correct policies within your company.
FiSCA has implemented strong, comprehensive and leading-edge compliance programs for our members. Although reserved for members only, the FiSCA website (fisca.org) contains comprehensive compliance tools designed to help our members meet current regulatory requirements, from AML/money laundering regulations to newly issued rules from the CFPB.
FiSCA’s Annual Conference now contains two separate compliance tracks for those regulatory areas, and those workshops have become among the most popular and well attended.
Let’s take a look now at some of the key issues for our industry for 2014, the status, outlook, and how those issues may affect the business of the neighborhood financial service center industry. This is Washington, of course, so Congress and the regulatory agencies can both be involved on different levels as policies are developed.
On March 1, 2013, all government beneficiaries were required to receive their benefits electronically — either directly deposited into a bank account, or placed on a government-issued prepaid card.
The option of being able to choose a paper check was not available except for a small number of very narrowly defined exemptions. And even those exemptions contained onerous process requirements, making them nearly impossible to obtain.
The U.S. Treasury Department then began using heavy-handed, almost intimidating, messages to beneficiaries to sign up for electronic delivery. However, bank accounts and prepaid cards don’t work for everyone, and the fairness of “Choice,” the ability to choose a paper check, made great sense as a reasonable and fair alternative.
Although FiSCA worked with Treasury to examine possible solutions, we found that Congress was more receptive in understanding the fairness of Choice. Hearings have been held in both the House and Senate, highlighting the problems for millions of beneficiaries, and supporting the principle of Choice.
In both written and oral testimony, Treasury has now indicated that paper checks would continue for those who have not established a bank account or signed up for a prepaid card. Further, Treasury agreed to tone down and scale back intimidating notices to beneficiaries.
Nevertheless, more work needs to be done. The law still requires electronic delivery, and choosing a paper check needs to be an option, not an unclear and uncertain default. And troubling instances are emerging of government agencies blocking enrollments for direct deposit on certain prepaid cards, forcing people onto the government-endorsed card.
Further, more and more employers are now requiring employees to receive their pay electronically – not by paper check. Again, the fairness of Choice needs to be provided to those who prefer a paper check.
FiSCA will be continuing to work in 2014 on the issue of Choice, with the goal of providing a fair and reasonable ability for everyone to choose a paper check when that option suits them better.
Consumer Financial Protection Bureau
The potential for payday loan regulations will be a major area of interest and activity for FiSCA in 2014. Under the Dodd-Frank Act, the CFPB has direct authority to engage in rulemaking, issue industry guidance, examine payday lenders, and commence enforcement actions based on violations of consumer protection laws. In fact, the very first field hearing of CFPB addressed payday lending.
A CFPB “white paper” released earlier this year concluded that further regulatory action is warranted to provide consumer protection.
While no official confirmation has yet been provided, it is widely anticipated that payday, in some form, will be addressed by the bureau in 2014. How it’s addressed, and how it may impact our members, will be a significant focus of FiSCA activity in the coming year.
FiSCA has worked hard to establish a strong, credible working relationship with CFPB. We are hopeful that relationship provides an appropriate forum to work with CFPB on the critically important payday issue.
Additionally, FiSCA continues to be active with the bureau on other MSB issues, such as check cashing and money transmitting, and prepaid card regulations, as those areas become more prominent in the bureau.
Again, FiSCA will provide relevant facts to assist the bureau in the consideration of any new regulations.
The wholesale and unwarranted termination of MSB bank accounts will continue to be a major issue focus for 2014. Bank accounts are the life blood of the industry and any contraction in the availability of banks in the MSB marketplace is of significant concern. The issue of account terminations has resurfaced, focused on the increased use of the ACH payment system to provide payments on payday loans. Several ACH processors and banks have terminated MSB relationships in response to regulatory pressure. FiSCA is committed to working with regulators, banks, and third-party ACH processors to ensure that the appropriate use of legal and approved procedures do not result in any further unwarranted account terminations.
Remote Deposit Capture
As more wide-spread use of technology naturally progresses, and more consumers use their smartphones to deposit checks electronically, the issue of fraud has increased simultaneously. FiSCA’s members are becoming vulnerable as liability issues arise, and fraud continues to increase.
Therefore, 2014 is likely be an important year in addressing the remote deposit capture issue as FiSCA works with banks and trade associations, such as the American Bankers Association, to develop policies and procedures to better work with established and emerging consumer banking technology.
Both the House Financial Services Committee and the Senate Banking Committee will continue in 2014 to exercise their respective oversight authority to review the regulatory activities of various agencies, particularly the CFPB.
While the current partisan approach to politics may prevent many bills from being signed into law, it will not prevent the active consideration of many proposals. In fact, the House Financial Services Committee passed several bills changing dramatically the way CFPB operates.
While it is unlikely the Senate will take up any of those bills, the House, nevertheless, will continue to keep the focus on many regulatory agencies even more in 2014. How agency witnesses answer certain questions sometimes provides an insight into agency thinking, which can be helpful.
As FiSCA continues to fight for its membership and the industry in 2014, the resolution of these issues and many more will likely play an important role in how our industry operates into the future. With a seat at the table, FiSCA will continue to advocate that facts, not misperceptions, be the basis of all sound decisions going forward.