Welcome to the Nov. 2022 issue of NEACH’s Innovating Payments Executive Summary. In this month’s top headline, Rohit Chopra, Director of the Consumer Financial Protection Bureau (CFPB), told attendees at Money 20/20 that financial services are slowly moving toward open banking and open finance. According to Chopra, the CFPB will activate a dormant authority under the Consumer Financial Protection Act, which he expects to accelerate the shift. In other news, Nacha released its Q3 volume that showed 7.6 billion payments were processed valued at $19.2 trillion. Those are 4.2% and 6% increases, respectively, from a year earlier.
Also in the news, the Federal Deposit Insurance Corporation (FDIC) announced the release of its 2021 National Survey of Unbanked and Underbanked Households, which found an estimated 4.5 percent of U.S. households (representing 5.9 million households), lacked a bank or credit union account, the lowest national unbanked rate since the FDIC survey began in 2009.
For more on these and other stories, read on.
Consumer Finance Protection Bureau (CFPB)
Director Chopra’s Prepared Remarks at Money 20/20
"Around the world and here at home, financial services are slowly moving toward open banking and open finance," stated Rohit Chopra, Director of CFPB, in his prepared remarks at Money 20/20. "A more decentralized and neutral consumer financial market structure has the potential to reshape how companies compete in the sphere."
According to his remarks, “The CFPB will launch the process to activate a dormant authority under Section 1033 of the Consumer Financial Protection Act,” which he expects will accelerate the shift.
The rule, while not explicitly an open banking or open finance rule, will move the CFPB closer to it. The rule will obligate financial institutions to share consumer data upon consumer request, empowering people to "break up" with banks that provide inferior service and increase market competition.
“There are many forms of pro-competitive regulation, such as rules that reduce switching costs or barriers to entry, rules that promote price transparency and shopping, rules that reduce conflicts of interest, and rules that place limits on business activity in order to ensure that firms don't exploit their control over critical networks,” Chopra reminded listeners in his remarks. “Ideally, these rules are bright lines that require a minimal number of lawyers who bill by the hour.”
Chopra concluded his remarks, saying, “A more open ecosystem that is broadly inclusive of both consumers and businesses holds great promise. Our rulemaking will not turn on a switch, but I hope it will move us in that direction.”
To read Chopra’s remarks in their entirety, click here.
CFPB Kicks Off Personal Financial Data Rights Rulemaking
In an Oct. 27 news release, the Consumer Financial Protection Bureau (CFPB) outlined options to strengthen consumers' access to and control over their financial data as a first step before issuing a proposed data rights rule that would implement section 1033 of the Dodd-Frank Act. Under the options the CFPB is considering, consumers would be able to more easily and safely walk away from companies offering bad products and poor service and move towards companies competing for their business with alternate or innovative products and services.
“Dominant firms shouldn’t be able to hoard our personal data and appropriate the value to themselves,” said CFPB Director Rohit Chopra in the release. “The CFPB’s personal financial data rights rulemaking has the potential to jumpstart competition, giving Americans new options for financial products.”
The release continued:
Today's document outlines proposals and alternatives under consideration for the CFPB's data rights rulemaking. If today's proposal is finalized, the rule would require firms to make a consumer's financial information available to them or to a third party at that consumer's direction. As described in the outline, the CFPB is considering proposals, for instance, that would empower consumers who want to switch providers to transfer their account history to a new company so they do not have to start over if they are unsatisfied with the service provided by an incumbent firm. The CFPB is also considering proposals that would include essential options around privacy for personal financial data authorized for third-party use, including limitations that would prevent third parties from reselling approved data for other uses.
The rulemaking process will include panel convenings to seek feedback from small entities on the proposals under consideration. Later, the panel will prepare a report on the input received from the small entities, and the CFPB will consider the input as it develops a proposed rule.
Other stakeholders may also provide written feedback on the CFPB’s outline. Feedback should be emailed to Financial_Data_Rights_SBREFA@cfpb.gov no later than Jan. 25, 2023.
Read the CFPB’s Outline of Proposals and Alternatives Under Consideration, Small Business Advisory Review Panel for Required Rulemaking on Personal Financial Data Rights.
CFPB Issues Guidance to Help Banks Avoid Charging Illegal Junk Fees on Deposit Accounts
On Oct. 27, the Consumer Financial Protection Bureau (CFPB) issued guidance about two junk fee practices that are likely unfair and unlawful under existing law, according to a news release. The first, surprise overdraft fees, includes overdraft fees when consumers had enough money in their account to cover a debit charge when the bank authorizes it. The second is indiscriminately charging depositor fees to every person who deposits a check that bounces. The penalty is an unexpected shock to depositors who thought they were increasing their funds.
"Americans are willing to pay for legitimate services at a competitive price but are frustrated when they are hit with junk fees for unexpected or unwanted services that have no value to them," said CFPB Director Rohit Chopra in the release. “We are providing guidance on existing law that will help law-abiding businesses seeking to fairly compete and the families they serve.”
Overdraft and depositor fees likely violate the Consumer Financial Protection Act prohibition on unfair practices when consumers cannot reasonably avoid them. Today’s Consumer Financial Protection Circular on surprise overdraft fees and the CFPB’s compliance bulletin on surprise depositor fees lay out when a financial institution’s back-end penalties likely break the law.
To learn more and read the release in full, click here.
Nacha
ACH Network Moves 7.6 Billion Payments in Third Quarter of 2022; Strong Growth Continues for Same Day ACH
In other news, steady growth continued for the ACH Network in the third quarter of 2022, with 7.6 billion payments processed valued at $19.2 trillion, according to a Nacha news release. Those are 4.2% and 6% increases, respectively, from a year earlier.
Same Day ACH showed particularly robust growth. There were 176.6 million same-day payments, up 23.5% from the third quarter of 2021. The value of those payments—$478.5 billion—reflects a 102.7% rise from a year ago.
"As more users of the ACH discover Same Day ACH, they are seeing the value it provides," Jane Larimer, Nacha President, and CEO said in the news release. “Same Day ACH payments so far in 2022 have moved more than $1.25 trillion. With a $1 million capability for Same Day ACH payments and settlement with funds availability four times daily, the ACH Network is helping to meet America’s faster payment needs.
Business-to-business (B2B) ACH payments increased 11.5% to 1.5 billion as organizations large and small continued moving away from checks in favor of faster and safer ACH payments.
To read the full Q3 results, click here.
Nacha Research Shows 97% of Workers Ages 22-34 Have a Bank Account, and 88% of Them That Are W2 Workers Use Direct Deposit
A study commissioned by Nacha found that the sizable majority of the nation's younger millennials are paid by Direct Deposit but revealed a stark contrast between W2 employees and gig workers, according to an Oct. 9 news release.
Overall, 97% of workers ages 22-34 have a bank or credit union account, with 83% receiving their pay by Direct Deposit. However, among W2 employees, 88% use Direct Deposit, while only 47% of gig workers are paid this way.
Of the respondents receiving direct deposit payments, more than three-quarters cite key attributes of reliability, trustworthiness, ability to be paid on time, security, and ease of use.
Other key findings from the research on American workers ages 22-34 included:
- 71% keep their money primarily in a bank account – almost all have deposit accounts, and the vast majority have savings accounts.
- 7-in-10 use Direct Payment for bill payments at least once a month.
- 56% of gig workers still primarily store their money in bank accounts, but the remainder store it in other non-bank payment app alternatives.
To learn more, click here.
FDIC
Despite COVID-19 Pandemic, Record 96% of U.S. Households Were Banked in 2021
Despite unprecedented economic challenges posed by the COVID-19 pandemic, nearly 96 percent of U.S. households were banked in 2021, according to the latest national survey released today by the Federal Deposit Insurance Corporation (FDIC), stated an Oct. 25 news release. The FDIC’s 2021 National Survey of Unbanked and Underbanked Households also found an estimated 4.5 percent of U.S. households (representing 5.9 million households), lacked a bank or credit union account, the lowest national unbanked rate since the FDIC survey began in 2009.
“During the pandemic, consumers opened bank accounts to access relief funds and other benefits quickly and securely,” FDIC Acting Chairman Martin J. Gruenberg said in the release. “Safe and affordable bank accounts provide a way to bring more Americans into the banking system and will continue to play an important role in advancing economic inclusion for all Americans. Today’s results highlight the importance of ensuring consumers who are receiving benefits or starting a new job, two key bankable moments, can easily find and open a bank account that meets their needs.”
Key findings in the 2021 survey include:
- National Unbanked Rate Drops to Record Low.An estimated 4.5 percent of U.S. households were “unbanked” in 2021, meaning that no one in the household had a checking or savings account at a bank or credit union. This represents approximately 5.9 million U.S. households, compared to 7.1 million in 2019.
- National Underbanked Rate and Use of Nonbank Financial Products and Services Declines.An additional 14.1 percent of households, or 18.7 million, were underbanked in 2021, meaning they had a bank account but used nonbank financial products and services during the year. Banked households’ use of key nonbank financial products and services that classify a household as underbanked declined by about one third between 2017 and 2021.
- Unbanked and Underbanked Rates Remain Higher Among Minorities.In 2021, 2.1 percent of White households were unbanked, compared with 11.3 percent of Black households and 9.3 percent of Hispanic households. While this gap is sizable, it is notably smaller than just two years prior when the unbanked rate in 2019 among White households was 2.5 percent compared to 13.8 percent and 12.2 percent among Black and Hispanic households, respectively. In 2021, 9.3 percent of White households were underbanked, compared with 24.7 percent of Black households and 24.1 percent of Hispanic households.
For more information on the survey findings, click here.
NEACH
Join us for the Future of Payments Symposium II on Dec. 1, 2022. This virtual event brings together industry leaders to talk about the latest developments in payments and what the future may hold.
Highlights from this year’s agenda include:
- FedNow—Ready for Launch with Tom Goodman from the Federal Reserve Bank
- RTP, Issues No One is Talking About with Monique Canty from The Clearing House
- Faster Payments 2022: Where We Are and Where We’re Going with Reed Luhtanen, The Faster Payments Council
- Crypto Regulation . . . Building a New Highway? with Lynne Marlor, Transformational Strategies, LLC
To learn more about the event, click here. You can also click here to register.
We hope to see you there!
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AUTHOR: Joe Casali, AAP, NCP
Executive Vice President
As the EVP of Payments Innovation for NEACH, Joe focuses on exploring innovative solutions and technologies that will help position members for success, both now and in the future. Connect with Joe to read more of his blogs, articles, and posts.
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