WASHINGTON, D.C. -

A wide array of service providers now operate to help finance companies keep payments coming into their coffers along with ways so customers can stay current on their vehicle installment contracts, especially individuals who might fall into the growing underbanked population.

With the payment industry expanding, the Consumer Financial Protection Bureau stepped in on Thursday by outlining what it says are guiding principles for “protecting” consumers as the private sector develops new faster payment systems.

The CFPB contends these new systems are aimed at reducing “pocket-to-pocket” payment times between consumers and businesses or other entities such as auto finance companies. The CFPB emphasized that it wants to ensure any new payment systems are secure, transparent, accessible and affordable to consumers.

CFPB director Richard Cordray added these systems should also have robust protections when it comes to fraud and error resolution.

“Companies developing new financial technologies should be building systems from the outset with consumer protections in mind,” Cordray said.

“It is a lot easier to build something right from the start than it is to retrofit it,” he said. “The CFPB will continue our work to help ensure that financial services marketplaces are safe and transparent for consumers.”

The bureau highlighted nine areas of concern involving faster payment systems, including

—Consumer control over payments
—Data and privacy
—Fraud and error resolution protections
—Transparency
—Cost
—Access
—Funds availability
—Security and payment credential value
—Strong accountability mechanisms that effectively curtail system misuse

“These principles express the bureau’s vision for new payment systems that draws upon lessons we have learned from existing systems and ongoing payment innovation,” CFPB officials said in the guidance published here.

“In publishing these principles, we are not specifying how they must be achieved,” they continued. “Rather, we recognize that a variety of system components, including system architecture, operator covenants and warranties, requirements for participants and intermediaries, rules, and other mechanisms may play critical roles in providing consumer protection, utility and value.”

Assessment of current environment

When making payments today, the CFPB contends consumers generally have multiple options which include providing cash, writing a check, swiping a credit or debit card and entering information online for an electronic payment.

In general, non-cash payments are primarily processed through one or a combination of payment systems, including the automated clearing house (ACH), PIN debit, the credit card network, wire network, or check services. For these non-cash payments, the bureau indicated there can be a delay of several hours to several days between the time a consumer initiates a transaction and the party to be paid actually receives the money.

The CFPB also believes all existing payment systems — including those that involve the exchange of cash — expose consumers to some risk of loss or security, including in some cases, risks of unauthorized or fraudulent debits.

The agency explained payment system participants, including payers, payees, providers, institutions, and operators, are subject to rules and regulations that specify how the payment system works and ensure consistency and predictability to all parties involved.

Generally, officials pointed out payment networks are governed by a combination of operator rules, private network rules, and government regulation.

Operators have rules for the banks and other entities that connect to and use their respective networks. Payment system participants are also subject to a number of federal regulations, such as the Electronic Fund Transfer Act.

“While American consumers benefit from and make use of these payment systems, there remain opportunities to improve efficiency, reduce transaction costs for consumers, and reduce credit and fraud risks,” the CFPB said.

“There is also greater opportunity for consumers to have real time information about their account balances so they can know when they do and do not have funds to transact,” the bureau continued.

The agency acknowledged companies in the technology and finance fields are currently developing real-time or near real-time payment systems for the United States, and regulators, the financial services industry, and consumer groups are all contributing, too.

“The CFPB wants to ensure that consumer protections are at the forefront as new and improved payment systems are developed,” officials said.

Large regulatory network polices payments

The Federal Reserve Board and other regulators — including the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, the National Credit Union Administration, and state banking commissions — all regulate payment networks to combat money laundering and to ensure the safety and soundness of payment system participants.

Other federal agencies, such as the Federal Trade Commission, also play a role in this space.

Notably, the Federal Reserve has been engaged in an ongoing initiative to improve payment systems. A recent statement about that effort noted that among other objectives, the process would work “with payment stakeholders to identify effective approach(es) to implementing a U.S. payments infrastructure to support a safe, ubiquitous, faster payments capability that promotes efficient commerce, facilitates innovation, reduces fraud and improves public confidence.”

The CFPB pointed out that it has been advocating for the development of faster and safer consumer payment capabilities in new and existing payment systems. The CFPB sent a comment letter earlier this year in response to a faster payment proposal by the National Automated Clearinghouse Association (NACHA).

“The bureau will continue to work with other regulators, entities that are developing the new systems, and other stakeholders to ensure that new payment systems address consumer needs and interests,” officials said.