U.S. Regulators to Scrutinize Payment Methods

Swipe fees, buy now, pay later programs and peer-to-peer payments are likely to be examined this year.

January 24, 2023

ALEXANDRIA, Va.—Legislators and regulators are likely to focus on certain payment methods this year, including swipe fees; buy now, pay later; and peer-to-peer payment fraud, due to fast changes within these payment realms, reports Payments Dive.

“There’s just much more activity and concern about these payments issues than has been true maybe at any other time,” Doug Kantor, NACS general counsel, told Payments Dive.

In October, the Federal Reserve approved new rules regarding online debit card transactions, making it clear that merchants’ right to choose which payment networks process debit card transactions applies the same online as it does in stores and must be honored by banks and card companies.

Earlier this month, the Federal Trade Commission ordered that Mastercard cease practices the agency said illegally blocked merchants’ ability to route e-commerce debit card transactions over competing networks.

Kantor told Payments Dive it’s rare that such industry events involving different federal entities would occur within months of each other.

When it comes to swipe fees, Sen. Dick Durbin (D-IL) has said he will reintroduce the Credit Card Competition Act of 2022 this year; however, some industry observers are skeptical it will pass now that Republicans have taken control of the House.

However, Kantor is confident Durbin and the act’s co-sponsor from last year, Sen. Roger Marshall (R-KS), will be able to move the legislation forward.

“It’s a new Congress where there are a lot of potential avenues, legislatively,” Kantor told Payments Dive. Last year, “the menu of what was going to occur was much more limited.”

Convenience store swipe fees were $14 billion in 2021, a 26% increase over the year prior and were about 33% higher than that over the first half of 2022.

In May 2022, Kantor testified before the U.S. Senate Committee on the Judiciary, underscoring the exorbitant swipe fees levied on retailers and how those fees are the direct result of price-fixing by Visa and Mastercard.

“The credit card market is an antitrust problem, and there is plenty of consumer harm to prove that,” he told the committee.

Meanwhile, the Consumer Financial Protection Bureau is also considering new rules for buy now, pay later (BNPL) methods to ensure BNPL providers are adhering to laws that apply to credit card companies, Payments Dive reports.

“The CFPB certainly seems motivated to bring BNPL under the regulatory umbrella that currently exists for similar products,” Ed deHaan, professor at the University of Washington’s Foster School of Business, told Payments Dive.

New rules could include disclosure requirements on the transactions to increase consumer transparency, as well as dispute protections for users, requirements for reviewing a borrower’s ability to pay and reasonable penalty fees.

This month, BNPL company Affirm experienced a technical issue which led to erroneous, duplicative charges for some customers on their installment loans. The tech flaw resulted in overdraft fees from some banks. deHaan says that he expects the bureau to push BNPL providers to submit information to credit reporting agencies, which few BNPL companies do, and is “a major oversight in the industry,” he told Payments Dive.

“The size of the problem—which I think is very much undetermined—is going to drive the size of the regulatory reaction and the form of the regulatory reaction,” Jeff Naimon, partner at law firm Buckley, told Payments Dive.

Additionally, peer-to-peer payment fraud is likely to be examined by the Consumer Financial Protection Bureau after Sen. Elizabeth Warren called on the bureau to amend Regulation E of the Electronic Fund Transfer Act to enhance consumer protection against peer-to-peer payment platforms.

Payments Dive reports that ETA CEO Jodie Kelley has spoken with the bureau’s director Rohit Chopra about the limit of liability that can be imposed for authorized transactions when users say they were conned into making.

Payment attorneys reportedly believe the bureau will issue guidance on the issue this year. Michael Guerrero, a partner at law firm Ballard Spahr, told Payments Dive he believes the rules will be focused on peer-to-peer payment services “that purport to not be subject to the Electronic Funds Transfer Act.” He added that the agency also may expand on the definition of “unauthorized,” as it relates to electronic fund transfers, as well as regulatory interpretations for the device through which fraud occurs.