The past year has seen two notable innovations in the payments world and a third is coming down the pike. ApplePay was rolled out last spring, the EMV liability shift went into effect on October 1, and the Fed has convened a task force on designing a faster payment system. All three of these developments seem unlikely to result in major changes in payments unless they come up with a clear value proposition for consumers, merchants, or both.
Category: Credit & Debit Cards
-
Interchange Evidence?
Posted by
Both sides in the interchange fee debate have pointed to a recent Richmond Fed study as evidence supporting their position (here and here). Frankly, it's hard to tell without agreeing on a baseline for analysis: pre-Durbin interchange fees or what the fees would have been but for Durbin or the anticipated post-Durbin drop in fees? The finding that most merchants didn't notice a change in their merchant fees (which, of course, aren't the same as interchange fees) means very different things depending on the baseline used: that Durbin is pointless, that Durbin saves merchants money, or that Durbin isn't working as intended because of a defective rulemaking by the Fed.
In the midst of the race to claim vindication based on the study, however, no one seems to have noticed that a least some of the data used in the study—which comes from a merchant survey conducted by Javelin Strategy and Research—seems a little screwy.
-
Consumer Financial Protection Clinic Position
Posted by
Here's an opportunity to supervise a consumer financial protection clinic that has done some great work – information on the position and how to apply here.
-
Faster Payments: Is There a Business Case?
Posted by
The Federal Reserve System has embarked on a project of exploring the possibility of faster retail payments in the United States. A similar move has occurred with the UK Payments Council. At the same time, the Electronic Payments Network is rolling out a faster version of ACH.
Here's what puzzles me: what on earth is the business case for faster retail payments in the United States? The U.S. payment system works incredibly well. Yes, it has flaws: the interchange system is unfair and security is atrocious. But those aren't really speed issues. Real-time authentication is a security issue, but that's separate from speed of payment clearance and settlement.
Now, it's true that the US lags behind other countries in terms of mobile payment technology. We don't have anything like Kenya's m-Pesa mobile payment system. But there's a reason for that: we don't need m-Pesa in the US because we already have a functioning retail banking system, and our banks are better safety-and-soundness risks than our telecom operators. (Kenya's government owns a large share of m-Pesa, making it quasi-guarantied, I guess.)
So readers, tell me, what am I missing? Is there a business case, or is this just about chasing shiny bells and whistles and wanting to have the latest technology just because? My sense is that we're seeing an "iPhone effect" of wanting the best and newest, even though the current system is just fine.
-
Madden v. Marine Midland Funding
Posted by
In a recent case called Madden v. Marine Midland Funding, the Second Circuit ruled that a loan owned by a debt collector violated New York's usury statute. The loan had been originally made by a national bank and was subsequently sold to the debt collector when it was in default. There's no question that the state usury law was preempted when the loan was held by the national bank. The Supreme Court's (awful) Marquette National Bank v. First of Omaha Service Corp. decision from 1978 makes that very clear. (The Court suddenly discovered in 1978 that over a century of legal understanding of the 1864 National Bank Act was somehow wrong and that banks had been leaving lots of money on the table.)
The debt collector argued that because the loan had been made by a national bank, it carried preemption of state usury laws with it as a permanent, indelible feature. "Applesauce!" proclaimed the Second Circuit: National Bank Act preemption of state usury laws extends no further than National Bank Act regulation. Preemption is part of a package with regulation, but once the loan passes beyond the hands of a National Bank, it loses its preemption protection and becomes subject to state usury laws. (Some of you might recognize that this is an argument I made several years ago. Plaintiff's counsel sent me a very nice email to this effect. You owe me a citation, 2d Circuit!).
-
Lessons For Consumer Protection From The World Of Inclusive Capitalism
Posted by
Lately I have been teaching courses with names such as "Global and Economic Justice" and "History, Impacts and Regulation of Consumer Credit" instead of "Bankruptcy," "Secured Transactions" and "Chapter 11 Reorganizations." So I have been reading different books and listening to different speakers. A lecture I attended recently by Xav Briggs here brought to my mind a couple of books that I use in one of my courses, “Borrow” and “Debtor Nation” both written by Louis Hyman. In many ways Hyman's books remind me of "Credit Card Nation" the outstanding and "ahead of its time" book by Robert Manning which I used extensively when I created my consumer credit course in 2002.
Part of the wisdom I find in each of these books is the caveat that you cannot understand consumer protection without understanding the nature of American capitalism or the drive for an above-market return. This was never clearer or more of a "blow to the side of the head" than during the frenzy in the early 2000's, and perhaps nothing demonstrates it more crassly than the rating agencies covering their eyes as they rated subprime securitizations allegedly in order to "keep the business."
-
Who is Helping Consumers With Defaulted Student Loans?
Posted by
Clearly, the biggest surprise in consumer borrowing since the crash has been the explosive expansion of student loan debt. It has surpassed both auto lending and credit card lending. And, since it ties with Payday Lending and pre-crash sub-prime mortgage lending for the thinnest underwriting there are defaults aplenty.
Consumer advocates are rightly urging the Department of Education to provide simpler and clearer paths forward for consumers with student loans in default but many people still need a helper. As defaults in mortgage loans and on credit card loans have fallen, providers who live on the profits of counseling people who default on those loans have turned their attention and their advertising and marketing to consumers who are in trouble on their student
-
Prepaid Card Use on the Rise Among Unbanked and Underbanked
Posted by
Last week, the FDIC released its 2013 National Survey of Unbanked and Underbanked Households. Some of the Survey's results were similar to the FDIC's 2009 and 2011 surveys. 7.7% of households were unbanked. Another 20% of households were underbanked. I took note of the Survey because its maps of unbanked and underbanked rates by state have been receiving some attention online. But what I think is more intriguing are the Survey's questions about prepaid cards.
General purpose reloadable prepaid cards, though still a small segment of the consumer financial
products market, have grown rapidly in past years — from $28.6 billion in 2009 to close to $65 billion in 2012 (as previously discussed). Consistent with this growth in dollars, the Survey found that prepaid card use had increased among all households from 2009 to 2013 — from 9.9% to 12%. More interestingly, the share of unbanked households that used prepaid cards had increased more dramatically — from 12.2% in 2009 to 17.8% in 2011 to 27.1% in 2013. By comparison, 19.6% of underbanked households and 8.8% of fully banked households had used prepaid cards in 2013. When combined, unbanked and underbanked households comprised the majority (55%) of prepaid card users in the previous 12 months. -
Hacking and Systemic Financial Armageddon
Posted by
The revelation that 76 million JPMorgan Chase consumer accounts were compromised by hacking should be scaring the heck out of us. The Chase hacking is a red flag that hacking poses a real systemic risk to our banking system, and a national security risk as well. Frankly, I find this stuff a lot scarier than either ISIS or our still largely unregulated shadow banking space.
Consider this nightmare scenario: what if the hackers had just zeroed out all of those 76 million Chase accounts and wipes out months of transaction history making it impossible to determine exactly how much money was in the accounts at the time they were zeroed out? The money wouldn't even have to be stolen. Just the account records changed. What would happen then?
-
Digital Wallets
Posted by
Interesting op-ed on digital wallets by Edward Castronova and Joshua Fairfield in the NYT. I'm a little more skeptical. Thoughts follow the break.