Last year was a regulatory year to watch in the U.S., as a new – more anti-regulation – administration took the helm.
And it certainly did deliver some drama as Consumer Financial Protection Bureau (CFPB) Director Richard Cordray departed, kicking off a fight for control of that agency.
We asked Deana Rich, CEO of Rich Consulting, to go beyond the spectacle and talk about any impact the new administration has had on regulatory issues and what payment facilitators should watch for in 2018.
As expected, President Trump’s pick to head the CFPB is slowing down the oversight work of that agency, Rich said. However, states are unlikely to change their approaches to overseeing payments providers, and federal regulatory bodies remain that will actively hold payments companies’ feet to the fire.
The Federal Trade Commission (FTC), for example, has demonstrated willingness to hold payments providers accountable for the actions of their merchant clients. The agency included a payments processor in a case in which the agency accused merchants of violating the agency’s Telemarketing Sales Rule, which protects consumers from deceptive or abusive telemarketing practices.
A district court agreed that the processor, Universal Processing Services of Wisconsin, had ignored red flags – such as an unusually high chargeback rate – that indicated the possibility of fraud.
The court decided that the processor “provided substantial assistance or support” to the primary defendants and as such, was jointly responsible for the restitution to be paid to the consumers.
Universal challenged its level of responsibility and, in December, the appeals court affirmed the lower court’s decision.
Rich said that this case will be one to watch in 2018, as it could be appealed to the Supreme Court, but the message at this point is clear.
“If you’re giving someone the ability to accept payments, you have to pay attention to what they’re doing,” she said.
“We still have to make sure that submerchants are not doing things that harm consumers. That will never go away – that’s part of our job.”
From an AML / KYC perspective, it also continues to be important for payment facilitators to demonstrate to regulators that frictionless underwriting done properly and combined with rigorous transaction monitoring can do the job effectively, Rich said.
The year ahead holds changes for how that work is done, as the new beneficial ownership rule from the Financial Crimes Enforcement Network (FinCEN) goes into effect in May. The rule expands banks’ responsibility for KYC scrutiny on the businesses they process payments for.
“We don’t yet have strong direction from the banks as far as how they’re going to fully push it down (to ISOs and PFs),” she said. “But we anticipate and are planning that they will pass it down as written.”
While these regulatory agencies and rules are specific to the U.S., the issues are not, Rich said. There is a significant push globally to increase financial inclusion by bringing small merchants into the payments system. And with that comes the responsibility to protect consumers.
“We’re working with payment facilitators all over the world, and I don’t see a disparity in issues,” she said. “Everyone has the same challenge, which is signing up merchants quickly, properly identifying them and getting them processing.”
“Payment facilitators everywhere want to find efficient ways to do KYC of the owner and the business, to review web sites, and to monitor. And they want to do all of this in a cost-efficient manner,” Rich said.
That balance will continue to be a key issue in 2018, both for payment facilitators and the regulatory bodies that oversee their work.