The president-elect spoke on the campaign trail about dismantling regulations, including the Dodd-Frank Act. So far, many of his appointees have been businessmen with anti-regulatory tendencies. The Republican Party has majorities in both the House and the Senate. Does this political climate mean payment facilitators should say good-bye to their compliance teams? Not so fast.
With an incoming administration whose public statements lean heavily toward deregulating business, you might expect tremendous change to the financial services regulations that govern payment facilitators this year. Experts say it’s not that simple.
Currently, a number of federal agencies seek to protect the payments system from criminal activity. From anti-money laundering to the beneficial ownership rule, the federal government requires organizations that enable access to the payments system to know who their customers are and what sorts of business they’re conducting, with the goal of keeping terrorists and other criminals out.
At the same time, the states have money transmitter laws that are intended to protect consumers from fraud, making sure the money collected on behalf of an entity goes where it is supposed to. Each state’s laws are different, with some taking a broader approach to the oversight of money transmission than others.
Because payment facilitators are relatively new on the payments scene, federal and state laws in these areas have been applied to them, but PFs themselves have not been specifically addressed by regulators. That is beginning to change.
“We are moving so fast with technology, developing new products and services that are cheaper, more inclusive and widely available. All of these changes – security changes, even payfacs themselves – have put us on the radar screen of regulators. Everybody is noticing our industry. We’re cooler now,” said Scott Talbott, senior vice president of government relations with the Electronic Transactions Association, an industry trade group.
Attorney Ellen Traupman Berge agrees that scrutiny of payment facilitators has been increasing as their visibility grows. Berge is a partner with Washington, D.C., law firm Venable LLP, where she works with merchants and payments companies on regulatory compliance and other legal and business issues related to transaction processing.
As an example, she cites the Federal Trade Commission, which has initiated enforcement actions against payment processors and independent sales organizations for deceptive practices and for enabling payment for criminal schemes.
“The FTC has been very concerned about the role of ISOs and sales agents,” she said. “Are their underwriting standards sufficient, are they really the gatekeepers of letting bad merchants into the system? A new gatekeeper will be the payment facilitator. I know the FTC is very much aware of payfacs, and will be interested in them.”
While it’s possible that interest might slow down as new administrators shift focus, don’t expect the scrutiny to cease, Berge said. The need to protect the system and the consumers using it is too great, and despite changes at the top, key staffers will remain.
“Even with an administration change, things like fraud against consumers and data security issues are not going to become less important or result in less-strict standards for what payment facilitators will need to meet,” Berge said.
On top of that, while it’s easy to talk about reducing regulation, it’s much harder to actually do it. Because he hasn’t held elected office, President-elect Trump does not have a track record of decisions that would indicate how far he is willing to go. The best signal the industry has to go on is his campaign rhetoric, which is often tempered by political reality once a candidate actually takes office.
“Many of these regulations have been in place a long time. And the industry has spent millions if not billions to comply. You can’t dismantle it just like that. And then, replace it with what? The American people are still stinging from the financial crisis. You can’t just come in and repeal all these regulations without being labeled anti-consumer,” Talbott said.
These political and logistical realities mean that – while it’s true that a shift is on the way – wholesale change isn’t likely to come rapidly. However, the combination of an emerging sector with a new administration makes this a perfect year for payment facilitators to get involved in the industry and make their voices heard.
Berge advises payment facilitators to educate themselves on the history of regulation in the payments industry – where enforcement actions have been applied to payments players in the past, for example – so they fully understand the environment they operate in and what their responsibilities are.
They should also pay attention to and support self-regulatory programs that might emerge, such as the recent payment facilitator guidelines developed by the ETA, which will signal to regulators that the industry is prepared to monitor itself.
Talbott says that this transition year is a huge opportunity for payment facilitators and other players in the payments space to advocate for “a regulatory environment that recognizes the changes that are occurring, technologically, business-wise, and products and services and actually encourages them. We still want to protect consumers, we still want to protect the transactions, we still want to protect the system, but let’s encourage innovation.”
He encourages payment facilitators to actively engage in talking to their legislators at both the federal and state levels. For companies without government relations infrastructure or expertise, partnering with a trade organization such as ETA can make this task easier.
“The ETA is working to educate policymakers about the payments industry, the importance of payment facilitators and the role they play, and the innovation and the technology they’re using to speed up payments, make them more secure, and make them more available. So a huge component of education to say this is what we do, and here are the benefits we provide to the American people,” Talbott said.