Banks: Alternative Payment Providers Getting Away with Light Regulatory Enforcement

Aug. 31, 2015

Banks: Alternative Payment Providers Getting Away with Light Regulatory Enforcement As “alternative” payment providers like Stripe, Apple Pay and Venmo hog headlines and expand their customer base, they are skirting regulations that hamper traditional banks, according to a recent white paper from The Clearing House . The coalition of some of the largest commercial banks in the U.S. is calling on legislators to ensure alternative payment providers are covered by the same data security requirements banks are under the Gramm-Leach-Bliley Act (GLBA). Because the younger tech companies—many which enable Internet-based card-not-present and other remote payments—are regulated by the FTC rather than other federal financial regulatory agencies overseeing banks, the Clearing House said, “the result is not only lighter substantive requirements for APPs but also lower odds of facing enforcement actions and less prospect of sanctions for violations.”

The Clearing House offered several legislative and non-legislative remedies to overcome what it calls the regulatory, enforcement and examination gaps existing between the APPs and banks that ends up affecting protections for consumers (and, presumably, the competitiveness of banks in payments). The group recommended the FTC adopt the Gramm-Leach-Bliley rules for APPs, that authority over APPs be extended to the Consumer Financial Protection Bureau and that existing requirements be more rigorously enforced. The group of banks also called for the passage of the Data Security Act of 2015 that would codify GLBA rules for all companies and give the FTC express enforcement authority in the area of data security for APPs.