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The COVID 19 pandemic has caused a lot of chaos for every industry in the economy. But when it comes to payments, the effects of the pandemic likely will be far reaching.
In the latest episode of the IPA Payments Pod, Brian Tate, the CEO of the Innovative Payments Association, and the Association’s government relations director, Grant Hannah, talk about how the pandemic is affecting the industry now, and what the long-term implications might be. They cover COVID19 payments and the role that prepaid plays in delivering them and how future oversight might lead to more regulations. Of course, the pandemic is not the only thing happening in payments. Events that preceded the COVID19 outbreak have continued on their course. So, our guests talk about how the ongoing PayPal lawsuit against the Consumer Financial Protection Bureau will have its own effect on the payments landscape independent of the virus. If you want to stay on top of new developments in the industry, plan to attend the IPA’s compliance boot camp on June 3. The boot camp will feature sessions spread out over a day that cover topics such as fraud, the PayPal lawsuit, and earned wage advance products. Register today! Interested in becoming an IPA member and helping to shape the future of payments? Reach out today and talk to us about the benefits of joining.
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Grant HannahDirector of Government Relations Congress passed the CARES Act in March to help provide relief to individuals, businesses, state and local governments, and others during the ongoing COVID-19 pandemic. This $2 trillion package expanded unemployment insurance, provided over $850 billion for loan, grant, and investment programs to rescue and bolster businesses of all sizes, and additional funding for state and local governments and the healthcare system. In addition, in order to help American households, the CARES Act authorized relief payments, called Economic Impact Payments (EIP), of up to $1,200 for individuals and $2,400 for married couples and tasked the Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) with distributing these funds.
As of May 8th, the IRS reports that it has disbursed approximately $200 billion to 130 million Americans. Given the unprecedented size of the CARES Act, it is only natural that Congress would want to ensure that waste, fraud, and abuse are minimized and exercise as much oversight over the distribution of these funds as is possible. To do this, Congress created two new mechanism in the CARES Act for oversight of the business focused programs. First, they created a congressional oversight panel, called the Congressional Oversight Commission (Commission). According to the CARES Act, the Commission is tasked with “…conducting oversight of the implementation of the business loan, grant, and investment programs under Title IV of the CARES Act by the Department of the Treasury and the Board of Governors of the Federal Reserve System.” The Commission is also tasked with submitting reports on the findings of their oversight activity to Congress as well. Congress also created an inspector general position at Treasury to oversee the business loan, grant, and investment programs that were created by Title IV of the CARES Act, and perhaps some of the other non-business related programs as well. This new inspector general position is called the Special Inspector General for Pandemic Recovery (SIGPR). According the statute the SIGPR shall: “…conduct, supervise, and coordinate audits and investigations of the making, purchase, management, and sale of loans, loan guarantees, and other investments made by the Secretary of the Treasury under any program established by the Secretary under this Act, and the management by the Secretary of any program established under this Act…” On April 3rd, President Trump announced that he would nominate Brian D. Miller to be Special Inspector General for Pandemic Recovery. Mr. Miller currently serves in the Office of White House Counsel and has previously served as Inspector General for the General Services Administration. The Senate Banking Committee held a hearing on Mr. Miller’s nomination on May 5th. This is just the first step in the confirmation process. The full Senate Banking Committee will vote on whether or not to send Mr. Miller’s nomination to the full Senate for consideration. Only after a favorable vote from the Banking Committee would the full Senate consider his nomination. While there are no oversight provisions in the CARES Act that directly address Economic Impact Payments, in order to prepare for the road ahead, it is best to assume that a broad approach to oversight will be taken by the Commission and the SIGPR. It is possible these two entities will examine how Treasury and IRS implemented the Economic Impact Payment program, how financial institutions assisted Treasury/IRS in this process, and what financial institutions did to ensure their customers quickly had access to their full funds. Regardless of what happens with the Commission and SIGPR though, congressional committees will also play a part in the CARES Act oversight. The House Oversight and Reform Committee, House Ways & Means Committee, House Financial Services Committee, Senate Finance Committee, Senate Banking Committee, and Senate Homeland Security and Governmental Affairs Committee will all likely hold oversight hearings and issue reports on the CARES Act. When it comes to the Economic Impact Payment program specifically, the House Ways and Means Committee, Senate Finance Committee, House Financial Services Committee, and Senate Banking Committee are the most likely to examine the Economic Impact Payment program. The House Financial Services and Senate Banking Committees have the relevant jurisdiction to examine how financial institutions aided both Treasury and IRS in the distribution of Economic Impact Payments and ensured that their customers were able to access their full payment expeditiously. The IPA will be keeping track of all hearings, reports, etc. from the various entities discussed above and will be keeping our membership updated through our Government Relations Working Group (GRWG). Additionally, the IPA will continue the conversation with policymakers on how the prepaid industry serves governments, businesses, and Americans of all backgrounds, and how the industry responded to the COVID-19 crisis. If you would like to join to the GRWG, please contact Grant Hannah, Director of Government Affairs, at ghannah@ipa.org. Ben JacksonIPA COO The Vice President’s visit to the Mayor Clinic last month caused a stir after pictures were posted of him not wearing a mask during the tour.
Putting political punditry aside, the event offers a lesson for companies about cybersecurity, especially in the COVID19 era when so many people are working remotely. The Mayo Clinic has a policy that everyone on its campus needs to wear a mask. Making sure the Vice President was following that policy was the responsibility of the Mayo Clinic staff. So how did he end up not wearing one? Maybe no one felt comfortable telling the Vice President that he had to don a mask. Maybe someone thought it was someone else’s responsibility. Either way, the Mayo staff did not strictly enforce their own procedures and a bad situation resulted. What does this have to do with cyber and financial security? Much of the fraud that we see today comes from social engineering and business e-mail compromise. An account specialist gets an e-mail that looks like it is from a corporate vice president, or even the CEO, and then they end up transferring money to a fraudulent account. The employee gets an e-mail that they aren’t comfortable questioning, or they think it is someone else’s responsibility. What they should do when something seems suspicious is to stop and go back to the established protocols and procedures. When something seems funny or not quite right, it is time to call someone (ex: maybe a Compliance Officer) and doublecheck, especially in this time when you can’t just walk down the hall or catch someone in the break room. Brian Kreb’s recently did an article on this in regard to consumer-based fraud, but it is as important in business settings as well. You can find that article here: When in Doubt: Hang Up, Look Up, and Call Back. Following these steps when something seems wrong will save a lot of time and money. It might lead to a few awkward conversations, but policies and procedures are established for a reason, and everyone needs to follow them. Thousands of consumers can receive their Economic Impact Payments (EIPs) much more quickly if they know where to look. As you read this, the U.S. Treasury Department and the Internal Revenue Service (IRS) are working around the clock to get COVID-19 financial relief payments out to individuals and families, but many are stuck waiting for paper checks.
The Treasury has initiated the first traunche of EIP payments totaling $200 billion to approximately 130 million Americans, with millions more facing a possible waiting time of weeks, if not months to receive their payments. This is unacceptable for families who need to pay rent and buy groceries today. The delay in accessing funds can be reduced, however. Consumers with prepaid cards are eligible to register their cards with the IRS and expedite their federal payment. However, the IRS must take affirmative steps to increase public awareness. The IRS launched new web tools: Non-Filers and Get My Payment, as part of the strategic plan to disburse CARES Act payments. These portals allow those who did not file taxes in 2018 or 2019 to quickly register to track and receive their relief payment. According to variety of public reports, the IRS has incomplete information on millions of Americans who may not have filed taxes, did not receive a refund in 2018 or 2019, moved, or who have changed their name due to marriage or divorce. If the IRS is unable to obtain this information, then the agency will likely send them a check, delaying the process of getting needed funds into people’s hands. On top of the delay of identifying the information of individuals, there is also the delay in cutting checks. The Bureau of Fiscal Service within the Treasury has been tasked with printing millions of checks per week in order to ensure all eligible Americans receive their payments. According to the Consumer Financial Protection Bureau (CFPB), cutting checks is time consuming, and it costs more than electronic payments. If a March memo from Ways & Means is accurate, it is conceivable that Congress passes a Phase 4 COVID-19 relief measure which could include additional EIP payments before some Americans receive their initial payment from the CARES Act. Last month the CFPB updated its COVID-19 guide to highlight prepaid cards as an option to receive CARES Act relief payments. While consumers can now receive their EIP payment via a reloadable prepaid card by registering their product in the IRS portals, the agency still has not clearly listed “prepaid” as an option alongside “checking” and “savings.” It is essential that consumers clearly see prepaid as an option. According to the IRS over 11 million people have visited their portals since they were launched in April. If prepaid is not visibly listed on the IRS’s portals it could discourage people with prepaid cards from registering their product with the IRS and cutting down the time it takes to receive their payment from weeks to days. This concern was recently highlighted in a letter from U.S. Representative Bill Foster (D-IL) and U.S. Representative Barry Loudermilk (R-GA) addressed to U.S. Treasury Secretary Mnuchin requesting that the IRS update its portals to make it clear that non-traditional payment methods like prepaid cards are a critical option for millions of Americans to receive their pandemic relief payments. Now more than ever, it is imperative that we leverage existing payments capabilities and clearly communicate the available technology to deliver relief to all Americans. Prepaid is faster than receiving a check and is efficient and secure. Right now, the federal government has a tremendous opportunity to leverage an existing vigorously regulated bank product to ensure they are ready for whatever the future holds. Ben JacksonIPA COO An article in The American Prospect reported that the Treasury’s Bureau of the Fiscal Service told banks that they could take relief funds from recipients’ accounts to settle old debts. The IPA’s advice to its members is simple: think twice before using relief funds to settle old debts. While using those dollars to cover outstanding balances might seem like a good idea, it nonetheless carries a number of risks to an institution. First, the primary purpose of these funds is to help our economy get up and running again. While keeping companies solvent is important, financial services providers need their customers to have sound financial footing for long term success. Customers who feel like their providers have helped them are more likely to stick with their provider over time and repay whatever they might owe. From a big picture perspective, the sooner we can get the economy up and running, the better it will be for us all. Second, taking stimulus funds will cause reputational risk and eat up business resources at a time when they are scarce. If customers do not see the full amount of their payments, they will be calling customer services lines looking to yell at live agents. At a time when resources are already under pressure from people being ill and facilities being closed, adding a rush of customer service requests that would ultimately end with unhappy customers and exhausted employees will not be worth the money gained. Finally, while there is nothing in the CARES Act that prevents taking the funds, several states have said that laws on their books prevent taking this money to cover old debts. In particular, Ohio’s attorney general and Massachusetts’ attorney general have both said that these funds are protected from creditor under laws in their respective states. In addition, a letter from 25 states’ attorneys general and a bipartisan letter from two senators to Treasury Secretary Steve Mnuchin have urged him to protect these funds from debt collectors. So, there are some legal stops in place, and seizing funds now could lead to a political and regulatory backlash in the future. Working through this crisis is going to require the industry to think a little differently about problems and opportunities. A recurring lesson is that short-term sacrifices likely will lead to long-term gains. By looking at the big picture and keeping this lesson in mind, companies can work to ensure their future profitability. Despite all the talk about checks, the Federal Government’s individual stimulus payments will be delivered mostly electronically. This will present challenges and opportunities for the payments industry. According to the text of the bill that the IPA has seen, stimulus payments can be delivered electronically to any account that the recipient has authorized to be used for the direct deposit of tax refunds. Allowing money to go to accounts authorized two years ago leads to a lot questions. One would presume that accounts would be verified and no surprise deposits would be made. But, if payments are rushed out the door, individual Americans might find their payments going to unexpected places. People use prepaid cards for tax refunds to get their money quickly, to separate tax refunds from day-to-day accounts, and as substitutes for bank accounts. In some instances, the recipient spends that money and leaves the card empty. In other cases, the care becomes an on-going spending tool. Providers should review their portfolios and look at the status of the cards. Are they closed, inactive, or still being used? Can you reach out to current and former cardholders and let them know that they may soon have the option to get their stimulus payments on their cards? This may be a time to offer new cards at no or a low cost for those who have abandoned their previous cards, but might technically have an account on the system. It is also an opportunity to remind current and former cardholders of the features, functions, and benefits of prepaid cards. Of course, while these payments provide an opportunity to help Americans, there are risks that will come with them. With so much money being distributed, criminals will look for any opportunity to capture it. Since these are government payments, it is likely we will see schemes similar to the ones that we see every tax season including stolen identities, diversion of funds, and social engineering to tell people that they need do something like pay taxes before they can get their payments. Providers need to fine tune their fraud detection systems, prepare their call centers for social engineering, and warn their customers of increased risks. Stimulus payments will be an important tool to help Americans and keep our economy going. The payments industry will need to become a partner in making sure that the funds are delivered and used safely and efficiently. The current pandemic and its associated market and economic gyrations have left people disoriented and apprehensive about the future. We know that the economy will slow down and there will be people and businesses who have trouble managing their finances. The federal government and state governments are taking or weighing action to help individuals and companies weather this crisis. But the private sector can do a lot on its own to help contain this crisis. Unlike the federal government, companies don’t need to wait for an act of Congress to get something done. Policy changes and company planning can alleviate some of the stress of the pandemic for partners and customers. As an example, like many people, I had plans to travel for work this week. And like many people, I had to cancel those plans, along with flights and hotels. I was worried that I would lose money, particularly with the airlines, because I was cancelling at the last minute. All the same, I cancelled and asked for a refund. In my request, I said I would settle for a credit for future flights, but could they please waive the change fees. This morning an e-mail arrived to tell me that I had received a full refund. In the short term, this is going to be a hit for the airline, but that airline has won some loyalty from me for future flights. Long term, I am more likely to start with them for planning travel. As Americans struggle will income disruptions and possibly job losses, what kinds of things can payments companies do to help them? It might be offering a monthly fee holiday, or comping one or more out-of-network ATM fees. These things will cost money in the short-term, but if they win long-term customer loyalty and help the overall economy recover, then a short-term revenue decline will be an investment that pays dividends in the future. In the midst of this crisis, companies will do well if they remember that their success depends on the success of their customers in weathering the storm. Now is a time to look at your customer base, your business, and where you can offer help, and some wiggle room in coming days. Is the CFPB constitutional? Is its prepaid rule constitutional? These are questions in front of the courts right now. Two lawsuits have called into question both the structure of the CFPB and the validity of its prepaid accounts rule. The outcome of these two cases could determine who is subject to the prepaid rule and even whether the Bureau should exist in its current form. On the state level, a lawsuit over payroll card rules is making its way through the New York State courts. It could determine whether or not the Department of Labor can regulate financial products. In this episode, the Innovative Payments Association’s CEO, Brian Tate, and Government Relations Director, Grant Hannah, talk about these lawsuits and what their effects might be. We also talk about the long-term effects of these lawsuits in the context of the possible outcomes of the 2020 elections. The IPA will keep its members updated on developments in these suits through its regular government relations calls. If you want to stay on top of new developments in the industry, plan to attend the Innovative Payments Conference in Washington DC, April 6-8. Learn more and register at: https://www.americanbanker.com/conference/innovative-payments Interested in becoming an IPA member and helping to shape the future of payments? Reach out today and talk to us about the benefits of joining. Go to www.ipa.org to learn more. Cyber criminals have an advantage over the companies and people they target because they are better at working together than the financial services industry. Hackers use online forums to trade trips and tricks, and even sell software to one another in online forums. They help one another exploit weaknesses in the defenses of financial services providers. Although the industry is lagging behind the crooks, organizations like the IPA and the Payments Risk Fraud Consortium are working to bring industry experts and investigators together to push back the hackers, In the latest episode of the IPA Payments Pod, Andrea Valentin, the secretary of the Payments Risk Fraud Consortium talks about the power of collaboration and how to build a culture that helps the financial industry keep up with the hackers. This episode is an edited version of a webinar presented to IPA members. Members can access the full recording and associated slides in the members’ only section of the Web site. You can learn more about the Payments Risk and Fraud Consortium at their Web site: https://www.fraudconsortium.org/ If you want to stay on top of new developments in the industry, plan to attend the Innovative Payments Conference in Washington DC, April 6-8. Learn more and register at: https://www.americanbanker.com/conference/innovative-payments Interested in becoming an IPA member and helping to shape the future of payments? Reach out today and talk to us about the benefits of joining. Go to www.ipa.org to learn more. Everyone likes to believe that they are rational, especially when it comes to money. But people often make irrational choices, despite what economists would have us believe. While irrationality might seem like a bad thing, it can be harnessed to help people achieve their goals. By understanding human foibles, financial services providers can design products that will direct that behavior down positive paths. Both individual customers and the provider’s bottom line can benefit from recognizing that even seemingly bad behavior can be turned towards good outcomes. In the latest episode of our podcast, we talk with Kristen Berman, the co-founder of Irrational Labs, and Brad Swain of the Common Cents Lab at Duke University, about what their research shows when it comes to money management and what that can mean for product design. For example, people of all kinds will often say they want to achieve a goal but do things that are counter to that goal just because something else is easier. Leveraging the path of least resistance preference can turn into more savings for customers and less risk for providers. Our guests talk about why encouraging borrowers to pay off their loans early might be a win-win for lenders and borrowers. They also talk about how financial can build good behaviors into the onboarding process for accounts and loans. You can listen to our podcast on iTunes, Google Play, or your favorite podcast app. Please subscribe and leave us a review. If you want to learn more about our guests’ research, you can visit the Irrational Labs Web site at and the Common Cents Lab web Site at https://advanced-hindsight.com/commoncents-lab/ If you want to stay on top of new developments in the industry, plan to attend the Innovative Payments Conference in Washington DC, April 6-8. Learn more and register at: https://www.americanbanker.com/conference/innovative-payments Interested in becoming an IPA member and helping to shape the future of payments? Reach out today and talk to us about the benefits of joining. Go to www.ipa.org to learn more. |
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