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Update Newsletter: Winter 2005

Payment Cards Center Gathers Experts in Philadelphia 2005 Conferences

Federal Consumer Protection Regulation: Disclosures and Beyond

On June 10, 2005, the Payment Cards Center hosted a one-day symposium titled “Federal Consumer Protection Regulation: Disclosures and Beyond” PDF that brought together credit card industry leaders, legal scholars, consumer advocates, economists, and federal regulators to discuss standardized credit card disclosures and other means of protecting credit card consumers. The symposium aimed to answer two basic questions: How can regulators and policymakers improve the current set of regulatory disclosures? And what other tools should regulators and policymakers consider using to protect consumers?

The Truth in Lending Act (TILA) and its implementing regulation, Regulation Z, marked the beginning of the federal government’s involvement in protecting credit card consumers by way of disclosure. In his keynote address introducing the day’s discussion, Thomas A. Durkin, a senior economist at the Board of Governors of the Federal Reserve System who has written extensively on the subject, described the act, its legislative history, contemporary sources of influence, and intended goals. Durkin led the subsequent discussion, which considered the act’s successes and failures as the basis for protections afforded credit card users.

Following Durkin’s analysis of TILA, panelists and participants addressed the symposium’s central questions with recommendations that involved (1) making specific changes to current credit card disclosures, (2) improving the processes by which disclosures are implemented, (3) increasing reliance on technology for the purposes of making disclosures more useful and educating consumers, and (4) changing the “mix” of regulatory intervention in the industry.

One area where there seemed to be general agreement among participants was the sense that current regulatory disclosures were “bloated”: too much information makes the disclosures themselves less informative for consumers. At the same time, there was less agreement about how to streamline the information included in disclosure notices. Participants considered how to improve the process of deciding what to disclose and how, with an emphasis on incorporating consumer feedback and testing in this process. Participants also generally agreed that flexible information technologies should play a more prominent role in the delivery of disclosures and other critical information needed by cardholders.

In conclusion, participants acknowledged that making substantive changes in federally mandated consumer protections will be both a technically and politically challenging exercise. At the same time, it was also argued that despite the many problems with disclosure practices, there are substantive benefits and ample opportunities for improvements in the way credit card consumers are informed about their rights and protections.

The conference summary details participant recommendations in each of the four broader categories. It is available on this website, or a paper copy can be ordered.

Risky Business: Managing Electronic Payments in the 21st Century – June 20-21, 2005

On June 20-21, 2005 , the Payment Cards Center in conjunction with the Electronic Funds Transfer Association (EFTA) hosted a day-and-a-half conference titled “Risky Business: Managing Electronic Payments in the 21st Century.” PDF Participants from the financial services and processing sectors, law enforcement, and academia, as well as policymakers gathered at the Federal Reserve Bank of Philadelphia to explore key topics associated with the challenge of effectively managing risk in a payments environment that is increasingly electronic.

The conference sessions addressed a wide range of risk related issues, including:

  • regulatory environment for payments and data security;
  • ways that payment electronification is influencing law enforcement;
  • elimination of business silos as a condition for effective risk management;
  • effect of identity theft on consumer adoption of electronic payments;
  • changing risk environment with electronic check conversion;
  • data protection strategies for financial institutions and nonbank processors that store and maintain consumers’ personal information; and
  • best practices for a secure electronic payments environment.

As each of these topics was addressed by the assembled participants, it became clear that much is being done to manage risk in a variety of ways and across a myriad of payment environments, including those that are electronic. Despite some proven successes in mitigating fraud, participants acknowledged that fine-tuning risk management strategy is a never-ending process and one that requires continued investment.

In particular, the financial services industry is keenly aware of fraud risks and the changing nature of these risks as payments migrate to electronic formats. Participants recognized that the fast-paced evolution of technologies, while presenting many benefits to the financial sector, arms thieves with new tools with which to commit fraud. Many acknowledged that fraud risk will never be completely eliminated; it will be a continuously evolving battle between enterprising thieves and ever more inventive strategies to anticipate and counter these attacks.

Moreover, participants agreed that risk in an electronic payments environment is not geographically constrained, and therefore, attention and coordination among several constituencies—financial services companies, law enforcement agencies, and consumers, among others—are needed to eliminate safe havens for electronic fraudsters anywhere in the world. Finally, many participants emphasized the important role that consumer trust plays in the adoption of electronic payment innovations. As such, many agreed, it is incumbent on all stakeholders to recognize the risks associated with losing this consumer confidence and to respond in kind.

The conference summary highlights additional insights from each topic’s discussion. It is available on this website, or a paper copy can be ordered.

Payment Cards and the Unbanked: Prospects and Challenges –
July 13-14, 2005

On July 13-14, 2005, the Payment Cards Center hosted a two-day conference, “Payment Cards and the Unbanked: Prospects and Challenges,” PDF that brought together experts from the financial services industry and from the policymaking, community development, and academic communities to examine the products, services, and providers that are emerging to meet underserved consumers’ financial needs. The wide range of experiences represented by the participants provided a unique framework for discussion of this topic.

Michael S. Barr, of the University of Michigan Law School, provided the keynote address in which he explored the means by which the unbanked—who lack access to checking or savings accounts—and low-income consumers have traditionally conducted financial transactions and the costs they incur to do so. Also, he discussed the potential for greater participation by policymakers, industry leaders, and educators in creating a more effective and equitable financial services structure. Ultimately, Barr argued that new products and appropriate incentives could lead to substantive benefits, improving utility and efficiency for all market participants, particularly for those in traditionally underserved segments.

The conference was organized around four panel sessions. First, payroll cards were explored as a method of payment and account management for underserved consumers. In the discussion, several key themes emerged: the role of employers in payroll card distribution, the potential of payroll cards to replace traditional bank accounts, the importance of consumer education, and the implications of an unsettled regulatory environment.

The second panel considered several other new financial tools that have been developed to serve the particular needs of the underserved: prepaid approaches to traditional bank accounts. This session highlighted that the migration to electronic payment platforms and the expanding infrastructure supporting these platforms are contributing to changing economics. In addition, these trends are inspiring alternative delivery channels, new product development, and additional opportunities for both providers and the underserved end-users.

Third, a panel of payment innovators in the “nonbank” sector examined how technology, alternative delivery channels, and new payment tools are being used to build relationships with underserved consumers. The moderator of this session, T. Jack Williams of Tier Technology, argued that merchants are playing an increasingly important role in delivering financial services to underserved consumers and, in his view, are seeing better results than banks in terms of consumer adoption and use of the services they provide. He attributed this success to merchants’ knowing these customers and having built relationships with them over time.

Last, the director of the Payment Cards Center led a discussion of what was learned about this consumer market for financial services. In this closing session, participants identified three areas that require further study: the roles being played by banks and nonbanks, the need for consumer education, and the regulations governing these financial products and services.

The conference summary highlights additional insights from each panel discussion. It is available on this website, or a paper copy can be ordered.