ABA Letter to Federal Reserve re: Proposed Amendments to Regulation J

Ann E. Misback, Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551

Dear Ms. Misback:

The American Bankers Association (“ABA”) appreciates the opportunity to comment on the Notice of Proposed Rulemaking of the Board of Governors of the Federal Reserve System (“Federal Reserve”) regarding proposed amendments to Regulation J for the creation of a new payments network, FedNow. ABA supports the adoption of faster payments to meet the needs of consumers and commercial entities throughout the United States. ABA’s members have a long association with technologies that have increased the speed of payments, from wires to card networks and recently launched real-time payment systems. ABA continues to support the advancement of payment technologies, including accelerating payments in use cases where rapid settlement would benefit bank customers. We believe that a well-executed, bank-centric model is essential to provide a valuable and safe payments system for all participants in a transaction. Through FedNow, the Federal Reserve has the opportunity to encourage the adoption of faster payments across the country.

The Federal Reserve has been actively working with industry to improve the nation’s payments system since 2013. The white papers issued and the creation of the Faster Payments Task Force by the Federal Reserve have helped to focus industry attention on the need for speedy and safe payment products. One of the results of industry efforts in this regard has been the creation of the Real Time Payments Network (“RTP”) by The Clearing House (“TCH”). As the Federal Reserve is aware, RTP is a private-sector real-time payment and settlement solution that is available to all federally insured U.S. depository institutions and is already processing live transactions. We hope that RTP and FedNow will leverage each other’s solutions and create as much interoperability as possible to extend faster payments services across the nation with the benefits to be shared by all.

The ABA believes that FedNow can contribute to a better, faster, and safer payments system if implemented correctly. The Notice of Proposed Rulemaking has identified several areas where
the Federal Reserve is seeking comment, and this comment letter addresses the issues that our membership deems most important to optimize the payments products and services available to depository institutions and their customers. In general, faster payments products that promote safety, interoperability, and speed to market are encouraged by the ABA membership.

In addition to the specific FedNow-related issues identified in the Notice of Proposed Rulemaking, ABA is providing comments on a separate key issue: the interplay between Uniform Commercial Code Article 4A (“UCC 4A”) and the Electronic Fund Transfer Act (“EFTA”).

Overview

This comment letter provides analysis and recommendations on several issues that are material to the development of FedNow.

The ABA respectfully asks the Federal Reserve to address the following:

• Interoperability. Make the pursuit of interoperability with similar private-sector real-time payments solutions the Federal Reserve’s highest priority for the benefit of the entire payments ecosystem. At a minimum, the Federal Reserve should adopt policies and practices that are consistent with existing faster payment systems to minimize burdens on participating banks and ensure a uniform customer user experience.
• Definition of “immediately.” Leave the term “immediately” as used in the Regulation J funds availability requirement undefined in a final regulation.
• Exceptions to immediately available payments. Include broader exceptions to the requirement that funds be available immediately.
• Consumer transactions governed by EFTA and UCC 4A. Avoid creating uncertainty and ambiguity by only applying the EFTA to consumer transactions. Similar to other Federal Reserve Bank payment services, legal concepts that are important to payments system efficiency (e.g., concepts of finality, acceptance, and allocation of liability among participating banks) can be addressed in its operating circulars, which would avoid requiring the Federal Reserve to reconcile foundational differences between the EFTA and UCC 4A. If, however, the Federal Reserve choses to apply both UCC 4A and the EFTA to consumer transactions, the Federal Reserve should identify, with specificity, which provisions of the EFTA are inconsistent with UCC 4A and explain how those inconsistencies should be resolved.
• Operating Circulars. Provide the public an opportunity to review and comment on any operating circulars related to the implementation of FedNow before the operating circulars are issued in final form.

Download the comment letter to read the full text.