Banks Press Fed on Oversight as FinTechs Seek ACH Access

Banks Press Fed on Oversight as FinTechs Seek ACH Access. The Fed’s proposed Payment Accounts would exclude Fed credit, interest and ACH. Bank commentary letters argue that direct access could shift payment activity and deposits away from banks, while also questioning whether applicants would face comparable supervision. FinTechs say excluding FedACH leaves Payment Account holders dependent on intermediary banks for payroll, bill pay, account funding and other high-volume payments.

The Federal Reserve wants to make it easier for some eligible institutions to connect directly to its payment services without giving them everything that comes with a Master Account.

The comment deadline for the Fed’s Proposed Revisions to the Federal Reserve Policy on Payment System Risk and the Guidelines for Account and Services Requests, or OP-1878, is July 27. Comment letters are drawing different requests and concerns from banks and FinTechs. The proposal would create an optional, special-purpose Payment Account for institutions already legally eligible for Reserve Bank accounts. It does not expand legal eligibility. Instead, it would provide a narrower account for institutions primarily interested in clearing and settling their own and their customers’ payments. The Fed says the objective is to support private-sector payments innovation while managing the risks addressed by its Account Access Guidelines. The Fed expects most requests to come from Tier 2 and Tier 3 institutions, categories covering non-federally insured institutions subject to different degrees of federal prudential oversight. The existing tiered review framework would continue to apply.

Payment Accounts could access Fedwire Funds, FedNow, National Settlement Service and Fedwire Securities for transfers free of payment, but not FedACH. They would provide no intraday credit or discount-window access, balances would earn no interest and transactions that would produce an overdraft would be rejected. The Fed would set closing-balance limits based on expected payment needs, with a maximum of $1 billion under normal circumstances. There would be no intraday balance ceiling, and temporary closing balances above the limit could be permitted in unusual circumstances. Repeated violations could result in additional restrictions or account closure. The narrower account also comes with a proposed timetable. Tier 1 account requests generally would be evaluated within 45 days after all requested documentation is received. Tier 2 and Tier 3 Payment Account applications generally would be evaluated within 90 days. Those are targets, not mandatory deadlines; a Reserve Bank could take longer after consulting with the Board.

Several community bank submissions to date argue that restrictions on the Payment Account do not fully address differences in regulation of the institutions that could receive one. Bank of Colorado Market President Cameron Armagost wrote that giving direct Fed access to institutions not subject to comparable prudential and supervisory requirements would provide the benefits “without the corresponding safeguards.” His letter specifically cited BSA/AML and sanctions compliance as responsibilities that could rest with entities receiving less oversight. PriorityOne Bank and American Commercial Bank & Trust recommend similar safeguards: low initial limits on balances and the number of accounts, mandatory ...