The Clearing House Calls for Level Playing Field for Banks, Alternative Payment Providers (Aug. 24, 2015)
Alternative payment providers (APPs), such as Apple, Google, Square and Venmo, are not being held to the same regulatory standards regarding consumer data security as major banks, according to The Clearing House’s (TCH) latest white paper, “Ensuring Consistent Consumer Protection for Data Security: Major Banks vs. Alternative Payment Providers.” While banks are subject to regulatory, supervisory and enforcement scrutiny regarding privacy and data security, APPs are not subject to regular examinations and enforcement actions by regulators, TCH contends. TCH is a banking association and payments company owned by 24 banks.
“Although these new payment products generally require the collection and transfer of financial account and other sensitive personal information, the legal and regulatory frameworks designed to ensure the privacy and security of such information have not been revised to cover APP activities adequately,” according to the report.
For example, banks and most nonbank APPs are subject to data security requirements established in the Gramm-Leach-Bliley Act (GLBA); however, the two groups are subject to different regulations and guidance. Banks are subject to “the more demanding standards” of federal financial regulatory agencies, while APPs are subject to “the more flexible regulations” of the FTC, thus creating a regulatory and enforcement gap, TCH wrote.
To create a level regulatory playing field among banks and APPs, as well as provide consistent data security protections for consumers regardless of how they choose to bank, transfer funds or make purchases, TCH proposed several suggestions. For example, TCH recommends that the FTC adopt enhanced GLBA rules, either limited to APPs or applicable to all companies subject to the FTC’s jurisdiction; the CFPB issuing rules to define larger participants of the APP industry, giving the bureau the examination authority over the defined larger participants; and more resources for the FTC to properly staff investigations and enforcement actions.