Before the Grand Rethinking: Five Things to Do Today with Payments Law and Ten Principles to Guide New Payments Products and New Payments Law

Abstract:     
U.S. consumers today have a broad range of choices about how to make payments. In addition to checks, credit cards and traditional debit cards, consumers may be offered prepaid cards, contactless cards, mobile payment devices, online payment sites, online credit payments, and other new ways to pay.

Federal payments law was developed before many of these methods existed, so it is no surprise that it has gaps in coverage. The variations in the law underlying the different payments methods place consumers in very different legal positions when something goes wrong. The gaps in the law mean that the particular payment method used, and how the payment is processed, can affect the consumer's ability to get his or her money back if the goods are not delivered as ordered, the payment information is stolen and misused, the payment was unauthorized, or the payment is processed for the wrong amount.

This article, first published at 83 Chicago-Kent Law Review, No. 2, 769 (2008), describes the current state of confusion and gaps in the payments law; outlines a set of five immediate changes to current law that would address major problems and ambiguities in payment law; and offers ten principles to evaluate existing and future payments methods, regulations and laws.

First, the article describes the current state of the law as applied to some of the new payments methods in terms of the questions consumers might ask: Is my money safe? Will it disappear in fees before I have a chance to spend it? Will I get my money back if someone else makes a mistake? Can I stop or reverse payment if I do not get the goods? This section describes the different answers to these questions depending on which payment product is used.

Second, the article describes how many of these problems could be eliminated and greater consumer protection in the non-cash payment marketplace could be accomplished with a handful of changes to the Electronic Fund Transfer Act, the Fair Credit Billing Act, and the Expedited Funds Availability Act, plus more vigorous regulatory use of the power to prohibit unfair practices. These changes could provide a baseline set of consumer protections, built from the strongest elements of current federal consumer protections in payments law. Finally, the article recommends ten principles for evaluating new payments products and new payments law.

Keywords: payments, debit, checking account, Check 21, ACH, EFTA, Regulation E, mobile payments, prepaid card

JEL Classifications: G18, G28, D18, K29, D60, E21, E50

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