October 15, 2019

Verifying Account Identity in the Age of Real-Time Payments

Account validation has always been an important aspect of the payment lifecycle. The verification of an account leads to reduced rates of fraud, chargebacks, and other costly mistakes. Despite the benefits of verifying an account prior to approving a transaction, not all merchants have a protocol in place to do so. But soon merchants using the ACH network will be required to implement some form of account verification.

NACHA, the Electronic Payments Association overseeing the ACH network, changed its Operating Rules governing account ACH payments. According to the rules, originators of WEB debit entries are required to use a "commercially reasonable fraudulent transaction detection system" to screen for fraud. Beginning on March 19, 2021, the rule will change to explicitly require "account validation" to be part of fraud detection system.

Merchants who do not already have account validation capabilities built into their fraud detection systems should educate themselves about the rule change and explore ways to ensure compliance. The white paper "Securing Faster Payments: Modernizing Account Validation" published by GIACT is a great resource to start with.


CFPB Announces Taskforce on Federal Consumer Financial Law

WASHINGTON, D.C. - The Consumer Financial Protection Bureau (Bureau) today announced that it will establish a taskforce to examine ways to harmonize and modernize federal consumer financial laws.

The Taskforce on Federal Consumer Financial Law will examine the existing legal and regulatory environment facing consumers and financial services providers and report to Director Kraninger its recommendations for ways to improve and strengthen consumer financial laws and regulations. The taskforce will produce new research and legal analysis of consumer financial laws in the United States, focusing specifically on harmonizing, modernizing, and updating the enumerated consumer credit laws-and their implementing regulations-and identifying gaps in knowledge that should be addressed through research, ways to improve consumer understanding of markets and products, and potential conflicts or inconsistencies in existing regulations and guidance.

"An objective and independent evaluation of our current regulatory framework to identify where there may be gaps or where regulation should be simplified or modernized is needed to help us more effectively carry out our mission of protecting consumers," said Consumer Financial Protection Bureau Director Kathleen L. Kraninger. "As we work to set up the taskforce, we encourage interested individuals to apply to be considered to be part of the taskforce."
Read more at CFPB

CFSA Conference
CFSA Conference

What is an ACH return? How do I prevent them?

An Automated Clearing House (ACH) return is the equivalent of a bounced check. An ACH return occurs when a registrant provides bank information in order to make a payment; however, the payment is returned by the bank for one of many reasons, the most common of which include:
  • Insufficient funds
  • A stop payment
  • Incorrect account information
To back up a little, ACH payments or eChecks are a form of electronic payment that enables merchants and consumers to send funds between one another. ACH payments are regulated by the National Automated Clearing House Association (NACHA), which handles the administration and governance of the ACH network. NACHA is also responsible for the set of rules to be followed anytime an ACH payment fails, otherwise known as an ACH return.

As an example, let's consider the case of a consumer that wants to use ACH to pay a utility bill each month. This requires the utility company (the Originator) to authorize its merchant bank (the Originating Depository Financial Institution or "ODFI") to initiate an ACH debit from the customer's bank account. The data for this debit entry is sent through an ACH Operator (usually the Federal Reserve Bank) as part of a batch transfer, usually at the end of the day.
Read more at PAYLIANCE


Volcker rule changes approved by federal regulators

Federal financial regulators have finalized changes to the Volcker rule that are designed to simplify compliance requirements.

The Volcker rule, which was established as part of the Dodd-Frank Act, was enacted in 2013 to prohibit banking entities from engaging in proprietary trading or investing in or sponsoring hedge funds or private equity funds.

The amended rule would alter the rule's compliance requirements based on the size of a firm's trading assets and liabilities. Specifically, firms that don't engage in significant trading activities will have simplified and streamlined compliance requirements. However, institutions that do have significant trading activity will be subject to more stringent compliance requirements. Community banks are exempt from the Volcker rule. The revisions continue to prohibit proprietary trading. The regulatory agencies expect that the universe of trades that are considered prohibited proprietary trading will remain generally the same as they were previously.
Read more at Financial Regulation News


Cybersecurity is the top concern among community banks

A survey of community banks revealed that cybersecurity is their top concern.

The sixth annual community bank survey, conducted by the Conference of State Bank Supervisors (CSBS), revealed that 70 percent of respondents ranked cybersecurity as their most significant risk.

Further, 36 percent of banks said funding costs were the most likely factor to influence future profitability. This is up sharply from 11 percent in 2016. Also, there has been a considerable shift in how banks view regulation. Just 4 percent said that regulation was most likely to influence profitability, compared to the 60 percent who called it a concern two years ago.

Also, concerns about compliance costs increased 4 percent in the most recent survey, while 30 percent considered depopulation an important limitation to retaining core deposits. Additionally, the number of banks offering digital and online services remains largely unchanged due to the costs. Read more at Financial Regulation News

Consumer Financial Protection Bureau Issues Final HMDA Rule to Provide Relief to Smaller Institutions

WASHINGTON, D.C. - The Consumer Financial Protection Bureau (Bureau) today issued a rule which finalizes certain aspects of its May 2019 Notice of Proposed Rulemaking under the Home Mortgage Disclosure Act (HMDA). It extends for two years the current temporary threshold for collecting and reporting data about open-end lines of credit under HMDA. The rule also clarifies partial exemptions from certain HMDA requirements which Congress added in the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA).

For open-end lines of credit, the rule extends for another two years, until January 1, 2022, the current temporary coverage threshold of 500 open-end lines of credit. For data collection years 2020 and 2021, financial institutions that originated fewer than 500 open-end lines of credit in either of the two preceding calendar years will not need to collect and report data with respect to open-end lines of credit. Read more at CFPB


Trust Science Sets Out to Transform Underwriting Space, Launches Annual Survey to Hear Pain Points in Credit-Decisioning

Palo Alto, USA, Oct 10, 2019 - USA Inc. a leading provider of AI-Powered Credit Scoring, announced today the launch of an annual survey to uncover key pain points facing credit underwriters. Trust Science wants to help resolve the industry's pain through digital transformation and automation.

There has been a lack of innovation directed at the underwriting space. Loan underwriters are faced with changing market dynamics and the inability to adjust their loan underwriting process. Conversely, credit invisibles and thin-file applicants are left without the means to obtain loans.

"Lenders haven't been empowered with digital services and offerings that would automate processes or adapt to changing market dynamics," says Evan Chrapko, Trust Science, President & CEO. "Archaic models and systems are unable to score borrowers who aren't a credit risk but don't fit into old methods. And the world requires speed, predictability and real-time responsiveness. That's part of what we aim to reflect with our survey results."

Interested lenders can complete the survey and enter a chance to  win a $750 gift certificate for Dick's Sporting Goods      Click here to enter   


Tokenization as a Future of Payment Security

End-to-end encryption has been providing security during the transaction of payments for some time now. While it is handy in several instances, it can be bypassed, as evidenced by the different cases of data breaches across the world. For the specified reason, there has been an ever-increasing need for better security measures, in this case, tokenization.

So, what exactly is tokenization? In this context (data security), it is the replacement of a sensitive piece of information with a non-sensitive equivalent, called a token. The token has no value and is used as an identifier that traces back to the confidential information only via a tokenization system.

Defining Payment Tokenization
Payment tokenization is a way of securing financial data, for example, credit card details and bank information during transactions. It works like so: instead of relaying sensitive information from a user's credit card during purchases, the data is replaced by a token that is generated instantly and randomly. The token contains anywhere between thirteen and nineteen alphanumeric characters that leave out the PAN or other details that identify the user.


The rise of machine learning in fraud detection

Fraudulent applications present a significant risk to a businesses' success and reputation. As criminals become more sophisticated in targeting credit cards, loans, current accounts and other financial products, its critical lenders and other organisations ensure their fraud prevention systems are fit for purpose.

One of the ways businesses can meet this challenge is via Machine learning technology, which is transforming the way businesses approach identifying and preventing fraudulent applications.

The current fraud landscape

Experian's latest fraud statistics show the scale of the task at hand. Overall financial fraud has risen by 14% in the first six months of 2019, compared to the same time a year previously, driven largely by a substantial 60% increase in card fraud.

Youngsters are also at risk. Fraud against younger people who are first-time buyers has increased by 35% in the first half of the year, while those aged 25-34 are 78% more likely to be the target of fraud, based on the size of the population. Read more at FINEXTRA


Google Play Store Bans Payday Loan Apps

High-interest consumer loans - often known as payday advances - are now banned from having apps on the Google Play store, The Wall Street Journal (WSJ) reported on Sunday (Oct. 13).

Apple doesn't have a similar ban, but the company told the WSJ that it routinely reviews its App Store rules to "address new or emerging issues." Lenders in the payday loan space are not happy about the move, though, saying they would have to leave the business or slash rates.

CEO Mary Jackson of Online Lenders Alliance told the WSJ that payday loan practices were allowed, and that the ban hurts "legitimate operators," as well as customers looking for "legal loans."
Read more at PYMNTS.COM


How Does the Surge in Subprime Auto Loans Impact the Accounts Receivable Management Industry?

According to the Federal Reserve Bank of New York, the steady rise of people falling behind on their auto loans has resulted in over 7 million Americans who were 90+ days late on their payments at the end of 2018. These millions of account holders will most likely enter collections and have the delinquency reported to a credit bureau, negatively impacting credit scores and potentially forcing more consumers into subprime loans.

An analyzation of auto loan origination data revealed $585 billion in newly originated loans by the end of 2018. However, of those originating loans, there were more subprime auto loans than ever before. Subprime interest rates on new and used vehicles are rising faster than the overall market and subprime borrowers are facing interest rates that are double that of prime loans (for new and used cars, respectively). These interest rates are the highest they've been since 2011 and parallel the surge in the number of auto loan and lease participants. To counteract the effect that increased interest rates have on monthly payments, some lenders are lengthening loan terms and offering borrowers terms that exceed 60 months to keep payments within consumers' reach.

The management of subprime auto portfolios requires a unique approach. While loan default can result in the repossession or surrender of the vehicular asset, borrowers may not understand that repossession is not always the end of their financial obligation.
Read more at National Debt Holdings


Los Angeles plans to create California's first public bank
  • Los Angeles will create California's first public bank, City Council President Herb Wesson said Monday. The announcement follows Gov. Gavin Newsom's signing of the Public Banking Act last week.
  • The law opens the state up to the creation of city-run financial institutions. Advocates say public banks will help provide funding for projects that are in the public interest, such as affordable housing. Supporters also argue public banks help keep funds out of for-profit institutions that may not have public interest at heart.
  • The California Bankers Association (CBA) opposes the legislation and argues public banks cause community banks to lose business and put taxpayer dollars at risk.
Trinity Tran, a lead organizer for Public Bank LA, said divesting from public banks helps keep money within local communities.

"Our cities in California, cities across the nation, spend billions in debt services to borrow money from Wall Street banks that leverage our public funds to finance these destructive, harmful industries that our communities actively fight against," Tran told the Los Angeles Daily News.
Read more at BANKING DIVE


California's new privacy law could cost companies a total of $55 billion to get in compliance

A report found firms may have to pay up to $55 billion in initial compliance costs as a result of California's new privacy bill.
Since many California businesses had to comply with Europe's General Data Protection Regulation last year, some of the compliance costs for the new state law will likely be reduced, according to the report's authors.
The law will go into effect on Jan. 1, 2020.

California's new privacy law could cost companies a total of up to $55 billion in initial compliance costs, according to an economic impact assessment prepared for the state attorney general's office by an independent research firm.

The review, released publicly by California's Department of Finance, provided a broad range for the potential costs companies could face to become and stay compliant with the California Consumer Privacy Act (CCPA) if signed into law by Democratic Governor Gavin Newsom.
Read more at CNBC


Most Americans still have reservations on going cashless, survey finds
  • As mobile payments and credit cards offer alternative methods of payment to cold hard cash, 82% of Americans said they still carry cash for certain transactions, according to a survey by J.D. Power.
  • One-quarter (25%) of all respondents said they have $50 or more on hand at any given time. Sixty-seven percent of respondents said they used cash to make a purchase during the past week, while 61% said they used a debit card, 54% used a credit card, and 20% of consumers reported using a mobile phone or smartwatch to make a purchase.
  • The report also mentions the rise of chains, such as Sweetgreen, and businesses that have gone cashless, such as Amazon Go stores, which accept credit cards and electronic payments from mobile wallets like Apple Pay, Google Pay and PayPal. Although the model might be lucrative for some business owners, the survey found most Americans believe all stores should be required to accept cash
Read more at BANKING DIVE

Dreher Tomkies LLP

Alternative Financial Service Providers Association

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