The Federal Trade Commission has proposed additions to the Telemarketing Sales Rule to eliminate remotely-created payment orders and checks, bar the use of reload PINs for bill payments and prohibit cash-to-cash money transfers. But banning these methods could have unintended consequences for the underbanked.
"It is not the payment methods themselves that are fraudulent, but rather the actors that are attempting to sell goods and services in a fraudulent manner that constitute the true problem," says the Electronic Transactions Association (ETA) in a letter to the FTC. "If certain payment methods are banned, there is nothing to prevent bad actors from shifting their methods to other forms of payment to perpetuate fraud."
The ETA also states in the letter, written this month in response to the FTC's June proposal, that once the fraud shifts to other payment methods, the FTC might seek to ban those as well.
Remotely-created checks are created by the payee and authorized by the account holder without the payer's signature. Reloadable PINs come from prepaid card companies such as Green Dot and NetSpend. The consumer purchases a reload PIN and then gives that to the biller, who then uses it to transfer the money from one account to another.
The FTC's proposal comes at a time when independent sales organizations and merchant acquirers are under other scrutiny from the FTC. The FTC has filed lawsuits against two ISOs for allegedly providing transaction services to telemarketer clients that were committing crimes.
While fraudsters have started using these methods to scam consumers, remotely-created checks and reload PINs "are very useful for an unbanked consumer to be able to pay a biller instantaneously, especially if the bill is on very short order," says Terry Maher, an attorney at Baird-Holm LLP in Omaha, Neb. "If you don't have a bank account or credit and debit cards, you have money orders and cash."
Unbanked individuals using money orders might incur fees for late payment since this method isn't instantaneous, says Maher. And using cash means a consumer would have to go directly to the biller, which might not accept in-person payments in the customer's city, he says.
Consumers also use remotely-created checks to buy items over the telephone or online. They also use remotely-created checks to quickly pay merchants if a paper check bounces.
"The tough thing is where do you draw the line," Maher says. While the FTC submitted a notice of proposed rule-making, the organization is taking comments and feedback in an effort to review legitimate use cases for the payment methods the proposal would affect, he says.
There have already been several changes in the laws surrounding liability for these payment methods, shifting responsibility to the telemarketer's bank if it turns out the check wasn't authorized, he says.
The same rules have yet to be applied to reload mechanisms, although some additional warranty and rules might be needed, Maher says.
The FTC revision "could squelch people coming up with innovation if you want to purchase something without a credit card you can authorize someone to have access to your bank account," says Barrie VanBrackle, an attorney practicing in the payments transaction business at Manatt, Phelps and Phillips.
The FTC is worried about these payment methods because they don't have the same consumer protection mechanisms as Automated Clearing House and credit cards, she says.
"They're saying telemarketers that are involved in utilizing remotely-created checks and payment orders are bad that they're doing that deliberately to avoid letting a person have a dispute process or chargebacks or any other rights," VanBrackle says. "But these payment methods are automatically bad."