Fed urged to step in on payment systems

Democrats oppose Wall St. monopoly

U.S. Sen. Elizabeth Warren and other Democrats are vying to keep Wall Street from dominating a potentially lucrative new line of business.

At issue is the development of real-time payment systems that would allow consumers and businesses to instantly access money that’s sent to their bank accounts. Everyone agrees that creating such networks is necessary. But they’re at odds over whether it’s a good idea to let big banks, which already have one up and running, reign supreme.

Warren, a Democratic presidential candidate who rose to prominence by bashing banks, wants the Federal Reserve to join the fray. Along with Sen. Chris Van Hollen of Maryland and two House Democrats, she plans to introduce a bill Wednesday that would require the Fed to build a competing system. They say they want to make the U.S. payments infrastructure a public utility and prevent big banks from gaining a monopoly.

“People living paycheck-to-paycheck shouldn’t have to wait up to five days for a check to clear so that they can pay their rent, cover child care, or pick up groceries,” Warren said in a statement. “Our bill would create a national, real-time payments system so that families have faster access to the money they earned and don’t have to pay overdraft fees or rely on a shady payday lender to make ends meet.”

While the odds of the legislation passing Congress are slim as long as Republicans control the Senate, the move shows how Warren will continue to make Wall Street’s dominance over Americans’ finances a central campaign theme. The bill also shines a light on a top issue for bigbank lobbyists, as trillions of dollars flow through the U.S. payment system weekly.

In their statement, Van Hollen and Warren said that if the Fed doesn’t take action, the U.S.’s payment network will lack adequate safeguards to protect consumers.

The U.S. has a comparatively slow and outmoded infrastructure for processing transactions, and business leaders say that is stunting economic growth.

A consortium of the largest U.S. financial institutions, including Citigroup Inc. and Wells Fargo & Co., introduced their own fast payments system late in 2017. They pledged to the Department of Justice that they’d run the system like a utility, taking no profits and not discriminating against small banks — as long as they had no competition.

But small banks and credit unions, fearful of embracing a platform run by their bigger competitors, have called on the Fed to create its own system. Earlier this month, Fed chair Jerome Powell said the central bank is working on it, “but we’re not going to be done by 2020.”

Bloomberg

Elizabeth Warren