On August 15, the Third Party Payment Processors Association ("TPPPA"), a national, not-for-profit organization of payment processors, payroll processors, and banks, this week filed a brief, amicus curiae, in support of the defendants' motion to dismiss in the Consumer Financial Protection Bureau's lawsuit against Intercept. The TPPPA filed the amicus brief in the United States District Court for the District of North Dakota (Case No. 3:16-cv-00144-ARS).
According to a press release issued by the TPPPA, the group filed the amicus brief in light of the CFPB's position that certain conduct should be deemed "unfair" under the Consumer Financial Protection Act without alleging a violation of a substantive federal law or industry rule. The TPPPA believes that this position will adversely affect the due process rights of all third party payment processors and others in the payments industry if the lawsuit is not dismissed.
The TPPPA's amicus brief noted that unlike banks, which have clearly identified regulators, no federal regulator directly supervises non-bank payment processors, and there is not a body of federal law that is particular to payment processors. The conduct of non-bank payment processors is governed by the NACHA Operating Rules, the well-established industry rules for ACH payments.
The amicus brief argues that the CFPB's complaint against Intercept failed to provide substantive proof that Intercept violated the NACHA Rules that were in place at the time the alleged violations occurred. In fact, the complaint never alleged that Intercept or its banks had ever received a rules violation from NACHA as a result of Intercept's actions. Therefore, TPPPA urged the Court to reject the CFPB's allegations that the actions of Intercept are unfair under the CFPA.
"The ACH Network combines the mutual benefits of low cost electronic payment processing to business with the protection of consumers afforded them by Regulation E," said Marsha Jones, president of the Third Party Payment Processors Association. "In fact, the warranties of the bank originating the payments extend beyond the typical Regulation E 60-day timeframes, to ensure that the consumer is made whole from any unauthorized ACH entries to their account, including any bank fees like overdraft fees, that may have resulted because of the unauthorized entry. This makes the ACH Network arguably the most consumer friendly payment system available in the United States."
The press release notes that the payments industry is evolving very quickly, with payments shifting from traditional in-person payments to global payments over the Internet, both of which make "Know Your Customer" more and more difficult. At the same time, the speed of payments is increasing as evidenced by the ACH Network moving into Same Day ACH payments next month.
"Compliance with federal regulations related to electronic payments is evolving very quickly to keep pace with the ever-changing payments landscape," according to Keith J. Barnett, an attorney with Troutman Sanders who filed the amicus brief on behalf of the TPPPA. "There are consumer protection regulations being amended, along with a relatively new regulator in the CFPB, and new rules on Customer Due Diligence related to beneficial owners, as well as the ongoing concerns with Anti-Money Laundering. And this is just at the federal level. Consider that 50 states' laws in a global Internet payments ecosystem make all of this exponentially more complex and confusing for businesses."
"We acknowledge the need to evolve the legal and regulatory framework around electronic payment processing and are committed to be leaders in this effort, in part by continually improving the TPPPA's Compliance Management System," said Jones. "However, we cannot stand idly by and allow payment processors and banks to be held accountable for laws, rules and regulations that did not exist when the alleged actions occurred. This is why we felt compelled to provide an industry perspective to the court in the form of an amicus brief."
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