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In response to a notice of proposed rulemaking that the U.S. Federal Reserve published in June, the American Bankers Association (ABA) has asked the regulator to ensure that the Real Time Payments Network becomes as interoperable as possible with its planned real-time gross settlement system (RTGS). It does so as part of a wider set of comments about the Fed's impending reform of Regulation J.
The new system is to be called FedNow. The notice of proposed rulemaking will, if all goes well, amend Regulation J, which governs the collection of checks and other cash instruments by federal reserve banks and fund transfers through Fedwire, the Fed’s RTGS service for large, same-day transactions.
In an open letter to the regulator, the association has written: "At a minimum, the Federal Reserve should adopt policies and practices that are consistent with existing faster payment systems to minimize burdens on participating banks and ensure a uniform customer user experience."
The ABA wants the Fed to leave the term “immediately” as used in the Regulation J
funds availability requirement undefined in a final regulation.
In addition to the FedNow-related issues identified in the Notice of Proposed Rulemaking, the ABA has also sent the Fed its comments on a separate issue: the interplay between Uniform Commercial Code (UCC 4A) Article 4A and the Electronic Fund Transfer Act (EFTA).
The Federal Reserve, the ABA contends, should not be creating ambiguity and uncertainty by applying only EFTA, and not UCC 4A, to consumers' transactions.
The association thinks that the Federal Reserve’s proposal to apply both EFTA and UCC 4A to consumer-related transactions, with EFTA taking precedence in the event of any inconsistency, would "create significant ambiguity and uncertainty and unnecessarily complicates compliance."
In various instances, the association contends, it is unclear whether provisions of EFTA and UCC 4A are inconsistent, creating problems that only the courts could resolve. It goes on to say that UCC 4A was drafted to apply only to commercial transfers, and applying it to consumer transactions under Regulation J would introduce uncertainty in an otherwise well-settled area of law. It advances a remedy for this situation.
"The Federal Reserve should instead follow the more straightforward approach taken by RTP [the Real Time Payments Network, a private-sector real-time payment-and-settlement facility that is already processing transactions], which only applies the EFTA to consumer transactions and only applies UCC 4A to commercial transactions.
"This approach is consistent with current law and avoids the confusion and ambiguities associated with attempting to align two purposefully distinct bodies of law. It also reduces the burdens associated with considering whether and how particular provisions of UCC 4A should apply to consumer transactions. In addition, by following the approach taken by RTP, the Federal Reserve would minimize the burdens on banks and facilitate a more unified customer experience across real-time payment systems."
