Democratic Lawmakers Introduce Real-Time Payment Legislation

Inside Subprime: August 19, 2019

By Aubrey Sitler

A real-time payment service system will go into effect sooner rather than later, if several lawmakers have it their way.

Rep. Ayanna Pressley and Sen. Elizabeth Warren, both Democrats from Massachusetts, as well as Maryland Sen. Chris Van Hollen and Illinois Rep. Jesús “Chuy” García, introduced a bill recently to help workers get their money faster.

The proposal would be a national system to clear checks instantly, with real-time payments.

The Federal Reserve right now can take days for checks to clear. In the past, the Fed said it would like to make a real-time payments service a reality by 2020, but that goal seems far-fetched right now as we move into the fall of 2019.

The legislation, called the Payment Modernization Act of 2019, would force the Fed to put that system in operation sooner and would characterize the system as a public utility.

“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,” said Sen. Warren.

Since many Americans live paycheck to paycheck, they often deal with issues of getting their earned income in time to pay bills. Some even resort to payday and title loans to help make ends meet, as Sen. Warren referenced. Or they end up using overdraft fees as a way to get money into their bank accounts. Overdraft fees increased by about $100 million last year from the year before.

With the real-time payments system, the goal is to serve these underserved individuals, who are often under- and unbanked. That means they don’t have traditional financial accounts like checking and savings, and don’t have access to traditional forms of credit.

Supporters also say that small businesses would benefit from the real-time payments system, helping those that “currently face delays on payments to vendors and contractors more reliably and less-stressfully meet payroll,” as a article recently wrote.

The bill still faces a lot of opposition from big financial institutions. Some lawmakers say that private banks are already working on a real-time payments system. That system is called The Clearing House, which is supposed to be available to all financial institutions across the country by 2020.

Smaller institutions, as one Forbes article stated, are looking forward to the Fed’s real-time payments system, and are weary of a potential monopoly through The Clearing House.

“The Fed’s decision to develop a real-time settlement system will benefit consumers and serve as a launchpad to future payments innovations. A Fed-operated system will avoid the risk of having only one, for-profit settlement service run by the nation’s largest financial institutions. This will expand access to more banks,” said Independent Community Bankers of America CEO Rebeca Romero Rainey.

In the meantime, other companies in the retail and tech industries are capitalizing on the real-time payments system market. Apple and PayPal already have their real-time payment systems in operation, and Walmart and Facebook could capture a share of the market with a new cryptocurrency and Calibra, respectively.

Learn more about payday loans, scams, and cash advances by checking out our city and state financial guides, including Illinois, Chicago, Ohio, Texas, and more.