The Federal Trade Commission amended the federal Telemarketing Sales Rule to explicitly ban telemarketers from using remotely created checks (RCCs) and remotely created payment orders (RCPOs), as well as prepaid card cash reload mechanisms, like MoneyPak. The amendments, which take effect early in 2016, are directed at criminals who use these and similarly untraceable payment methods when scamming consumers, according to the FTC.
"Con artists like payments that are tough to trace and hard for people to reverse," said Jessica Rich, Director of the FTC's Bureau of Consumer Protection. "The FTC's new telemarketing rules ban payment methods that scammers like, but honest telemarketers don't use."
Opponents, including the Federal Reserve, counter that legitimate businesses do use these types of payment methods and will be unduly hurt by the revised rule. The rule change also contradicts existing payments law, the Fed said.
The Fed, in addition to being the nation's central bank and a regulator of commercial banks is gatekeeper for the nation's interbank payment systems – automated clearing house network, checks, wire transfers, even cash. In a comment letter to the FTC in 2013 when the ban on RCCs and similar items was initially proposed, the Federal Reserve Board of Atlanta, urged the FTC to tone down the plan.
"Prohibiting the use by telemarketers and sellers of certain payments methods and thus impacting how those payments are processed in the check collection system is a new and different use of the Commission's Unfair or Deceptive Acts and Practices (UDAP)," wrote Marie Gooding, First Vice President and Chief Operating Officer at the Atlanta Fed. The Atlanta Fed is home to the Fed System's Retail Payments Office. Gooding is in that office and carries the additional title of Retail Payments Product Director for the Fed System. Her statements were contained in an August 2013 comment letter to the FTC regarding the proposed UDAP amendments.
If the FTC bans RCCs, Gooding wrote, "a payment instrument, the RCC, that is implicitly permitted for bank to bank transfer and presentment under one federal regulation [Regulation CC] will be expressly banned for use by one sector of the sale market under another federal regulation. We believe in both the short and long term, it is clearly preferable public policy not to create a fragmented 'law of payments' in which multiple federal agencies take differing and/or conflicting views on the legitimacy of specific payments instruments."
Echoing a sentiment expressed by others who commented on the proposal, Gooding added that any ban on RCCs and RCPOs could be easily circumvented. After all, in a check clearing environment that relies on images instead of paper documents, it isn't possible to determine the difference between an image captured from a paper check (that is, remote deposit capture [RDC]) and an image created by a payee (an RCC). Or worse, a ban on RCCs might scare off banks from offering RDC for fear that RCCs might be lurking in a batch of image check deposits, Gooding noted.
In a statement issued with the decision, the FTC downplayed concerns that the new rule would disrupt legitimate business uses of RCC and RCPO. "[I]n contrast to the overwhelming evidence of telemarketing fraud exploiting the use of these payment methods, we find almost no evidence that they are being used for legitimate telemarketing purposes," a majority of the commissioners stated. And they noted that "numerous" law enforcement agencies backed the plan, including the U.S. Department of Justice and 24 state attorneys general.
"We believe the bright line rules we are putting in place provide much needed clarity for telemarketers and payment processors in a landscape that currently consists of a patchwork of state and federal rules," the commissioners wrote.
The commissioners also downplayed concerns the rule change would interfere with market innovations. The ban "does not get in the way of future innovation in the area of payor-initiated payments – including the use of digital checks created by consumers using their smartphones – in telemarketing and transactions," they stated.
In a dissenting opinion, FTC Commissioner Maureen K. Ohlhausen said she would have preferred the FTC work with the Fed and other agencies to strengthen anti-fraud and consumer protection measures around new and emerging payment methods. This would be preferable to prohibiting the use of certain payment methods by one specific industry, telemarketing, she said.
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