Alternative Payment Providers (APP) should be subject to tighter data protection regulations, according to The Clearing House (TCH), a lobby group owned by 24 of America’s major banks.
The group made these claims in a new report comparing the scrutiny faced by banks with that applied to APP startups, such as Square or large tech companies that are new to the industry, such as Apple.
TCH argues that APPs only face retrospective action if their data security systems fail, whereas banks are routinely inspected by regulators and are subject to enforcement if any data protection systems are found wanting.
The lobby group also criticises startups and tech firms for depending on established banking systems to operate, but taking advantage of innovative new communication facilities, all the while escaping the vigilant eye of regulators.
TCH demands that the Federal Trade Commission and the Consumer Financial Protection Bureau should subject these companies to the same data protection regulations as banks.
The report says: “Banks are subject to extensive regulatory, supervisory, and enforcement scrutiny by their regulators with respect to privacy and data security, APPs (alternative payment providers), by contrast, are providing their products and services by continuing to rely on the backbone of existing bank payment systems while capitalising on innovations in communications platforms, thus generally managing to avoid the reach of the traditional financial regulators.
“Additional legislation might make clear that [alternative payment providers] are subject to the same type of scrutiny with respect to data security as banks, by directly giving the FTC and CFPB examination authority… or by directly requiring the CFPB to exact rules defining larger participants in the industry.”
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