Elizabeth Warren Wants to Stop Banks From Dominating Trillions in Payments

(Bloomberg) -- Elizabeth Warren and other Democrats are vying to keep Wall Street from dominating a potentially lucrative new line of business.

At issue is the development of real-time payment systems that would allow consumers and businesses to instantly access money that’s sent to their bank accounts. Everyone agrees that creating such networks is necessary. But they’re at odds over whether it’s a good idea to let big banks, which already have one up and running, reign supreme.

Senator Warren, a Democratic presidential candidate who rose to prominence by bashing banks, wants the Federal Reserve to join the fray. The Massachusetts lawmaker, along with Senator Chris Van Hollen of Maryland and two House Democrats, plans to introduce a bill Wednesday that would require the Fed to build a competing system. They say they want to make the U.S. payments infrastructure a public utility and prevent big banks from gaining a monopoly.

“People living paycheck-to-paycheck shouldn’t have to wait up to five days for a check to clear so that they can pay their rent, cover child care, or pick up groceries,” Warren said in a Wednesday statement. “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.”

Slim Odds

While the odds of the legislation passing Congress are slim as long as Republicans control the Senate, the move shows how Warren will continue to make Wall Street’s dominance over Americans’ finances a central campaign theme. The bill also shines a light on a top issue for big-bank lobbyists in Washington, as trillions of dollars flow through the U.S. payment system weekly.

In their statement, Van Hollen and Warren said that if the Fed doesn’t take action, the U.S.’s payment network will lack adequate safeguards to protect consumers.

“I’ve pushed the Federal Reserve to develop a system that has the necessary guardrails, but progress has been slow,” Van Hollen said in the statement.

Slow, Outdated

The U.S. has a comparatively slow and outmoded infrastructure for processing transactions, and business leaders say that is stunting economic growth. In 2015, the Fed set up the Faster Payments Task Force, a group whose members include financial institutions, government agencies, corporations, consumer groups and technology firms. Its recommendation: The Fed should oversee the establishment of a new payments system by 2020. The Fed has yet to act on that advice.

Eyeing an opportunity to handle trillions in payments, a consortium of the largest U.S. financial institutions, including Citigroup Inc. and Wells Fargo & Co., introduced their own fast payments system called Real-Time Payments late in 2017. The group pledged to the Department of Justice that they would run the system like a utility, taking no profits and not discriminating against small banks -- as long as they had no competition.

But small banks and credit unions, fearful of embracing a platform run by their bigger competitors, have pushed back and called on the Fed to create its own system. Earlier this month, Fed Chairman Jerome Powell told lawmakers that the central bank is still working on it, “but we’re not going to be done by 2020.” He acknowledged that community banks have "strongly pushed the Fed" to wrest control of the system from Wall Street lenders.

--With assistance from Christopher Condon and Jesse Hamilton.

To contact the reporter on this story: Austin Weinstein in New York at aweinstein18@bloomberg.net

To contact the editors responsible for this story: Jesse Westbrook at jwestbrook1@bloomberg.net, Dan Reichl

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