A final rule issued Thursday governing funds transfers over the Federal Reserve Banks’ FedNow℠ settlement service will take effect in the first quarter following its publication in the Federal Register, according to the draft notice.
The Federal Reserve said the final rule governing this 24x7x365 interbank settlement service is substantially similar to the proposal issued last year, with some clarifications. It said the service, which has clearing functionality to support instant payments in the United States, is expected to be available in 2023.
The Fed issued the proposed rule last June to create a new subpart C of Regulation J. The new subpart C specifies the terms and conditions under which Reserve Banks will process funds transfers over FedNow.
The Fed Board said it received 31 substantive comments from a variety of commenters, including small and midsize banks, large banks, individuals, consumer organizations, service providers and processors, private-sector operators, trade organizations, and others. Financial industry commenters generally supported the proposal for the clarity it provides regarding legal matters and certain “foundational aspects” of the FedNow Service. Consumer groups and academics opposed some aspects of the proposed rule, citing their view that consumer protections for instant payments are insufficiently covered by the Electronic Fund Transfer Act (EFTA) and its implementing regulation, which is issued by and within the jurisdiction of the Consumer Financial Protection Bureau (CFPB).
Among the final rule clarifications:
- Addition of a commentary example of how a transfer – a portion of which is governed by the Electronic Funds Transfer Act (under jurisdiction of the Consumer Financial Protection Bureau, or CFPB) – may also be governed by Reg J’s new subpart C.
- Addition of a commentary example addressing when a FedNow participant may have additional time to determine whether to accept a payment order, generally allowed only when the participant has reasonable cause to believe the beneficiary is not entitled or permitted to receive payment. The example notes such reasonable cause could exist where a particular payment order may be related to fraudulent activity.