Task Force Urges Self-Regulation For On-Line Payment Systems

Rejecting calls for more regulation, a Treasury Department task force said the government should let the market police electronic payment systems.

"Regulation at this stage risks quashing competition and innovation," the task force concluded in its report, which was released Thursday.

"The task force does strongly recommend that market participants develop meaningful and effective policies and procedures to address specific, identifiable areas of consumer concern."

For instance, it said the industry should create a self-regulatory organization to devise privacy standards, such as prohibitions against disclosing where customers spend their electronic money.

The industry also should monitor the financial health of institutions issuing electronic money, the group said. This could include encouraging issuers to disclose whether their products are backed by financial guarantees and requiring companies to inform consumers of their rights in case the issuer defaults.

Rather than issuing rules, the government should provide consumer education, monitor how the industry handles consumer protection issues, and encourage industry self-policing, the group said.

The task force was led by Eugene A. Ludwig, the former comptroller of the currency who is joining Bankers Trust New York Corp. later this month as a vice chairman. He warned the industry not to abuse the public's trust.

"Government is prepared to get involved if the private sector does not step up to the plate," he said.

Michael J. McGarry, director of public affairs at Visa USA, said the task force's recommendation is on target. "The best policy is to allow industry, through competitive innovation, to develop systems that provide a safe environment in the electronic commerce marketplace," he said.

But James Chessen, chief economist at the American Bankers Association, said he was disappointed the group did not recommend bank-like safety-and- soundness requirements for nonbank electronic money issuers.

"Let the market develop," he said. "But have it done in a fair and equitable way that ensures the high integrity of the payments system."

The task force was convened in the fall of 1996 by Treasury Secretary Robert E. Rubin. It included officials from the Federal Reserve Board, Office of Thrift Supervision, Federal Deposit Insurance Corp., and Federal Trade Commission.

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