According to a new survey, the majority of Americans who are familiar with online banking assume - perhaps incorrectly - that all financial services Web sites provide the same consumer protections.
After all, restaurants are expected to follow identical food-safety guidelines, hospitals are subject to the same sterility and other requirements, and new buildings must all adhere to safety codes. Unfortunately, online financial services do not necessarily all offer uniform consumer protections. The consumer and financial communities alike should take note of this situation and correct it.
I'm referring specifically to an increasingly popular service known as aggregation - collecting individuals' financial account information from a variety of Web sites so they can view it all at one site using one password. Right now aggregation is simply an information-access service, but soon people should have the ability to initiate fund transfers through aggregation sites, and when that happens consumer protection issues such as privacy and fraud prevention will be even more important.
Though aggregation was first offered by Internet companies such as eBalance and Yodlee, more and more traditional financial services companies are beginning to offer it. My company recently commissioned the aforementioned online survey to better understand consumer attitudes toward aggregation and other Internet financial services, and the results confirmed the high level of trust consumers have in financial institutions and in federal consumer protection regulations.
About two-thirds of the more than 700 respondents said they believe that financial institutions' aggregation services provide better security (70%), privacy (69%), and fraud protection (65%) than similar ones offered by third-party Internet providers. And 89% said they would be less likely to use a Web aggregator if they knew it was "not required to comply with federal banking regulations."
Significantly, though, 51% said they assumed that all aggregation services "are required to comply with federal banking regulations." In fact, it is not clear whether all Web aggregators are equally subject to applicable federal regulations.
Among the consumer protection regulations put in place over the past several decades, probably the most notable are Regulation E, issued by the Federal Reserve Board to protect consumers under the Electronic Fund Transfer Act; and the privacy regulations mandated by the Gramm-Leach-Bliley Act of 1999.
Gramm-Leach-Bliley unquestionably covers depository institutions, the financial institutions with which consumers are most familiar. The Federal Trade Commission, which has jurisdiction over third-party Internet aggregators, has determined that third-party aggregators are "financial institutions" under the law and therefore subject to its provisions. However, while depository institutions are subject to enforcement by traditional banking regulators that regularly examine them, third-party aggregators fall under the purview of the FTC, which is assigned to respond to complaints only after the fact.
Regulation E already applies fully to depository and other financial institutions, of course, but there has not been a definitive ruling on how it will apply to third-party aggregators. In an effort to clarify this issue, the Fed on June 23 issued a request for comment on "the implications of a determination that aggregators are or are not financial institutions for purposes of Regulation E." The comment period closed Aug. 31, and the consumer and financial services communities should be vigilant in analyzing and acting on the results of these deliberations.
As Web aggregation evolves to include fund transfers, there is an urgent need for consumer groups, financial institutions, and third-party aggregators to keep consumers well informed.
At the same time, federal regulators need to clarify which consumer protection regulations apply to third-party aggregators and ensure that people are uniformly protected regardless of which service they use. These measures will go a long way toward protecting the interests of businesses and their customers.
Mr. Cognemi is the president and chief executive officer of the electronic payments network Star Systems Inc. of Maitland, Fla.
