Banks Press Federal Reserve on Oversight While FinTechs Demand ACH Access

The comment deadline arrived Monday (July 27) for the Federal Reserve’s Proposed Revisions to the Federal Reserve Policy on Payment System Risk and the Guidelines for Account and Services Requests, designated as OP-1878. The regulatory initiative seeks to establish an optional, special-purpose Payment Account framework designed to allow eligible non-federally insured institutions to connect directly to specific central bank payment services without obtaining a full Master Account.

While the proposal aims to foster private-sector payments innovation, it has drawn starkly contrasting submissions from traditional community banking organizations and financial technology trade groups regarding operational limitations, supervisory rigor, and core payment network access.

Under the Federal Reserve’s proposal, the newly created Payment Accounts would remain restricted to institutions already legally eligible for Reserve Bank accounts, maintaining existing statutory boundaries without expanding legal eligibility. The framework primarily targets Tier 2 and Tier 3 institutions, categories encompassing non-federally insured entities subject to varying degrees of federal prudential oversight.

Approved accounts would gain access to select central bank rails, including Fedwire Funds, FedNow, the National Settlement Service, and Fedwire Securities for transfers free of payment. However, the proposal explicitly excludes access to FedACH, Federal Reserve credit, interest-bearing balances, and discount-window facilities, while enforcing strict automated mechanisms to reject transactions that would produce an intraday overdraft.

To mitigate systemic risk, the Federal Reserve proposes setting closing-balance limits based on anticipated payment needs, establishing a normal-circumstances maximum of $1 billion. While the framework imposes no intraday balance ceiling, temporary closing balances above the prescribed limit could be authorized under unusual circumstances, with repeated violations carrying potential penalties ranging from additional restrictions to complete account closure. Furthermore, the proposal outlines evaluation timetables as planning targets rather than mandatory deadlines: Tier 1 account requests are generally slated for evaluation within 45 days of receiving all requested documentation, whereas Tier 2 and Tier 3 Payment Account applications carry a 90-day evaluation window, subject to potential extensions by a Reserve Bank following Board consultation.

Community banking submissions filed ahead of the comment deadline argue that the proposed operational restrictions fail to account for fundamental disparities in regulatory oversight. Bank of Colorado Market President Cameron Armagost argued in a comment letter that granting direct central bank access to entities lacking comparable prudential and supervisory standards confers advantages without enforcing corresponding safeguards, specifically highlighting Bank Secrecy Act, anti-money laundering, and sanctions compliance responsibilities. Similar concerns were echoed by PriorityOne Bank, American Commercial Bank & Trust, and Hebron Savings Bank. These institutions recommended stringent safeguards, including low initial balance limits, mandatory compliance reviews, clear access-restriction mechanisms, and explicit regulatory language clarifying that a Payment Account does not serve as a pathway to a full Master Account.

Beyond regulatory parity, bank submissions raised significant commercial anxieties regarding deposit and payment activity migration. Bank of Colorado cautioned that direct central bank access could divert commercial deposits and payment volumes away from community banking institutions. PriorityOne Bank tied this commercial risk directly to local credit availability, noting that core deposits and transaction activity underpin local economic development, small business financing, and rural housing loans. Hebron Savings Bank supported maintaining a distinct boundary between Payment Accounts and Master Accounts while asserting that any entity granted direct infrastructure access should remain subject to continuous federal prudential supervision.

Conversely, financial technology advocates argue that excluding core network services undermines the commercial viability of the proposed framework. The Financial Technology Association (FTA), in its July 27 commentary letter, maintained that the omission of the Federal Reserve’s Automated Clearing House network prevents the Payment Account from providing practical access to core payment infrastructure. The FTA noted that FedACH payment value reached $104.06 trillion in 2024 and observed that payroll, direct deposit, recurring consumer and business payments, government disbursements, account funding, and bill payments rely heavily on the network. Citing Nacha data, the FTA emphasized that two institutions accounted for approximately half of U.S. ACH transactions in 2024, arguing that continued intermediation preserves existing origination concentration.

To address the Federal Reserve’s reliance on automated overdraft controls—which ACH currently lacks—the FTA proposed alternative operational safeguards. These measures include enhanced prefunding and real-time balance verification, initially restricting participation to ACH credits, collaborating with Nacha on operational controls, and phasing in broader access through transaction limits, volume thresholds, and heightened reporting. On the regulatory front, the FTA advocated for supervisory requirements calibrated specifically to payment risks, such as operational resilience, cybersecurity, anti-money laundering, and sanctions compliance, rather than applying traditional prudential standards designed primarily for lending and maturity transformation.

Watch for the Federal Reserve and relevant Reserve Banks to review the submitted comment letters following the July 27 deadline, setting the stage for potential modifications in subsequent rulemaking. Key regulatory decision triggers include whether the final framework will incorporate any mechanism for FedACH access, how strictly supervisory authorities will evaluate non-federally insured applicants, what definitive balance ceilings will be implemented, and whether evaluation timelines will be formalized into mandatory statutory deadlines.

Source: PYMNTS

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