Opinion: Deposit delays are just the latest example of our broken financial system

Editor’s Note: Ed Mierzwinski is senior director, federal consumer programs, U.S. PIRG, a non-profit consumer group. The views expressed in this commentary are his own. View more opinion on CNN.

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When untold numbers of Americans looked in their bank accounts last week for their directly deposited paychecks, the money wasn’t there. The Clearing House, the banking association and payments company behind the Automated Clearing House (ACH) system many of us use for instant transactions, blamed those delayed deposits on a “processing error.” The Clearing House admits the error was its fault — “not caused by the financial institutions that originated or received the payments, or the businesses or other accountholders that initiated them.”

However, the Clearing House downplayed the problem,  telling CNN on November 4 that the issue “impacted less than 1% of the daily ACH volume in the United States.” That means hundreds of thousands of people potentially didn’t get paid on time. The Federal Reserve processed an average of 74 million ACH transactions a day in 2022, so 1% would be 740,000.

This is just the latest example of why we need more robust oversight of financial institutions and fintech businesses.

As of Monday, the Clearing House conceded that “in many cases,” payments expected last week still hadn’t been posted. When will those people get their money? No one knows. With 62% of Americans in September saying they live paycheck to paycheck, it’s pretty safe to say it has affected many families’ abilities to pay their bills.

The screwed-up timeline and our screwed-up financial system left those people with a lose-lose situation: If they, in advance, sent checks or set up online payments for bills, but their paychecks didn’t replenish their accounts in time, their bank could charge them an overdraft fee. If they delayed paying their bills because they realized the money wasn’t there, the credit card companies, medical providers or others they owe could charge them a late fee.

The Clearing House said Monday that it “apologizes for the impact that this event has had on financial institutions and their customers.” But apologies don’t pay the bills.

None of that is ok. Consumers who didn’t get their paychecks shouldn’t have to pay any financial penalties. If anyone should incur a financial burden from this error, it should be the entities responsible for this debacle.

Some banks say they’ll try to help affected individuals. JPMorgan Chase said it would “work to refund overdraft fees caused by this.” That’s better than nothing. But the banks shouldn’t impose those fees in the first place. The onus should not be on consumers to make sure financial institutions don’t unfairly charge them. Congress has been working on legislation to protect Americans from predatory overdraft fees, but as of now, none of those bills has passed.

Even little glitches such as this affect a lot of people. What about when a major snafu happens? We’re more susceptible to them as banks rely more on technology. For example, ACH transactions rely on specially formatted National Automated Clearing House Association (NACHA) files containing instructions for a bank to transfer funds between accounts. Errors in NACHA files can cause ACH payment rejections and disrupt the seamless flow of transactions.

The finance sector has changed a lot over the past dozen years, via consolidation and new technology. The Consumer Financial Protection Bureau (CFPB) announced on Tuesday a new proposal to help customers avoid problems with larger fintech businesses that offer services such as digital wallets and payment apps. The CFPB noted, “Despite their impact on consumer finance, Big Tech and other nonbank companies operating in the payments sphere do not receive the same regulatory scrutiny and oversight as banks and credit unions.”

Since it opened in 2011 in response to the banking-fueled economic meltdown that sparked the Great Recession, the CFPB has recouped $17.5 billion for consumers and processed 4 million consumer complaints against companies. But its ability to protect consumers could be short-lived if the payday lending industry has its way. The US Supreme Court heard oral arguments on October 3 in CFPB v. Community Financial Services Association of America, a crucial case that will determine the future of the CFPB’s funding.

Because the CFPB’s funding structure aligns with the Constitution’s Appropriations Clause, the bureau has a strong legal argument that should lead the Supreme Court to vote in its favor, and I encourage that. Stripped of dependable funding, the CFPB would be hamstrung in protecting consumers.

While this ACH incident does not appear to have spread further, it’s just a matter of time until another one happens. In this case, the CFPB should demand that businesses don’t double-whammy anyone who missed a paycheck through no fault of their own with any sort of late or overdraft fee. Moving forward, the bureau should follow through on its newest proposal to keep the financial industry in check. American consumers are counting on it.