In a world where Amazon can deliver almost anything to your doorstep in record time, it's baffling that the banking system lags behind, often taking days to process even the simplest of transactions. The culprit? The Federal Reserve's reluctance to enforce its own regulations, allowing banks to profit from the delays and leaving millions of Americans struggling to make ends meet.

Bridging the Gap: Exposing the Costly Consequences of Slow Payments

The Paycheck-to-Paycheck Paradox

For those living paycheck to paycheck, the delays in accessing their own money can be devastating. While a few days may not seem like much for those with a financial cushion, for half of all Americans, it can cost tens of billions annually. This stark reality has given rise to a proliferation of payday lenders and check cashers, outnumbering even the ubiquitous McDonald's and Starbucks. The irony is that the law already requires banks to make funds available much faster, but this mandate is largely unenforced.

Outdated Regulations in a Digital Age

In 1987, Congress directed the Federal Reserve to reduce the time banks can hold certain deposits, like checks, to "as short a time as possible." However, the regulations have failed to keep pace with technological advancements. Today, you can deposit a check with a simple tap on your smartphone, yet the underlying rules remain unchanged. While the physical processing of checks has been replaced by digital image transfers, the Fed's policies have not evolved accordingly.

Petitioning for Change: Holding the Fed Accountable

Recognizing the need for reform, a little-known legal procedure has been employed to formally petition the Federal Reserve. Modeled after the First Amendment's right to petition the government, this approach aims to hold the central bank accountable and compel it to follow the law. The question remains whether anyone can truly hold the Fed responsible for its inaction.

The Profit Motive Behind Slow Payments

The consequences of slow payments are twofold: they generate profits for banks while imposing costly workarounds on those who can least afford it. The interest earned on money in transit, known as "float," is one source of revenue. However, the real profit center lies in the myriad fees and high-interest loans charged to those who cannot wait several days for their checks to clear.

The Rise of Overdraft Fees and Payday Lenders

Overdraft fees, virtually non-existent in the late 1980s, have ballooned to nearly $30 billion annually by 2019. Interestingly, when some banks started providing faster access to funds, the overdraft fees collected by those institutions fell by $5 billion per year. This suggests that the delay in accessing one's own money is a significant driver of these lucrative fees.

The Costly Workarounds: Check Cashers and Payday Lenders

The research has uncovered a startling statistic: 70% of people who use check cashers actually have bank accounts. The reason? Check cashers offer instant access, while banks can hold onto the funds for days. Payday lenders have also emerged as an expensive solution for those seeking faster access to their paychecks. Had the U.S. adopted real-time payments, as the Bank of England did in 2008, Americans would have saved an estimated $100 billion in fees for these high-cost services.

The Fed's Conflict of Interest and the Delayed FedNow Launch

The Federal Reserve's reluctance to require faster payments may stem from a conflict of interest. As the operator of its own payment system, the Fed may be hesitant to implement changes that could undermine its market share. This dynamic is akin to Blockbuster regulating the streaming industry, where Netflix would have struggled to replace the incumbent.The launch of the Fed's real-time payment system, FedNow, has been a long time coming. Despite warnings that the delay would further postpone faster payments for Americans, it took the Fed four years to unveil FedNow last July. The lack of transparency surrounding FedNow's progress and adoption is also concerning, as the Fed refuses to disclose key metrics, such as the number of financial institutions signed up in "receive-only" mode.

The Barriers to Faster Payments: Profits over Progress

Banks have a vested interest in maintaining the status quo, as they generate more revenue through overdraft fees, float, and charging customers for faster access to their deposits than by allowing them to fully benefit from FedNow. Some banks have been found to charge customers up to 2% for immediate access to their funds, not far off from the 1.75% fee charged by Venmo for the same service. One prominent life insurance CEO even reported encountering "markups of six- to 20 times" that discourage businesses from switching to faster payments.

Petitioning for Change: A Pathway to Accountability

The First Amendment's right to petition the government, coupled with the Administrative Procedure Act of 1946, provides a legal avenue for citizens to demand action from federal agencies, including the Federal Reserve. By leveraging this little-known procedure, researchers and advocates can hold the central bank accountable and compel it to fulfill its mandate of reducing the hold period for checks in line with available technology.This petition serves as a powerful tool to promote regulatory accountability and push for reforms that prioritize the needs of consumers over the profits of financial institutions. While researchers often propose new regulatory systems or analyze data to demonstrate the potential benefits of change, when a regulator refuses to act on the evidence, alternative methods of engagement become necessary.