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The Federal Reserve Examines Pay-by-Bank Use Cases
On July 7, 2025, the Federal Reserve Board (Fed) published a FEDS Note exploring the current and potential role of Pay-by-Bank (PBB) as a consumer-to-business payment method in the U.S.. The note, authored by Federal Reserve economist Byoung Hwang, reviews the conditions under which PBB might gain traction in merchant transactions and offers insights into adoption trends, enabling technologies, and regulatory frameworks.
The Fed does not take a clear position on PBB in the article, raising questions about its regulatory intent. According to the Fed’s research, about 11% of U.S. adults had used open banking-based payments as of 2024. Younger and higher-income consumers demonstrated greater willingness to adopt the method, particularly when accompanied by incentives such as discounts or loyalty programs. Despite this growth, the Fed cites attractive aspects of card-based methods, such as access to credit and rewards, as potential barriers to ubiquity.
The note highlights that broad adoption of PBB would depend on continued expansion of real-time payments networks such as FedNow and RTP, as well as the standardization of authentication protocols across financial institutions. While adoption remains limited, the Fed’s publication signals that PBB has entered the broader policy conversation as a potentially important development in the U.S. retail payments landscape.
It is promising to see the Federal Reserve take formal interest in PBB. The article cites benefits for merchants, including reduced costs of acceptance and the potential for deeper customer relationships. The MAG will continue to monitor updates surrounding PBB and open banking to effectively engage with regulators.
FTC “Click-to-Cancel” Rule Vacated by Federal Court
On July 8, 2025, one day after the release of the Fed’s note, a federal appeals court delivered a significant decision affecting subscription-based merchants. The Eighth Circuit Court of Appeals vacated the Federal Trade Commission’s (FTC) “Click-to-Cancel” rule, which was finalized in 2024 and scheduled to take effect on July 14, 2025.
The rule would have amended the existing Negative Option Rule to require businesses offering recurring billing or subscription services to provide a cancellation method that is as simple as the sign-up method. This would have applied to online, phone, and other subscription channels, and would have included enhanced disclosure requirements and annual renewal notices for non-physical goods and services.
In its decision, the court ruled that the FTC had failed to follow required procedural steps under the Congressional Review Act. Because the rule was expected to have an annual economic impact exceeding $100 million, the FTC was obligated to conduct a regulatory impact analysis that it did not complete. The court’s ruling effectively nullified the regulation in its entirety.
The FTC has not yet announced whether it intends to revise and reintroduce the rule through proper procedures. In the meantime, merchants should continue monitoring the patchwork of state-level regulations that govern subscription cancellation practices in the absence of a uniform federal standard.
State-Level Subscription Rules Breakdown
State laws governing automatic renewal and cancellation processes remain in effect. These laws differ in both scope and enforcement mechanisms, creating variation in compliance obligations for merchants operating across jurisdictions.
California’s Automatic Renewal Law (ARL) mandates that businesses present clear and conspicuous terms before enrollment, provide a confirmation of terms after sign-up, and offer a cancellation mechanism that matches the method of enrollment. For subscriptions initiated online, cancellation must be possible online as well.
New York’s ARL imposes similar requirements and mandates a standalone pre-renewal notice for contracts lasting one year or more. This notice must be delivered between 15 and 45 days before renewal and include clear instructions for cancellation.
Other states, including Vermont, Colorado, Illinois, Oregon, and Washington, are similarly addressing subscription cancellation. They vary in cancellation mechanism requirements, notification timelines, and term disclosure standards. For merchants operating nationwide, this creates added complexity compared to managing compliance under a single national rule.
What to Watch Going Forward
The Fed’s publication adds institutional attention to Pay-by-Bank as a retail payment method, and signals that further research or regulatory examination may be forthcoming as infrastructure and consumer familiarity evolve. In parallel, the vacating of the FTC’s Click-to-Cancel rule resets the federal regulatory landscape for negative option marketing and may prompt legislative or procedural follow-up.
For subscription-based merchants, existing state-level rules remain a critical area of focus. Compliance strategies will need to continue adapting to diverse requirements across jurisdictions.
The MAG will continue to monitor both developments and support merchant engagement through education and policy collaboration. If you are interested in joining discussions related to our policy engagement and education, please contact Beth Provenzano or Josh Pynn to participate in the MAG Advocacy and Communications Committee.