Unification of Payments Law and the Problem of Insolvency Risk in Payment Systems

The law of payment systems is currently quite fractionalized. Different legal regimes apply to different payment systems, although the differences among the systems are obscure to the ordinary user. This article considers some aspects of the question whether unification is feasible. The discussion begins with some general issues, such as whether it makes sense to frame the issue as whether payment systems should be "regulated," or whether all rules for different payment systems should be uniform.

The discussion then turns to one specific issue: who should bear the risk of insolvency of payment system providers? Private law cannot eliminate the risk of provider insolvency. A person who maintains an account with a given institution necessarily accepts the risk of that institution's solvency. The question is what to do if insolvency of some financial institution prevents completion of a payment transaction.

On that question it seems entirely feasible to adopt a general principle that the risk of intermediary provider insolvency is borne by the providers of the payment system, not by the users of the payment system.