PACE Act of 2026
- Sponsor
- Rep. Kim, Young [R-CA-40]
- Committees
- Financial Services Committee (primary)
- Last action
- Apr 21, 2026
Bottom line
The PACE Act creates a new federal regulatory pathway for large payment service providers, aiming to standardize oversight, enhance consumer protection, and integrate them into the federal financial system while clarifying their legal status.
What it actually does
This bill establishes a federal registration framework for certain state-licensed payment service providers, subjecting them to federal oversight by the Comptroller of the Currency. It sets robust reserve, recordkeeping, and risk management standards, grants direct access to Federal Reserve payment systems, and outlines a specialized insolvency process that prioritizes customer funds. The bill also clarifies that balances with these registered providers are not considered securities.
Proponents argue
Proponents argue the bill modernizes financial regulation by providing a clear, consistent federal framework for rapidly evolving payment services, fostering innovation, competition, and consumer trust. They contend it addresses the patchwork of state regulations, ensures financial stability through robust reserve and risk management standards, and grants fair access to essential payment infrastructure, ultimately benefiting consumers and the economy.
Opponents contend
Opponents might argue that the bill creates an unnecessary layer of federal bureaucracy, potentially stifling innovation by imposing stringent banking-like regulations on non-bank entities. Concerns could be raised about federal overreach into state-regulated areas and the potential for regulatory arbitrage if the federal framework is perceived as either too rigorous or too lenient compared to existing state regimes.
The bill is moderately complex due to its technical financial language and cross-references to other acts, requiring careful reading to fully grasp its implications.
Section 3
Federal Registration Framework for Covered Providers
This section allows certain state-licensed payment service providers (those with at least 40 active money transmitter licenses, or state depository institution/credit union charters) to register with the Comptroller of the Currency. This federal registration would enable them to provide payment services in any State, streamlining operations beyond the current state-by-state licensing model. The Comptroller evaluates applications based on factors like engagement in payment services, financial resources, managerial expertise, and public benefit.
Supporters argue
Supporters argue this creates a much-needed uniform regulatory framework, reducing compliance burdens for multi-state operators and fostering innovation by allowing these entities to scale more easily across the nation.
Critics contend
Critics might contend this could undermine state regulatory authority and create a 'race to the bottom' if federal oversight is perceived as less stringent, or conversely, impose overly burdensome federal requirements on entities already regulated at the state level.
Tradeoffs
Balances the desire for regulatory uniformity and innovation against concerns about federal overreach and potential erosion of state regulatory power.
Section 4(a)
1:1 Reserve Requirement for Outstanding Payment Obligations
Registered covered providers are required to maintain identifiable reserves backing their outstanding payment obligations on at least a 1-to-1 basis. These reserves must consist of highly liquid assets such as U.S. coins and currency, demand deposits at insured depository institutions, short-term Treasury securities, certain repurchase agreements, or registered Government money market funds. This ensures that customer funds are fully backed by safe and liquid assets.
Section 4(b)
Detailed Recordkeeping for Obligations and Reserves
Registered covered providers must maintain detailed records of their outstanding payment obligations for each customer and the reserves held to back these obligations. For providers offering access or custody services for monetary value, they must also maintain beneficial ownership records for each account and customer. This ensures transparency and accountability regarding customer funds.
Section 5(a)
Application of GENIUS Act Risk Management Standards
Registered covered providers will be subject to capital, liquidity, and risk management regulations issued under the GENIUS Act, similar to how those regulations apply to 'permitted payment stablecoin issuers.' These regulations will be tailored to the specific business model and risk profile of the registered covered provider, ensuring appropriate oversight without a one-size-fits-all approach.
Section 5(b)
Non-Discrimination in Payment Services
Registered covered providers are prohibited from denying or canceling payment services based on an individual's constitutionally or statutorily protected beliefs, affiliations, or political views. They must make business decisions based on individualized, objective, and risk-based analyses, similar to the requirements of the Equal Credit Opportunity Act. This aims to prevent 'de-banking' or discrimination against certain groups.
Section 8
Customer Priority in Insolvency Proceedings
This section establishes a specific insolvency framework for 'nonbank providers' (registered covered providers that are not insured depository institutions). It excludes them from standard bankruptcy chapters (7 or 11) and makes them eligible for state-administered insolvency proceedings. Crucially, it grants customer outstanding payment obligations a second-tier priority in liquidation, after administrative expenses, ensuring customers are paid before other general liabilities. Custodial assets, if properly segregated, are not considered general assets and any shortfall in them also gets high priority.
Section 9
Direct Access to Federal Reserve Payment Systems
Registered covered providers can request direct access to 'payments reserve accounts' at a Federal Reserve Bank, which includes access to Fedwire Funds Service, FedNow Service, and FedACH Services. The Board of Governors must approve or deny such requests within a specified timeframe, with a deemed approval if no action is taken. The Board also gains backup enforcement authority in 'unusual and exigent circumstances' for non-compliance.
Amends five major securities laws (Investment Advisers Act of 1940, Investment Company Act of 1940, Securities Act of 1933, Securities Exchange Act of 1934, and Securities Investor Protection Act of 1970) to explicitly state that a 'balance with a registered covered provider' is not considered a 'security.'
Section 10
Why it matters:This is standard legislative practice for making technical amendments to existing law. However, its placement at the end might obscure its fundamental impact on the regulatory classification of these new entities.
Case for: Supporters argue this provides crucial regulatory clarity, preventing potential dual regulation by both banking and securities authorities, which could create conflicting rules and stifle innovation in payment services. It ensures that these balances are treated as payments, not investments.
Case against: Critics might contend that this broad exclusion could inadvertently create a regulatory gap, especially if certain payment balances evolve to have investment-like characteristics, potentially reducing consumer protection that securities laws would otherwise provide.
Estimated impact: Significantly clarifies the regulatory landscape for registered covered providers, potentially reducing compliance costs and increasing legal certainty.
States that reserves maintained by a registered covered provider 'may not be pledged, rehypothecated, or reused,' except for specific purposes described in another referenced act (GENIUS Act).
Section 4(a)(2)
Why it matters:This is a technical but vital detail for consumer protection, ensuring that customer funds held as reserves are not leveraged by the provider for other activities. Its placement is logical within the reserve standards but its brevity makes it subtle.
Case for: Proponents argue this is a fundamental safeguard, preventing providers from risking customer funds by using them for their own financial activities, thereby enhancing the security and liquidity of customer balances.
Case against: Some might argue that a complete prohibition on rehypothecation, even with exceptions, could limit a provider's capital efficiency or ability to generate revenue from reserves, potentially leading to higher service fees.
Estimated impact: Significantly enhances the safety of customer funds by preventing their misuse by payment providers.
Explicitly states that a 'nonbank provider' (a registered covered provider that is not an insured depository institution) 'shall not be treated as a debtor for purposes of chapter 7 or chapter 11 of title 11, United States Code.'
Section 8(b)
Why it matters:This is a critical legal carve-out, establishing a specialized insolvency regime. Its placement is appropriate within the insolvency section, but its technical nature makes it less immediately obvious to a non-expert.
Case for: Supporters argue this is necessary to ensure a swift and orderly resolution process for failed payment providers, prioritizing customer funds and avoiding the complexities and delays of traditional bankruptcy proceedings, which are not designed for payment service providers holding customer funds.
Case against: Critics might argue that creating a separate insolvency regime adds complexity to the legal system and could lead to unforeseen challenges or inconsistencies compared to the well-established bankruptcy code.
Estimated impact: Fundamentally alters the legal framework for resolving failed nonbank payment providers, aiming for quicker and more customer-centric outcomes.