The CFPB is proposing to supervise larger non-bank companies that offer services like digital wallets and payment apps. Driven largely by big tech and other large technology firms, digital payment apps and wallets continue to grow in popularity. But many of the companies are not subject to CFPB supervisory examinations. The rule proposed would apply to non-bank financial companies handling more than 5 million transactions per year. And they would have to adhere to the same rules as large banks, credit unions, and other financial institutions.

CFPB rulemakings gather pace

The proposed rule would be the sixth in a series of recent CFPB rulemakings. It is on a mission to define larger participants operating in markets for consumer financial products and services that play a substantial role in consumers’ everyday lives. The first five rules covered larger participants in consumer reportingconsumer debt collectionstudent loan servicinginternational money transfers, and automobile financing

“Payment systems are critical infrastructure for our economy. These activities used to be conducted almost exclusively by supervised banks,” said CFPB Director Rohit Chopra. “Today’s rule would crack down on one avenue for regulatory arbitrage. It [would ensure] large technology firms and other nonbank payments companies are subjected to appropriate oversight.”

Digital applications now help millions of people to send money to friends and family, as well as to help them make a variety of consumer retail payment transactions. These digital applications have a share of ecommerce payments volume that is similar to or greater than traditional payment methods, such as credit cards and debit cards. Such applications also have gained a significant volume of in-person retail spending. Amid growing merchant acceptance of general-use digital consumer payment applications, consumers with middle and lower incomes use digital consumer payment applications for a share of their overall retail spending that rivals or exceeds their use of cash. However, the CFPB says complaints about these applications and the companies that run them have been rising in recent years.

Big tech: blurring traditional lines separating banking & payments from commercial activities

The CFPB has found that this blurring can put consumers at risk. This is especially the case when the same traditional banking safeguards, like deposit insurance, may not apply. Despite their impact on consumer finance, big tech and other non-bank companies operating in the payments sphere do not receive the same regulatory scrutiny and oversight as banks and credit unions. The CFPB has enforcement authority over these companies. But the CFPB has not previously had, inside many of these firms, examiners carefully scrutinising their activities to ensure they are following the law and monitoring their executives.

The proposed rule would subject larger nonbank digital consumer payment companies to the CFPB’s authority to conduct examinations. It says this would help to ensure consistent application of federal consumer financial laws across the marketplace.

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CFPB proposed rules

The CFPB plans to ensure that big tech adheres to applicable funds transfer, privacy, and other consumer protection laws. It would be able to supervise larger participants for compliance with applicable federal consumer financial protection laws. This includes applicable protections against unfair, deceptive, and abusive acts and practices, rights of consumers transferring money, and privacy rights.

And it proposes that big tech and large payments players play by the same rules as banks and credit unions. The CFPB says that its supervision of these large companies can foster a level playing field with depository institutions. It argues that greater supervision of non-banks in this market would ensure federal consumer financial protection law is enforced consistently between non-depository and depository institutions in order to promote fair competition.

The CFPB previously warned big tech firms that they must adhere to federal consumer financial protection laws when using sophisticated behavioural targeting techniques to market financial products. And in 2022, it launched a public inquiry to gain more information on the risks posed by big tech’s payments platforms along with potential policy solutions.