Proposed rule would subject large players to the same supervisory exam process as banks
The Consumer Financial Protection Bureau (CFPB) is proposing to supervise larger nonbank 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 today would ensure that these nonbank financial companies – specifically those larger companies handling more than 5 million transactions per year – adhere to the same rules as large banks, credit unions, and other financial institutions already supervised by the CFPB.
“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 by ensuring 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, complaints about these applications and the companies that run them have been rising in recent years.
Big Tech and other companies operating in consumer finance markets blur the traditional lines that have separated banking and payments from commercial activities. The CFPB has found that this blurring can put consumers at risk, especially when the same traditional banking safeguards, like deposit insurance, may not apply. Despite their impact on consumer finance, Big Tech and other nonbank companies operating in the payments sphere do not receive the same regulatory scrutiny and oversight as banks and credit unions. While the CFPB has enforcement authority over these companies, the CFPB has not previously had, inside many of these firms, examiners carefully scrutinizing 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, helping to ensure consistent application of federal consumer financial laws across the marketplace. Specifically, the proposed rule would help ensure these large nonbank companies:
- Adhere to applicable funds transfer, privacy, and other consumer protection laws: The CFPB would be able to supervise larger participants for compliance with applicable federal consumer financial protection laws, which includes applicable protections against unfair, deceptive, and abusive acts and practices, rights of consumers transferring money, and privacy rights.
- Play by the same rules as banks and credit unions: The CFPB’s supervision of these large companies can foster a level playing field with depository institutions. Greater supervision of nonbanks 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.
Today’s proposed rule, if finalized, would be one part of the CFPB’s efforts to carefully monitor the entry of large technology firms, including Big Tech giants, into consumer financial markets. In 2022, the CFPB warned Big Tech firms that they must adhere to federal consumer financial protection laws when using sophisticated behavioral targeting techniques to market financial products, and launched a public inquiry to gain more information on the risks posed by Big Tech’s payments platforms along with potential policy solutions. In 2023, the CFPB followed up on a 2021 request to Big Tech companies for information on their payment system plans with more detailed orders to ascertain more information on their use of sensitive personal data, and highlighted the role of certain Big Tech firms in limiting competition and innovation in mobile payments.
In addition to those actions, the CFPB has opened the Office of Competition and Innovationto ensure nascent firms can compete with Big Tech companies within consumer finance, and established a supervision technology program staffed with technology experts and examiners focused on, among other things, risks associated with Big Tech consumer financial products.
The Consumer Financial Protection Act provides the CFPB with the authority to conduct supervisory examinations over all nonbank companies in the mortgage, payday loan, and private student loan industries, as well as those who serve as service providers to banks and credit unions. In addition, the CFPB can supervise individual entities that pose a risk to consumers, as well as larger participants in other markets.
The proposed rule would be the sixth in a series of CFPB rulemakings 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 reporting, consumer debt collection, student loan servicing, international money transfers, and automobile financing.
Read today’s Notice of Proposed Rulemaking.
Comments must be received on or before January 8, 2024, or 30 days after publication of the proposed rule in the Federal Register, whichever is later.
Read Director Chopra’s October 2023 remarks on digital payments.
Consumers can submit complaints about financial products or services by visiting the CFPB’s website or by calling (855) 411-CFPB (2372).
Employees who they believe their company has violated federal consumer financial protection laws are encouraged to send information about what they know to whistleblower@cfpb.gov.