The Consumer Financial Protection Bureau (CFPB) has proposed a rule that would enable it to supervise larger nonbank companies that offer services like digital wallets and payment apps.
While digital payment apps and wallets continue to grow in popularity, many of the companies are not subject to CFPB supervisory examinations. This new proposed rule would ensure that these nonbank financial companies – specifically 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,” CFPB Director Rohit Chopra said. “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.”
The CFPB said that 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. They also have gained a significant volume of in-person retail spending. Bureau officials note that 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 increasing in recent years.
Despite their impact on consumer finance, these nonbank companies operating in the payments sphere do not receive the same regulatory scrutiny and oversight as banks and credit unions.
This proposed rule would subject larger nonbank digital consumer payment companies to the CFPB’s authority to conduct examinations. 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.
In addition, the CFPB has opened the Office of Competition and Innovation to ensure nascent firms can compete with Big Tech companies within consumer finance.
The CFPB is accepting public comment on the proposal until Jan. 8, 2024.