In a move to ensure consumer protection and regulatory oversight, the Consumer Financial Protection Bureau (CFPB) is proposing to supervise larger nonbank companies that offer services like digital wallets and payment apps.
This proposal announced Tuesday (Nov. 7) comes as digital payment apps and wallets, driven largely by Big Tech and other large technology firms, continue to grow in popularity. However, many of these companies are not currently subject to CFPB supervisory examinations.
The proposed rule aims to bring these nonbank financial companies, particularly those handling more than 5 million transactions per year, under the same regulatory scrutiny as large banks, credit unions and other financial institutions already supervised by the CFPB. Agency Director Rohit Chopra emphasized the importance of payment systems as critical infrastructure for the economy and the need for appropriate oversight of large technology firms and other nonbank payments companies.
“Payment systems are critical infrastructure for our economy. These activities used to be conducted almost exclusively by supervised banks,” he said in a statement. “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 have become integral in facilitating money transfers and consumer retail payment transactions, with a share of eCommerce payments volume similar to or greater than traditional payment methods. Additionally, these applications have gained significant traction in in-person retail spending. However, complaints about these applications and the companies operating them have been on the rise in recent years.
The blurring of lines between banking, payments and commercial activities by Big Tech and other companies in the consumer finance market has raised concerns about consumer protection. The CFPB has found that this blurring can put consumers at risk, especially when traditional banking safeguards 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 proposed rule would introduce the examination of larger nonbank digital consumer payment companies to ensure compliance with federal consumer financial protection laws.
The CFPB’s authority to conduct supervisory examinations extends to all nonbank companies in various industries, including mortgage, payday loan, and private student loan industries. 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.
Comments on the proposed rule can be submitted until Jan. 8, 2024, or 30 days after publication in the Federal Register. Consumers can also submit complaints about financial products or services to the CFPB through its website or by calling (855) 411-CFPB (2372).