Final CFPB Rule Expands Oversight of Big Tech’s Payments Ambitions

The payment ambitions of the largest, marquee names in technology now will come under greater scrutiny at the federal level.

A finalized rule from the Consumer Financial Protection Bureau (CFPB), which was issued on Thursday (Nov. 21) will essentially treat the tech firms — with digital offerings such as Google Pay, Apple Wallet, Venmo and a broad range of apps — as banks.

The CFPB noted in its announcement that taken all together, the apps and wallets process 13 billion consumer transactions each year. The expanded supervisory authority would come as use of those digital channels is increasing, the agency noted.

“Even among consumers with annual incomes lower than $30,000 who have more limited access to digital technology, 61% reported using P2P payment apps,” the CFPB wrote in its ruling. “Higher rates of use by U.S. adults in lower age brackets may drive further growth well into the future.”

PYMNTS Intelligence’s own data indicates that nearly two-thirds of U.S. consumers between the ages of 18 to 34 are open to using financial services that are offered from non-financial brands and entities. And in a separate report, PYMNTS found that 41% of U.S. consumers said that they expected to use a digital wallet for financial transactions within the next three years.

The 259-page rule indicates that the companies will undergo “proactive” examinations, wherein “CFPB examiners may ask to see a company’s existing compliance policies and procedures, otherwise review a company’s records and operations including for selected customer accounts, conduct interviews with personnel, and assess how the company complies with applicable Federal consumer financial laws. The scope of an examination will depend on, among other factors, the size and complexity of the firm.”

There is no defined level of frequency for the examinations, “however, the CFPB notes that it is unlikely that all seven potential larger participants would undergo supervisory examinations in the same year.”

What Changes and What Stays the Same

As for the changes in the final rule versus the one proposed roughly a year ago:  There’s a higher threshold for transactions for a firm to come under the purview of the rule. Now, a company will have to process at least 50 million transactions annually to be considered a covered entity; the original proposal had stipulated 5 million transactions. And there’s a bit of narrowing of scope for the transactions themselves as the rule applies to U.S. dollar-based payments. Last year, the CFPB had said that any type of digital monetary transaction would be subject to the rule.

The final rule makes mention of seven non-bank entities that meet and exceed the 50 million transaction threshold — and the proposed rule had said 17 entities were defined as “larger participants” that would have been covered. Though the seven firms are non-definitively named/grouped, the document does reference Google Pay, Apple Pay, PayPal, Cash App, Samsung Pay and Venmo.

In reference to what’s unchanged from a year ago — and specifically for oversight and coordination among regulators, the CFPB said: “Greater supervision of nonbanks in this market therefore would further the CFPB’s statutory objective of ensuring that Federal consumer financial law is enforced consistently between nonbanks and depository institutions in order to promote fair competition … [and] also recognized that States have been active in regulation of money transmission by money services businesses and that many States actively examine money transmitters. The Proposed Rule stated that the CFPB would coordinate with appropriate State regulatory authorities in examining larger participants.”

The rule will become effective 30 days after publication in the Federal Register, with a date for that publication still pending.

In the release that accompanied the rule, the CFPB said the expanded oversight would address data privacy concerns, and in discussion of fraud protections, charged that “some popular payment apps appear to design their systems to shift disputes to banks, credit unions and credit card companies, rather than managing them on their own.”

The CFPB also said that supervision would focus, too, on de-banking, where accounts are closed or frozen without notice.