The bureau is set to extend its supervisory reach to include large nonbank companies offering digital wallets and payment apps, aiming to ensure they adhere to the same rules as traditional financial institutions. Comments are due Jan. 8, 2024.
11/14/2023 2:00 P.M.
2.5 minute read
The Consumer Financial Protection Bureau released a Notice of Proposed Rulemaking (NPRM) to supervise larger nonbank companies that offer services like digital wallets and payment apps, according to a press release.
Following the release, the NPRM has been posted on the Federal Register for comments, which are due Jan. 8, 2024.
Despite Big Tech’s increasing impact on consumer finance, many of these companies have, until now, avoided the rigorous supervisory examinations conducted by the CFPB, it reports.
The proposed rule targets nonbank financial entities, specifically those overseeing more than five million transactions annually.
“Payment systems are critical infrastructure for our economy,” said CFPB Director Rohit Chopra. “These activities used to be conducted almost exclusively by supervised banks. 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’s move is a response to the changing dynamics and potential risks associated with the lack of regulatory scrutiny, especially when compared to traditional financial institutions.
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, according to the bureau.
Additionally, the rule would use a test to determine whether a nonbank covered person is a larger participant of the general-use digital consumer payment applications market.
A nonbank covered person would be a larger participant if it satisfies two criteria:
- First, the nonbank covered person (together with its affiliated companies) must provide general-use digital consumer payment applications with an annual volume of at least five million consumer payment transactions.
- Second, the nonbank covered person must not be a small business concern based on the applicable Small Business Administration size standard. As prescribed by existing Section 1090.102, any nonbank covered person that qualifies as a larger participant would remain a larger participant until two years from the first day of the tax year in which the person last met the larger-participant test.
If finalized, this proposed rule will be part of the CFPB’s broader efforts to monitor the entry of large technology firms into consumer financial markets. Previous warnings and inquiries in 2022 and 2023 highlighted the importance of these companies adhering to federal consumer financial protection laws, especially when using sophisticated behavioral targeting techniques and handling sensitive personal data.
The CFPB’s multifaceted approach involves not only regulatory oversight but also initiatives like the Office of Competition and Innovation, designed to facilitate fair competition with Big Tech in the consumer finance sector.
The proposed rule, if implemented, would mark the sixth in a series of CFPB rulemakings defining larger participants in markets for consumer financial products and services. Previous rules covered participants in consumer reporting, debt collection, student loan servicing, international money transfers, and automobile financing.
Stakeholders and the public interested submitting comments can do so at https://www.regulations.gov identified by Docket No. CFPB–2023–0053 or RIN 3170–AB17. Additional options for comments are listed on the Federal Register notice.
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CFPB Report Sheds Light on Role of Big Tech in Mobile Payments
CFPB Report Raises Concerns Over Servicemembers’ Use of Digital Payment Apps
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