The Consumer Financial Protection Bureau (CFPB) is proposing a rule to supervise larger nonbank companies that offer services like digital wallets and payment apps. The proposal, announced last week, aims to ensure these financial firms adhere to the same rules as large banks, credit unions, and other financial institutions already under the CFPB’s supervision.
Driven by Big Tech and other large technology firms, digital payment apps and wallets have seen an explosion in popularity. These digital applications now help millions of people send money to friends and family, as well as make a variety of consumer retail payment transactions. They’ve gained a significant volume of in-person retail spending, rivaling or exceeding traditional payment methods such as credit cards and debit cards.
However, many of these companies are not subject to CFPB supervisory examinations. Complaints about these applications and the companies operating them have been rising over the years. The proposed rule would specifically target those larger nonbank financial companies handling more than 5 million transactions per year.
Big Tech and other companies operating in consumer finance markets blur traditional lines separating banking and payments from commercial activities. The CFPB found that this blurring can put consumers at risk, especially when traditional banking safeguards, like deposit insurance, may not apply. Despite their impact on consumer finance, these nonbank companies do not receive the same regulatory scrutiny and oversight as banks and credit unions.
The proposed rule would subject larger nonbank digital consumer payment companies to the CFPB’s authority to conduct examinations, ensuring consistent application of federal consumer financial laws across the marketplace.
Under the proposed rule, these large nonbank companies would need to:
- Adhere to applicable funds transfer, privacy, and other consumer protection laws. The CFPB would supervise larger participants for compliance with federal consumer financial protection laws, including 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 to promote fair competition.
This proposal marks an important step to ensure that as financial services evolve, the protections for consumers keep pace. The CFPB’s move could bring significant changes to how digital wallets and payment apps operate, ensuring they adhere to the same regulations as traditional financial institutions.
Read today’s Notice of Proposed Rulemaking here.
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