A proposed rule by the Consumer Financial Protection Bureau (CFPB) will require large, non-financial digital payment providers that handle over 5 million transactions annually to come under the same regulation as banks, credit unions, and other FIs currently under the supervision of the CFPB.
According to Reuters, a CFPB official said that, if passed, the rule would impact close to 17 companies that collectively send 13 billion payments per year.
“Payment systems are critical infrastructure for our economy. These activities used to be conducted almost exclusively by supervised banks,” said CFPB Director Rohit Chopra. “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.”
What the Supervisory Examinations Will Look Like
In an effort to bring the activities of these non-bank companies under examination, the companies would be required to:
- Comply with privacy, funds transfer, and additional consumer protection laws. CFPB will specifically enforce protections against unfair, deceptive, and abusive practices, in addition to privacy rights.
- To promote fair competition, the CFPB will also enforce federal consumer financial protection laws for both non-depository and depository institutions.
This isn’t CFPB’s first rodeo in seeking regulatory action against Big Tech. In March, the CFPB updated its exam manual to tackle discriminatory practices. It expanded the meaning of what is considered unfair, abusive, and deceptive tactics.
In another move to put consumers first, particularly when it comes to their personal information, the CFPB proposed a rule that allows customers to share their personal financial data with third-party financial service providers. Financial institutions were also forbidden to “stockpile” their customers personal information. If a customer requests that their information be released to a third-party, it must be released.
Furthermore, organizations are prohibited from monetizing or abusing customer information. Consumers are also free to leave their financial institution if they are receiving poor customer service.
“There is a great deal of discussion to be had about the legality, appropriateness, and effects of the proposed CFPB rules which will play out over the next 6 months,” said Christopher Miller, Lead Analyst of Emerging Payments at Javelin Strategy & Research. “I personally am most interested in the notion that regulation (whatever form it takes) is likely to be the single most important factor shaping what is possible in emerging payments over the coming 12-24 months—not technology, or innovation, or venture capitalists.”
“There are many different angles that the proposed regulations could take that might impact the business models, cost structures, and competitive standing of entrants into the digital wallet market. For example, the regulations might cover how funds stored in the wallets are treated or protected. Wallets might be required to perform more reporting and analysis of transactions, or assume heightened liability for fraud and theft. The rules governing ‘unfair, deceptive and abusive acts and practices’ or information privacy might have substantial impact on the use of wallet derived data to engage in targeted in-wallet offers or marketing, depending on how they are written and enforced.”