The Consumer Financial Protection Bureau (CFPB) has announced final rules for non-bank digital payments and transfers. The payments sector of Fintech is one of the hottest segments of innovation, as users have quickly adopted digital wallets and more efficient payment methods. The CFPB’s move is described by the agency as a big step to “strengthen oversight of large technology firms in consumer financial markets. ”
The new rule was initially introduced in November 2023. Comments on the proposal were accepted until January 2024.
The CFPB notes that payment apps “have become a cornerstone of daily commerce, rivaling traditional payment methods like credit cards and debit cards for both online and in-store purchases.” Some of these tools are offered by big tech like Apple and Android (Alphabet) and peer-to-peer providers like Venmo.
The rule is said to be targeting firms that handle over 50 million transactions per year. The CFPB says that the most widely used apps covered by the rule process over 13 billion consumer payment transactions annually.
CFPB Director Rohit Chopra noted that digital payments have gone from novelty to necessity. “The rule will help to protect consumer privacy, guard against fraud, and prevent illegal account closures,” said Chopra.
The CFPB adds that while banks are subject to supervisory examinations, many tech firms providing payments are not.
The new areas of supervision include:
- Privacy and Surveillance: Large technology companies collect vast quantities of data about an individual’s transactions. Federal law allows consumers to opt out of certain data collection and sharing practices and also prohibits misrepresentations about data protection practices.
- Errors and Fraud: Under longstanding federal law, consumers have the right to dispute transactions that are incorrect or fraudulent, and financial institutions must take steps to look into them. The CFPB is particularly concerned about how digital payment apps can be used to defraud older adults and active duty service members. 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.
- Debanking: Given the volume of payments consumers make through many popular payment apps, consumers can face serious harm when they lose access to their app without notice or when their ability to make or receive payments is disrupted. Consumers have reported concerns to the CFPB about disruptions to their lives due to closures or freezes.
The new rules will allow the CFPB to conduct examinations proactively.
The rule will be effective 30 days after publication in the Federal Register.
Defining Larger Participants of a Market for General-Use Digital Consumer Payment Applications
The Consumer Financial Protection Bureau (CFPB) is issuing a final rule to define larger participants of a market for general-use digital consumer payment applications. Larger participants of this market will be subject to the CFPB’s supervisory authority under the Consumer Financial Protection Act (CFPA). A nonbank covered person qualifies as a larger participant if it (1) facilitates an annual covered consumer payment transaction volume of at least 50 million transactions as defined in the rule; and (2) is not a small business concern.
