The Consumer Financial Protection Bureau has approved a new rule that would expand the scope of oversight over nonbank companies offering financial services, including various applications designed for payments and wallets. Major tech players and fintech’s, such as Apple, Google, Amazon, PayPal, Block, as well as peer-to-peer services such as Venmo and Zelle, will be affected.
The new regulation is an extension to firms processing at least 50 million consumer transactions annually. This extends to popular services that collectively handle over 13 billion payments each year. In a statement by the CFPB, the new rule ought to ensure that such companies are held to the same legal standards as other traditional banks and credit unions, including strong consumer protections that inform financial decisions.
The CFPB has no direct oversight of such digital payment services, although it has oversight over electronic fund transfers, and the new rule will give the agency the right to conduct proactive examinations on these tech giants so that it can demand records and interview their employees in order to ensure their compliance with consumer protection laws.
The CFPB director, Rohit Chopra, highlighted the ever-growing importance of digital payments, where “what began as a convenient alternative to cash has evolved into a critical financial tool.” For his part, Chopra said further that the expanded oversight would help safeguard consumer privacy, prevent fraud, and stop illegal account closures. The rule addresses a growing trend in which Americans increasingly use digital payment apps as substitutes for traditional bank accounts, particularly among low- and middle-income users. The CFPB has expressed concern over these services’ rapid growth, particularly as many companies partner with banks to circumvent regulatory scrutiny.
The new rule comes after a year of discussions and proposals, including an earlier draft that suggested regulating companies processing 5 million transactions annually. The final threshold, however, is set at 50 million, which narrows the scope to seven major companies. Notably, payment services limited to specific retailers, such as the Starbucks app, are excluded from the regulation.
The expansion of oversight is largely welcomed by the banking industry, which has long pleaded for stricter scrutiny of tech firms venturing into the financial service space. Consumer Bankers Association hailed the rule as an important step toward ensuring that non-bank companies comply with their obligation to consumers.
The rule will come into force 30 days after its publication in the Federal Register. While future leadership might change the course of the new rule, it is currently focused on technology firms, something aligned with efforts to regulate the rapidly changing digital payments landscape.
Credit: insightssuccess.com
