New federal oversight of big tech companies and digital wallets proposed by the Consumer Financial Protection Bureau (CFPB). Many of the companies are currently not subject to the CFPB supervisory examinations.
The rule proposed by the CFPB would make nonbank financial companies, particularly those handling over 5 million transactions per year, follow the same regulations as large banks, credit unions, and other financial institutions currently overseen by the CFPB. The popularity of digital payments for their ease and quickness in transaction processes has seen them surpass traditional payment methods like credit and debit cards in terms of ecommerce payments volume. Furthermore, studies indicate that middle and lower-class consumers use these digital consumer payment applications more frequently than cash on average.
"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." The gradual erasure of traditional boundaries between banking and commercial payments due to Big Tech's increasing involvement in consumer finance markets poses a risk to consumers as conventional safeguards like deposit insurance may not apply.
The proposed rule seeks to foster uniformity in enforcing federal consumer financial laws across the marketplace by bringing larger nonbank digital consumer payment companies under the purview of CFPB's authority. This will ensure that these large nonbank firms abide by applicable funds transfer, privacy, and other consumer protection laws just as banks and credit unions do. Additionally, with an objective to provide an equal playing ground for emerging firms against Big Tech companies within consumer finance, CFPB has launched the Office of Competition and Innovation. Moreover, under the Consumer Financial Protection Act, CFPB is authorized to carry out supervisory examinations over nonbank entities involved in private student loans, payday loans, and mortgage industries.
