The Consumer Financial Protection Bureau (CFPB) has proposed a new rule that would subject tech giants like Alphabet, Apple, PayPal and Block to bank-like supervision for their digital payments and smartphone wallet services. The agency said the rule would ensure consumer protection and fair competition in the fast-growing sector.
Big Tech payments rival traditional methods
The CFPB said that tech companies have expanded into financial services that are traditionally provided by the regulated banking sector, such as digital payments, money transfers, peer-to-peer lending and cryptocurrency transactions. These services rival traditional payment methods in scale and scope, but lack consumer safeguards, the agency said.
According to the CFPB, tech companies handled more than 10 billion transactions in 2021, with a total value of over $1.5 trillion. The agency also said that tech companies collect vast amounts of consumer payments data with few limits, scant transparency and confusing corporate policies, putting consumers at risk of privacy breaches, fraud and identity theft.
Proposed rule would subject Big Tech to oversight
The proposed rule would apply to companies that handle more than 5 million transactions a year, which would include tech giants like Alphabet, Apple, PayPal and Block, as well as other nonbank payments companies. The rule would subject these companies to bank-like supervision, with CFPB examiners inspecting their privacy protections, executives’ conduct and compliance with laws barring unfair and deceptive practices.
The CFPB said the rule would also foster competition by ensuring that both traditional financial players and the tech sector are equally subject to the same oversight. The agency said the rule would crack down on one avenue for regulatory arbitrage by tech companies, which have been accused of using their market power and data advantages to stifle innovation and harm consumers.
Rule marks ambitious move by CFPB director
The proposed rule marks a long-anticipated and ambitious move by CFPB Director Rohit Chopra to assert the agency’s full authority over Big Tech, a sector he has frequently criticized for privacy and competition issues. Since becoming director in 2021, Chopra has steadily increased CFPB scrutiny of the sector, seeking information in 2021 on how Big Tech companies use consumer data and last year launching an inquiry into their payments platforms.
In a statement on Tuesday, Chopra said that the CFPB has a responsibility to protect consumers from the risks posed by Big Tech’s expansion into financial services. He also said that the CFPB would work with other regulators and lawmakers to address the broader challenges posed by Big Tech’s dominance in the digital economy.
The proposed rule is now subject to a notice-and-comment period expected to end in early 2024. The CFPB said it would consider the feedback from stakeholders and the public before issuing a final rule.
