The Consumer Finance Protection Bureau (CFPB) has proposed a new rule that would subject large technology firms that offer payment services to the same oversight and regulations as banks. The rule would affect companies such as Apple, PayPal, Google, Amazon, Meta, Square, and others that process millions of transactions per year.
Why the CFPB Wants to Regulate Big Tech
The CFPB is an agency created in 2011 after the 2008 financial crisis to protect consumers from unfair, deceptive, or abusive practices in the financial sector. The agency has the authority to supervise and enforce consumer protection laws for banks and other financial institutions.
However, the CFPB has noticed that some nonbank companies have started to offer payment services that are similar to those provided by banks, such as digital wallets, credit cards, savings accounts, and money transfers. These companies, which include some of the biggest names in the tech industry, have access to billions of dollars and vast amounts of consumer data, but are not subject to the same level of scrutiny and regulation as banks.
The CFPB director, Rohit Chopra, said in a statement that “payment systems are critical infrastructure for our economy” and that “these activities used to be conducted almost exclusively by supervised banks”. He added that the proposed 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 CFPB is concerned that big tech companies could use their payment services to exploit consumers, violate their privacy, or pose systemic risks to the financial system. For example, the CFPB has warned that money stored on payment apps may not be insured by the Federal Deposit Insurance Corporation (FDIC) like most bank accounts are, and that big tech companies could use consumers’ transaction data for their own benefit or even for espionage.
How the CFPB Plans to Regulate Big Tech
The proposed rule would allow the CFPB to conduct supervisory examinations of nonbank companies that process more than 5 million transactions per year. According to the agency, there are currently 17 such companies that account for 88% of the market share and process $13 billion in transactions per year.
The supervisory examinations would involve CFPB staff visiting the companies’ headquarters, reviewing their records, interviewing their employees, and assessing their compliance with consumer protection laws. The CFPB would also have the power to take enforcement actions against the companies if they find any violations, such as filing confidential reports, issuing fines, or suing them in court.
The proposed rule would cover consumer protection laws such as the Electronic Fund Transfer Act, the Fair Credit Reporting Act, the Gramm-Leach-Bliley Act, and the Dodd-Frank Act. These laws regulate various aspects of payment services, such as privacy, security, disclosure, error resolution, and consumer rights.
The proposed rule would not impose any new substantive requirements on the nonbank companies, but rather subject them to the same standards and expectations as banks. The CFPB said that the rule would create a level playing field for all payment service providers and ensure that consumers are treated fairly and transparently.
What the Implications of the Proposed Rule Are
The proposed rule is likely to face opposition from the big tech companies, who may argue that it is unnecessary, burdensome, or overreaching. The companies may also challenge the CFPB’s authority or jurisdiction to regulate their payment services, or claim that they are already complying with existing laws and regulations.
The proposed rule is also likely to have significant implications for the consumers, the financial sector, and the economy. On the one hand, the rule could benefit consumers by enhancing their protection, choice, and confidence when using payment services offered by big tech companies. On the other hand, the rule could also affect the innovation, competition, and efficiency of the payment services market, as big tech companies may face higher costs, risks, or barriers to entry or expansion.
The proposed rule is not yet final and is open for public comment until Jan. 8, 2024. The CFPB will then review the comments and decide whether to issue a final rule or make any changes to the proposal. The CFPB said that it welcomes feedback from all stakeholders, including consumers, industry, state regulators, and other federal agencies.
