CFPB decides to expand monitoring of digital payment applications

CFPB decides to expand monitoring of digital payment applications

The Consumer Financial Protection Bureau wants to expand its oversight powers to cover digital wallets and payment apps run by companies like Apple, Google, PayPal and Block, which don’t have traditional banking operations.

Office proposed a rule On Tuesday, it would subject large companies — those that process more than five million financial transactions a year — to the same supervisory reviews that the bureau conducts on banks and credit unions. About 17 companies, which together process $13 billion in transactions a year and hold 88% of the market in the United States, would be subject to the rule, according to an official office.

“Payment systems are critical infrastructure for our economy,” said Rohit Chopra, director of the office. “Today’s rule would clamp down on a path to regulatory arbitrage by ensuring that large technology companies and other non-bank payment companies are subject to appropriate oversight.”

The proposed rule could take effect as soon as next year. One of the payments industry’s largest trade groups, the Electronic Transactions Association, had a fairly muted response to the proposal.

“ETA supports the CFPB’s goals of providing strong payments consumer protections and a consistent regulatory environment for banks and fintechs,” said Jodie Kelley, the group’s chief executive officer. “It is essential that the final rule encourages continued innovation and competition in the payments space.”

Banking industry trade groups have long called for nonbank companies to be subject to the same type of audits and oversight as banks. Lindsey Johnson, executive director of the Consumer Bankers Association, called the proposed rule “a step in the right direction.”

Mr. Chopra has been outspoken about his desire to apply greater regulatory scrutiny to big tech companies. Last month, I warned against “surveillance and censorship” that these companies can impose on consumers’ financial transactions, citing the wealth of personal data that can be gleaned from payment trails recorded by apps like PayPal’s Venmo and Block’s Cash App.

HAS September report of the office shed light on how Apple and Google are using their dominance as mobile phone makers to steer customers toward their own Tap-to-Pay digital wallet products.

Consumers transferred $893 billion through payment services last year – including digital wallets, payment apps and Zelle, a system owned by a consortium of banks – according to an estimate cited by the consumer office, and keep billions of dollars stored in these applications. Americans have been slower than consumers in other countries to adopt digital payments, but the pandemic greatly accelerated their use.

Nearly 56 million shoppers made an in-store purchase with Apple Pay — the most popular mobile payment service in the United States — in April, according to the consumer bureau. Starbucks’ digital app and Google Pay, the second most used retail payment apps, apple trail. (The draft rule contains language excluding payment apps that can only be used with a specific retailer or loan servicer, which would put Starbucks outside the rule’s scope.)

The Office of Consumer Affairs already has enforcement powers over digital payment companies as it regulates electronic funds transfers, but adding oversight would significantly expand its visibility into the operations of the market’s largest operators. This would allow the agency to obtain and review detailed company records and send its financial examiners to company offices to interview employees, review policies and safeguards, and report problems as they arise. detect them.

The public can comment on the 69-page proposal until at least January. After that, the agency can proceed to develop final regulations.

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David B.Otero

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