In an unprecedented move, the U.S. Consumer Financial Protection Bureau (CFPB) has proposed new regulations that could bring tech giants such as Meta Platforms Inc, Apple Inc, and Alphabet Inc, along with other companies offering digital wallets and payment apps, under its supervision.
This proposal seeks to bring the treatment of these non-bank entities in line with that of their traditional counterparts, marking a significant change in financial regulation.
What does this new standard imply?
Under the CFPB's proposal, companies conducting more than 5 million transactions per year would be regulated in a manner similar to banks and other financial institutions. This measure aims to provide more rigorous oversight over digital wallets and payment applications.
If the rule is approved, CFPB examiners will have the ability to enforce compliance with federal laws on money transfers through payment applications and detect unfair, deceptive or abusive conduct.
What does it mean for consumers?
The use of digital payments has experienced exponential growth in recent years, especially with services such as PayPal's Venmo and Block Inc.'s Cash App. The CFPB's proposal comes at a crucial time, as technology companies have entered the scene, challenging the traditional hegemony of banks in this sector.
While banks have historically provided digital payment services, the incursion of technology companies raises new questions about safeguards for consumers. The CFPB's proposal seeks to ensure that protections, such as deposit insurance, are applicable to these new forms of transactions.
However, the CFPB has no authority over deposit insurance, which raises questions about how these protections would be applied in practice.
Companies under scrutiny
The CFPB's proposal takes direct aim at giants like Apple Pay and Google Pay. While the CFPB already oversees PayPal and Block, the proposed rulemaking could give it greater visibility into the operations of Venmo and Cash App. So far, Alphabet has declined to comment, while representatives from Meta, Apple, PayPal and Block have not responded to requests for comment.
In the midst of this regulatory change, the Electronic Transactions Association, which represents affected companies, has expressed support for the goals of consistency and consumer protection. Scott Talbott, its executive vice president, stresses the importance of carefully examining the proposed rule.
Statistics supporting the proposal
Lindsey Johnson, executive director of the Consumer Bankers Association, has praised the move as a step in the right direction. She says aligning oversight of large non-bank payment companies with expectations for banks ensures a healthy and equitable financial ecosystem for consumers.
The CFPB estimates that about 17 companies, representing 88% of total annual digital payments, would be covered by the proposed rule. These companies processed approximately 13 billion transactions, totaling USD 1.7 billion in payments during 2021, according to the agency's estimates.
The CFPB's proposal represents a milestone in the regulation of technology companies in the financial arena. Although the rule has yet to be approved, its potential impact on oversight and consumer protection could be significant. Affected companies, consumer advocates and the financial industry are watching closely, aware that this change could shape the future of digital payments in the United States.