The US Consumer Financial Protection Bureau (CFPB) is proposing to subject large non-bank companies that offer consumer finance services including digital wallets and payment apps – such as Apple and Google – to the same regulatory scrutiny and oversight as banks, credit unions and other financial institutions.

The CFPB’s proposed rule would apply to larger non-bank digital consumer payment companies handling more than 5m transactions a year that “blur the traditional lines that have separated banking and payments from commercial activities”.

“The CFPB has found that this blurring can put consumers at risk, especially when the same traditional banking safeguards, like deposit insurance, may not apply,” the bureau says.

“While the CFPB has enforcement authority over these companies, the CFPB has not previously had, inside many of these firms, examiners carefully scrutinizing their activities to ensure they are following the law and monitoring their executives.”

Noting that digital applications now “have a share of ecommerce payments volume that is similar to or greater than traditional payment methods” and have “gained a significant volume of in-person retail spending”, the CFPB also reports that consumer complaints about these applications have been “rising in recent years”.

Level playing field

In particular, the CFPB says that the proposed rule would help to ensure that large non-bank companies: 

• Adhere to applicable funds transfer, privacy and other consumer protection laws: The CFPB would be able to supervise larger participants for compliance with applicable federal consumer financial protection laws, which includes applicable protections against unfair, deceptive, and abusive acts and practices, rights of consumers transferring money, and privacy rights.
• Play by the same rules as banks and credit unions: The CFPB’s supervision of these large companies can foster a level playing field with depository institutions. Greater supervision of nonbanks in this market would ensure federal consumer financial protection law is enforced consistently between non-depository and depository institutions in order to promote fair competition.

Under the terms of the US Consumer Financial Protection Act (CFPA), the CFPB has the authority to define participants in consumer finance markets that may be considered significant enough to come under the bureau’s regulatory supervision or may be deemed to “pose a risk to consumers”.

To date, it has issued a series of five rules defining “larger participants operating in markets for consumer financial products and services that play a substantial role in consumers’ everyday lives” in sectors including consumer reporting, consumer debt collection, student loan servicing, international money transfers and automobile financing.

The proposed new rule covering digital wallet and payment app providers is open to public consultation until 8 January 2024.

The CFPB reported on Big Tech’s role in contactless payments in the US in September.

The Australian Treasury proposed draft legislation that would give the Reserve Bank of Australia regulatory powers over digital wallet providers including Apple Pay and Google Wallet in October.

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