Through this newly introduced rule, which takes effect 30 days after being published in the Federal Register, the CFPB aims to ensure that these large nonbank companies, especially those managing over 50 million transactions per year, fall in line with federal law requirements just as large banks, credit unions, and other financial institutions do. The regulator estimates that the most widely leveraged apps covered by the rule jointly process more than 13 billion consumer payment transactions annually. In addition, the CFPB mentioned that the rule is set to safeguard consumer privacy, protect against fraudulent activities, and prevent illegal account closures.
The CFPB’s final rule represents the sixth rulemaking to define larger companies conducting operations in markets for consumer financial products and services. Before this, the regulator covered participants in consumer reporting, consumer debt collection, student loan servicing, international money transfers, and automobile financing.
Overseeing the activities of big tech firms
The CFPB subjects banks and credit unions providing consumer payment services to supervisory examinations, however, large technology companies managing billions of transactions are not overseen. After monitoring the developments in this emerging market, including observing consumer complaints and introducing an inquiry into BigTech and peer-to-peer platforms delivering popular payment apps, the regulator created a rule that supervises:
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Privacy and surveillance, with federal law enabling consumers to opt out of particular data collection and sharing practices and forbidding misrepresentations about information protection systems;
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Errors and fraudulent activities, as consumers have the right to dispute transactions that are incorrect and financial institutions are required to investigate them. The CFPB’s concerns especially cover leveraging digital payment apps to defraud older adults and active duty service members. Also, some popular payment apps seem to develop their systems to send disputes to banks, credit unions, and credit card companies, instead of handling them on their own;
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Debanking, as consumers can encounter harm when they lose access to their app without notice or when their ability to conduct or receive payments is disrupted.
Even if the CFPB always enforced authority over these large companies, the current rule offers the regulatory body the authority to conduct proactive assessments to ensure full compliance with the law in these and other areas. Through this, the CFPB intends to prevent harm by detecting issues in the early stages and assessing risks that can emerge in this market, including ones from outages and other problems.
Additionally, the final rule saw several modifications compared to the CFPB’s initial proposal. The transaction threshold for deciding which firms need supervision has significantly increased, reaching 50 million annual transactions. At the same time, considering the scaling market for digital currencies, the regulator limited the rule’s scope to include only transactions made in USD.
