The Consumer Financial Protection Bureau (CFPB) has proposed a rule to define a market for general-use digital consumer payment applications. Larger participants in this market would be subject to CFPB supervision and examination authority under the Consumer Financial Protection Act (CFPA). The proposed market would cover providers of funds transfer and wallet functions through consumer digital applications for consumers’ general use used to make payments to other persons for personal, family, or household purposes. Examples include many consumer financial products and services that are commonly described as “digital wallets,” “payment apps,” “person-to-person apps,” “P2P apps,” and similar applications.
The proposed rulemaking comes amid a CFPB and federal government effort to exercise greater regulatory oversight over fintechs and other nonbank providers of financial services. The proposed rulemaking comes after a preview earlier in 2023 and several years of CFPB scrutiny of the industry, including a 2021 market inquiry of large tech companies operating payments systems. The proposal also was announced just days after the federal Financial Stability Oversight Council issued new Guidance for Nonbank Financial Company Determinations, which set forth procedures for considering whether to designate a nonbank financial company for Federal Reserve supervision under Section 113 of the Dodd-Frank Act. Specifically, CFPB asserts that the proposed rule would help ensure these large nonbank 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.
You can read the CFPB Notice of Proposed Rule Making – Defining Larger Participants of a Market for General-Use Digital Consumer Payment (RIN 3170-AB17). Comments are due before January 8, 2024, or 30 days after publication in the Federal Register, whichever is later.