The CFPB has made a move to bring larger nonbank entities, such as Big Tech companies offering digital wallets and payment apps, under its supervisory scope.
The proposed regulation could potentially level the playing field between these nonbanks, which currently handle over 5 million transactions annually, and traditional financial institutions. CFPB’s oversight would encompass the enforcement of federal consumer financial laws, ensuring that these firms adhere to the same consumer protection standards as their banking counterparts.
CFPB Director Rohit Chopra has emphasized the criticality of payment systems, noting that while they were once dominated by banks, the landscape has shifted, with technology firms taking a significant role. The proposed rule aims to eliminate regulatory arbitrage by applying consistent oversight to large nonbank payment companies. This change reflects the sector’s evolution where digital applications are not only facilitating transfers among individuals but are also increasingly used for retail and ecommerce payments, rivalling credit and debit cards, and even cash, especially among middle and lower-income consumers.
Despite their rising prominence, Big Tech and other nonbank companies have traditionally operated without the same level of regulatory scrutiny as banks, which may expose consumers to risks, especially where safeguards like deposit insurance are absent. The CFPB’s proposed rule would allow it to conduct examinations and enforce compliance with consumer protection laws related to funds transfer, privacy, and protection against unfair practices.
This step is part of a broader strategy by the CFPB to monitor the incursion of large technology firms into consumer finance, including efforts to ensure adherence to financial protection laws in marketing financial products and to understand the risks of Big Tech’s payment platforms. In recent years, the CFPB has increased its focus on these entities, seeking more information on their payment systems and their handling of sensitive personal data.
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