CFPB Proposes New Rule to Regulate Big Tech Payment Services

The Consumer Financial Protection Bureau (CFPB) has recently introduced a new rule aimed at subjecting big tech companies that provide payment services to supervisory examinations typically reserved for large banks. The rule proposal comes as these services, such as Apple Pay and PayPal, have become increasingly important in our economy.

According to CFPB Director Rohit Chopra, these payment services were once primarily offered by supervised banks. However, the landscape has shifted, and now big tech firms play a crucial role. In light of this, the proposed rule seeks to address regulatory arbitrage by ensuring that large technology companies and other nonbank payments companies are subjected to appropriate oversight.

Growth of Big-Tech Payment Offerings

The CFPB's rule proposal follows an extensive two-year study of big-tech payment offerings. In their investigation, companies such as Google (Alphabet), Apple, Facebook (Meta), Amazon, Square, and PayPal were examined. The study revealed that digital payment applications now hold a significant share of ecommerce payments, competing with more traditional methods like credit cards and debit cards. Furthermore, they have also seen a remarkable increase in in-person payment volume.

Enhanced Oversight for Large Nonbank Payment Companies

Under the proposed rule, large nonbank payment companies that handle over 5 million transactions per year would be subjected to in-house supervision by regulators. These regulators would carefully scrutinize the business practices of these companies to ensure compliance with federal consumer protection and privacy laws.

Through this new rule, the CFPB aims to create a level playing field and provide appropriate oversight in the rapidly growing sector of big tech payment services.

The Impact of CFPB Rule on Payment Companies

The Consumer Financial Protection Bureau (CFPB) has announced a new rule that will have a significant effect on the payment industry. This rule specifically targets 17 companies that hold a staggering 88% market share in the payment space. These companies collectively process a whopping $13 billion in payments every year.

One of the main advocates for this rule is Chopra, who has repeatedly expressed concerns about the potential erosion of privacy caused by the use of payment apps. In a recent speech, Chopra highlighted the alarming amount of data collected by big-tech payment providers and their common practice of selling this data to third parties.

Not only consumer advocates, but even the banking industry itself has been pushing for increased oversight of Big Tech payment products. They believe that such oversight would level the playing field for traditional banks and credit unions.

The CFPB has observed a rising number of consumer complaints related to payment applications in recent years. Consequently, the agency has been actively educating consumers about the fact that money stored in payment apps may not be protected by federal deposit insurance, unlike traditional checking and savings accounts.

To ensure transparency and public participation, the CFPB has invited comments on the proposal until Jan. 8, 2024. This feedback will be taken into consideration when finalizing the rule.

Overall, this new rule aims to address pressing issues surrounding payment apps and their impact on consumer privacy, protection, and security. With the potential implementation of this rule, we may see a significant shift in how payment companies operate.