What Does CFPB’s Latest Proposal Mean For Non-Banking And Financial Services Businesses?

Cold hard cash is still in circulation but it’s slowly getting eclipsed by digital forms of payment – wouldn't you agree?

While banks are launching their own financial applications, other business players are tasting success by diverting customers to their platforms, which include digital wallets, cryptocurrency wallets and digital payments apps.

However, in this ongoing competition between platforms, there are some concerns brought up by the Consumer Finance Protection Bureau (CFPB) of the United States, leading them to seek changes in how Big Tech companies are regulated.

Essentially, the CFPB is proposing a new set of rules. What are the rules about?

Let’s explore!

What Are The Proposed Changes By CFPB?

The CFPB is proposing a set of new rules that will allow them to scrutinize tech businesses and non-bank companies that offer digital wallets, payment applications or services similar to banks or credit unions.

Additionally, platforms that offer peer-to-peer transactions and cryptocurrency wallets would also be included.

It would rope in businesses that process more than 5 million consumer transactions per year and would include large companies such as Google, Apple, Venmo, Cash App and others.

All in all, the CFPB estimates it would oversee the operations of 17 companies which hold a market share of 88%.

As more people link their bank accounts to digital wallets, the CFPB is aiming to ensure that consumer protection laws are adhered to and set in place.

At present, the CFPB can unrestrictedly bring in enforcement actions against such companies citing consumer financial issues. However, the proposal is seeking to closely inspect such businesses.

Additionally, before the proposal is implemented, it will be subject to public comments.

TechDogs-"An Image Of The 10 Biggest Payment Apps In The US"

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What Did The Consumer Finance Protection Bureau Say?

Rohit Chopra, Director of the Consumer Finance Protection Bureau of the US, said, “Payment systems are critical infrastructure for our economy. These activities used to be conducted almost exclusively by supervised banks.”

[Contd.] “Today’s rule would crack down on one avenue for regulatory arbitrage by ensuring large technology firms and other nonbank payments companies are subjected to appropriate oversight.”

TechDogs-"Image Of Rohit Chopra, Director Of The Consumer Finance Protection Bureau Of The US"

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Chopra has previously voiced his concerns about Big Tech companies rising in the payments sector too, saying that he feared the US was “lurching toward a consolidated market structure, like the one that has emerged in China, that blurs the lines between payments and commerce and creates the incentives for excessive surveillance and even financial censorship.”

This follows a request the CFPB had in 2021 which needed Big Tech companies to provide information on their payment systems, which included data harvesting, user choices and other consumer protections.

These efforts haven’t gone down well with corporate America, as they feel the CFPB is trying to overstep their authority. The CFPB maintains they’re only looking to enforce the law to protect consumers. Recently, even a Supreme Court ruling raised questions about the rulemaking powers of federal agencies.

Do you think the CFPB is right in its request to oversee non-banking financial platforms? Are Big Tech companies correct in questioning the motives of the CFPB?

Let us know in the comments below!

First published on Fri, Nov 10, 2023

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