The Consumer Financial Protection Bureau (CFPB) has expanded its oversight to include major nonbank digital transfer and payment app companies.
This move marks the CFPB’s finalisation of a rule requiring companies handling over 50 million transactions annually to comply with federal laws, aligning them with the standards already applied to large banks, credit unions and other supervised financial institutions.
A key reason for this rule is the vast number of users relying on these apps. The US watchdog notes that the most popular apps covered by the rule collectively handle over 13 billion consumer payment transactions each year.
Rohit Chopra, Director of CFPB, commented: “Digital payments have gone from novelty to necessity and our oversight must reflect this reality. The rule will help to protect consumer privacy, guard against fraud, and prevent illegal account closures.”
The rule will apply to seven non-bank companies, including payment platforms from Apple, Google and Amazon, fintech firms like PayPal and Block, and peer-to-peer services such as Venmo and Zelle.
Regulators in the US have pushed for tighter restrictions on firms such as the ones aforementioned, with traditional banks supporting their implementation. This is the CFPB’s sixth rulemaking effort to define larger participants in markets for consumer financial products and services.
The CFPB’s rule targets three main business areas.
First, Privacy and Surveillance involve large tech companies collecting vast amounts of data on transactions. Federal law allows consumers to opt out of certain data practices and requires transparency about data protection.
Second, Errors and Fraud focuses on consumers’ rights to dispute incorrect or fraudulent transactions. The CFPB is concerned about payment apps being used to defraud vulnerable groups. Some apps shift the responsibility for handling disputes to banks or card issuers instead of managing them internally – an issue that the UK has been attempting to resolve this year.
Lastly, Debanking addresses the risks consumers face when they lose access to payment apps unexpectedly. Many consumers have reported significant disruptions to their lives due to freezes or account closures.
Additionally, while the CFPB has always had enforcement authority over these companies, this finalised rule grants the agency the power to conduct proactive examinations to ensure compliance with the law in these and other areas.
Last June, the CFPB warned that payment apps are less safe than banks, highlighting the risk to customers’ money in the event of a major failure by the firm processing the transaction.
