CFPB Prepares To Bring Large Payment Firms Under Its Oversight

June 23, 2023
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The US Consumer Financial Protection Bureau is planning to define large payment firms that are subject to its supervision by next month. Big tech firms operating in the payments space and popular digital wallets are likely in scope.

The US Consumer Financial Protection Bureau (CFPB) is planning to define large payment firms that are subject to its supervision by next month. Big tech firms operating in the payments space and popular digital wallets are likely in scope.

The CFPB is creating rules to define which large payment firms are subject to its supervisory oversight over compliance with federal consumer financial laws.

Under the US consumer protection laws, the CFPB has the authority to supervise "larger participants" in consumer financial markets. The criteria of which firms qualify will need to be defined by a rule.

In its Spring 2023 rulemaking agenda, the CFPB says it will propose a rule in July to define larger participants in markets for consumer payments.

Although the notice does not disclose further details, previous statements by the agency and its director Rohit Chopra suggest that big tech firms and large digital wallets are likely to be in scope.

Chopra started to look at big tech payment platforms as soon as he took office in October 2021, ordering Amazon, Apple, Facebook, Google, PayPal and Square to submit information on their data collection practices and dispute procedures.

While the inquiry is still ongoing, in recent months Chopra has increasingly started to raise the alarm against the safety of digital wallets.

In a consumer advisory earlier this month, Chopra warned that users of peer-to-peer (P2P) apps such as PayPal, Venmo or Cash App may lose their money if the companies go bust.

In a recent Wall Street Journal appearance, Chopra argued that certain payment firms should be even designated as systemically important by the Treasury.

Future rules would likely focus on P2P apps and social media companies that facilitate payments.

The CFPB has previously used its authority to define larger participants in other markets such as international money transfers, student loan servicing, debt collection, consumer reporting and auto financing.

In the case of international money transfers, the rule meant that remittance firms became subject to the same examination procedures the agency used for banks that provide cross-border transfers. It also meant firms that had previously only fallen under the jurisdiction of state authorities were now under the scope of the federal regulator.

The definition of a large player in the case of international money transfer businesses was also a relatively low bar, including firms with more than 1m annual transactions.

Open banking rules this autumn

The regulator’s agenda shows that the CFPB is also planning to publish a proposed rule for open banking in October.

As reported by VIXIO, the open banking rule will initially regulate financial data sharing with third parties, and aims to enable consumers to better manage their finances and switch their providers more easily.

Payment authorisation/initiation, however, will stay outside of the rule’s scope for now.

Speaking ahead of its semi-annual appearance before Congress, last week Chopra assured lawmakers that his agency has no intention to regulate open banking to the specifics, instead leaving the details to be handled by standard-setting bodies.

During the rest of the year, the CFPB is also planning to move along with its crackdown on credit card late fees, seeking to cap them at $8 — a significant reduction from the current $40 charged by the top 20 issuers.

The credit card late fee rule is expected to be finalised by October.

Overdraft and non-sufficient fund fees, often labelled as "junk fees" by the regulator, are also on the agency’s to-do list, as well as plans to create a public registry for non-bank firms that were caught on wrongdoing by US agencies.

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