CFPB Director Rohit Chopra testifies during a Senate Banking, Housing, and Urban Affairs Committee hearing titled “The Consumer Financial Protection Bureau's Semiannual Report to Congress,” in the Dirksen Building on November 30, 2023.
Tom Williams | Cq-roll Call, Inc. | Getty Images
The Consumer Financial Protection Bureau on Thursday released a final version of a rule that it says will soon oversee non-bank companies that offer financial services like payments and wallet apps.
Tech giants and payments companies that handle at least 50 million transactions annually will be subject to the review, which is intended to ensure new entrants adhere to laws that banks and credit unions adhere to, the CFPB said in a statement.
The CFPB said seven nonbanks qualified for the new audit. Payment services from apple, Google and amazon, As well as financial technology companies, including PayPal and roadblock Peer-to-peer services Venmo and Zelle are affected by the change.
While the CFPB already had some authority over digital payment companies due to its oversight of electronic money transfers, the new rule allows it to treat technology companies like banks. It makes companies undergo “proactive checks” to ensure legal compliance, enabling them to request records and interview employees.
“Digital payments have moved from novelty to necessity and our oversight must reflect this reality,” said CFPB Director Rohit Chopra. “The rule will help protect consumer privacy, protect against fraud, and prevent unlawful account closures.”
A year ago, the CFPB said it wanted to expand its oversight to include technology and fintech companies that provide financial services but avoided greater scrutiny by partnering with banks. Americans are increasingly using payment apps as de facto bank accounts, storing cash and making everyday purchases via their mobile phones.
The most popular apps covered by the rule collectively process more than 13 billion consumer payments annually, and have gained “particularly strong adoption” among low- and middle-income users, the CFPB said Thursday.
“What started as a convenient alternative to cash has evolved into an important financial instrument, processing more than $1 trillion in payments between consumers and their friends, families and businesses,” the regulator said.
The initial proposal would have subjected businesses that process at least 5 million transactions annually to some of the same tests the CFPB does on banks and credit unions. That limit was raised to 50 million transactions in the final rule, limiting the expanded authority from about 17 companies to just seven, the agency said Thursday.
Payment apps that only work at a specific retailer, e.g Starbucksis exempt from the rule.
The CFPB's new rule is one of the rare instances in which the U.S. banking industry has publicly supported the regulator's actions. Banks have long felt that technology companies that make inroads into financial services should be subject to greater scrutiny.
The rule will go into effect 30 days after it is published in the Federal Register, the CFPB said.
It is not known whether the incoming Trump administration will decide to change or eliminate the new rule, but it is possible that expanded oversight of technology companies will align with future CFPB leadership.