The Consumer Financial Protection Bureau on Thursday issued a final version of a rule that it says it will soon oversee nonbank companies that offer financial services such as payments and wallet apps.
Tech giants and payments companies that handle at least 50 million transactions a year will be subject to the review, which aims to ensure that new entrants comply with the laws that banks and credit unions follow, the CFPB said in a statement.
The CFPB said seven nonbank entities qualify for the new scrutiny. payment services Apple, Google and Amazon, as well as financial technology companies, including PayPal and Block and peer-to-peer services Venmo and Zelle are affected by the change.
While the CFPB already had some authority over digital payments companies due to its oversight of electronic fund transfers, the new rule allows it to treat technology companies more like banks. It subjects companies to “proactive reviews” to ensure legal compliance, allowing them to demand records and interview employees.
“Digital payments have gone 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 illegal account closures.”
A year ago, the CFPB said it wanted to expand its oversight to technology and fintech companies that offer financial services but have avoided greater scrutiny by partnering with banks. Americans are increasingly using payment apps as de facto bank accounts, storing cash and making everyday purchases through their mobile phones.
The most popular apps covered by the rule collectively process more than 13 billion consumer payments a year and have seen “particularly strong adoption” among low- and middle-income users, the CFPB said Thursday.
“What started as a convenient alternative to cash has evolved into a critical financial tool, processing more than $1 trillion in payments between consumers and their friends, families and businesses,” the regulator said.
The initial proposal would have subjected companies that process at least 5 million transactions annually to some of the same examinations that the CFPB conducts on banks and credit unions. That threshold was raised to 50 million transactions in the final rule, limiting the expanded powers of about 17 companies to just seven, the agency said Thursday.
One of the companies, Zelle, owned by Early Alert Services, said it has been monitored by the CFPB and the Office of the Comptroller of the Currency since its creation in 2017.
“We operate within the regulatory perimeter and do so knowing that innovation, security and regulation are not mutually exclusive,” a spokesperson said.
Payment apps that only work at a particular retailer, such as starbucksare excluded from the rule.
The new CFPB rule is one of the rare cases in which the American banking industry publicly supported the regulator's actions; Banks have long felt that technology companies entering financial services should come under greater scrutiny.
The rule “marks an important step forward for the CFPB to regularly ensure that nonbank market participants actually meet their obligations to consumers,” Lindsey Johnson, president of the Consumer Bankers Association, said in an email.
The CFPB said the rule will take effect 30 days after its publication in the Federal Register.
It is unknown whether the incoming Trump administration will decide to change or eliminate the new rule, but expanded oversight of technology companies may align with the CFPB's future leadership.
