CFPB Moves to Expand Oversight of Digital Payment Apps

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The Consumer Financial Protection Bureau wants to extend its watchdog powers to cover digital wallets and payment apps run by companies like Apple, Google, PayPal and Block, which do not have traditional banking operations.

The bureau proposed a rule on Tuesday that would subject large companies — those that process more than five million financial transactions per year — to the same supervisory examinations the bureau conducts on banks and credit unions. About 17 companies, which together handle $13 billion in transactions a year and hold an 88 percent share of the market in the United States, would be subject to the rule, according to a bureau official.

“Payment systems are critical infrastructure for our economy,” said Rohit Chopra, the bureau’s director. “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.”

The proposed rule could take effect as soon as next year. One of the payment industry’s largest trade groups, the Electronic Transactions Association, had a fairly mild response to the proposal.

“E.T.A. supports the C.F.P.B.’s goals of robust consumer protections for payments and a consistent regulatory environment for both banks and fintechs,” said Jodie Kelley, the group’s chief executive. “It is critical that the final rule encourages continued innovation and competition in the payments space.”

Banking trade groups have long pressed for nonbank companies to face the same kind of audits and oversight that banks do. Lindsey Johnson, the chief executive of the Consumer Bankers Association, called the proposed rule “a step in the right direction.”

Mr. Chopra has been open about his desire to apply greater regulatory scrutiny to large technology companies. Last month, he warned about the “surveillance and censorship” that such companies can impose on consumers’ financial transactions, citing the wealth of personal details that can be gleaned from the payment trail recorded by apps like PayPal’s Venmo and Block’s Cash App.

A September report from the bureau spotlighted the ways Apple and Google use their dominance as mobile phone makers to steer customers toward their own tap-to-pay digital wallet products.

Consumers moved $893 billion through payment services last year — including digital wallets, payment apps and Zelle, a system owned by a consortium of banks — according to an estimate cited by the consumer bureau, and keep billions of dollars stored in those apps. Americans have been slower than consumers in other countries to adopt digital payments, but the pandemic sharply accelerated their use.

Nearly 56 million shoppers made an in-store purchase with Apple Pay — the most popular mobile payment service in the United States — in April, according to the consumer bureau. Starbucks’ digital app and Google Pay, the next most widely used retail payment apps, trail Apple. (The draft rule contains language excluding payment apps that can be used only with a specific retailer or loan servicer, which would put Starbucks outside the rule’s reach.)

The consumer bureau already has enforcement powers over digital payment companies because it regulates electronic fund transfers, but adding supervisory oversight would significantly expand its visibility into the operations of the market’s largest operators. It would allow the agency to obtain and review detailed corporate records and to send its financial examiners to companies’ offices to interview employees, scrutinize policies and safeguards, and flag problems as they spot them.

The public can comment on the 69-page proposal until at least January. After that, the agency can move to make the regulations final.

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