In a world where digital payments have become second nature, a new regulatory development is set to ripple through the tech and finance sectors.
The U.S. Consumer Financial Protection Bureau (CFPB) has proposed a groundbreaking rule that would bring companies like Meta Platforms Inc., Apple Inc., Alphabet Inc., and others offering digital wallets and payment apps under its supervision.
This move aims to treat these nonbanks more like their traditional financial counterparts.
Under this proposal, companies handling over 5 million transactions annually would face regulation akin to that of banks and credit unions already under the CFPB’s watchful eye.
Examiners from the CFPB would be empowered to monitor payment apps for compliance with federal money-transfer laws and keep an eye out for unfair, deceptive, or abusive conduct if the rule is finalized.
CFPB Director Rohit Chopra explains that this rule intends to close a potential regulatory loophole, ensuring that large tech firms and nonbank payment companies receive the appropriate oversight.
The rise of digital payments, facilitated by services like PayPal Holdings Inc.’s Venmo and Block Inc.’s Cash App, has reshaped the landscape.
While banks have traditionally handled these services, technology companies have stepped into the fray, and it’s essential to ensure that consumers are adequately protected.
One notable aspect of this development is its direct impact on Apple Pay and Google Pay, which are squarely in the CFPB’s crosshairs. PayPal and Block are already under the CFPB’s supervision, which suggests that the agency has insights into Venmo and Cash App activities.
The CFPB estimates that 17 companies, accounting for 88% of total digital payments in 2021, would fall under the proposed rule. These companies processed around 13 billion transactions totaling $1.7 trillion last year.
It’s worth noting that the CFPB’s jurisdiction does not extend to deposit insurance, so it cannot enforce such protections even with additional oversight.
However, it can ensure that companies do not make false claims regarding these protections.
This move by the CFPB aligns with its recent investigations and inquiries into the activities of big tech companies in the realm of consumer payments and financial services.
Under Director Chopra’s leadership, the agency has shown a keen interest in the entrance of tech giants like Apple, Google, and Amazon into these domains.
As investors, it’s crucial to keep a close eye on regulatory developments like these.
They can have a significant impact on the companies we invest in and the markets they operate within.
Furthermore, understanding how regulatory changes can affect financial technology companies can be a valuable part of your investment strategy.
The CFPB is inviting comments on this proposal until January 8, giving stakeholders an opportunity to weigh in on this significant regulatory shift.
Stay informed, stay ahead.
Peter Burke
