CFPB targets US fintech firms with proposals for increased regulatory scope
The Consumer Financial Protection Bureau (CFPB) is seeking to subject large technology firms and neobanks that process payments to the same supervisory examinations as incumbent banks and credit unions, as part of proposed regulatory amendment.
CFPB proposes new regulations for nonbanks
The proposals put forward by the US consumer finance watchdog this week specifically target nonbank companies that offer digital wallets, retail payment apps, or process more than 5 million transactions per year.
Under this scope, the new regulations would only apply to 17 companies in total, including PayPal, Apple and Google, which together retain 88% of the market share and process $13 billion transactions a year.
If approved, this group – which the regulator says has amassed a share of e-commerce payments volume that is similar to or greater than traditional payment methods – would have to comply with the Consumer Financial Protection Act.
This act guards against abusive/unfair financial practices, privacy infringements and impediments to consumer rights when transferring funds.
Speaking on the proposed amendment, CFPB director Rohit Chopra describes payment systems as “critical infrastructure for our economy” and says that such activities “used to be conducted almost exclusively by supervised banks”.
“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 move marks the latest development in the regulator’s attempt to level the playing field between banks and nonbanks. In April 2022, it invoked a largely dormant legal provision to increase its scrutiny on nonbank lenders, larger fintechs and particularly those offering services that pose risks to consumers.
It doubled down on this the following September with regulations for buy-now-pay-later (BNPL) firms, and again in January this year by proposing a public registry outlining the terms and conditions of nonbank firms that could potentially infringe consumers’ rights.
