Key Takeaways
- Under a new proposal, the Consumer Financial Protection Bureau (CFPB) would supervise technology companies that process payments like they would banks.
- The new rule could impact companies such as Apple, Google, Amazon, Meta, Square, and PayPal.
- The head of the CFPB has said companies that would be regulated under this new rule could use consumers’ transaction data for their own benefit.
Technology giants that process payments could be subject to the scrutiny of the government’s consumer finance watchdog agency under a new proposed rule.
Big companies that provide digital payment services would have to follow the same regulations and get the same supervisory examinations by the Consumer Financial Protection Bureau (CFPB) as banks currently do, under a rule proposed by the regulator Tuesday. The bureau would scrutinize the companies to make sure they are following consumer protection laws covering privacy and fund transfers.
The new rule would only apply to nonbank companies that process 5 million or more transactions a year— that’s 17 companies in all, which process $13 billion in transactions per year and have 88% of the market share, senior CFPB officials said on a conference call with reporters.
“Payment systems are critical infrastructure for our economy. These activities used to be conducted almost exclusively by supervised banks,” CFPB director Rohit Chopra said in a prepared statement. “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.”
Big players in the digital payment world include Apple (AAPL), Google (GOOG, GOOGL), Amazon (AMZN), Meta (META), Square (SQ), and Paypal (PYPL). The Financial Technology Association, a trade group representing payment companies, said their services are already regulated by state and federal laws.
“We will be looking further into this proposed rule as we share the CFPB’s goal of ensuring consumers remain safe and protected.” association CEO Penny Lee said in an email.
In a typical supervisory examination, CFPB employees visit the company’s headquarters where they dig through records, interview employees, and determine whether companies are following laws. If they find problems, the bureau might file a confidential report, or potentially sue the company over the violations.
The CFPB has put digital payment companies under the magnifying glass in recent months. In a report earlier this year, the bureau warned that cash stored on payment apps may not always be insured by the Federal Deposit Insurance Corporation like most consumer bank accounts are.
The bureau has also flagged the tech companies’ extensive collection and use of consumer data. In an October speech, Chopra said he had concerns about tracking, censorship, and even espionage by payment companies.
“Naturally, Big Tech companies will have a strong incentive to surveil all aspects of a consumer’s transactions, since this data can advantage the rest of their businesses,” he said. “For example, Big Tech firms can use detailed payments data to develop personalized pricing algorithms for e-commerce or increase engagement with behavioral advertising.”
The rules would theoretically cover crypto companies that process transactions, bureau officials said on a conference call with reporters. However, only consumer purchase transactions count, and most crypto transactions currently are just buying and selling crypto assets.
Update, Nov. 8, 2023— This story has been updated after publication to add a response from the Financial Technology Association. It was originally published Nov. 7, 2023.
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