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The CFPB Targets Big Tech and Other Emerging Payment Providers for Supervision

In response to what it sees as the growing influence of ‘Big Tech’ and other large technology companies in consumer financial markets, the Consumer Financial Protection Bureau (CFPB) has introduced a proposed rule to establish its supervisory authority over larger nonbank providers of certain digital consumer payment functionalities (the Proposed Rule). 

Announced on November 7, 2023, the Proposed Rule would empower the CFPB to subject nonbank covered persons in a market for general-use digital consumer payment applications that handle more than five million transactions annually to the same CFPB oversight to which large banks and other financial institutions are already subject.

 

This blog post provides a high-level overview of the Proposed Rule. For a deeper dive into the key provisions and implications, please refer to our Client Alert.

Expansion of Oversight to Digital Payments Providers

 

The CFPB currently has the authority to supervise only certain types of covered nonbank entities, one category of which are those identified as “larger participants” in markets for consumer financial products or services, as those markets are defined by the CFPB. To date, the CFPB has defined five markets for which it exercises its supervision authority – consumer reporting, consumer debt collection, student loan servicing, international money transfers, and automobile financing.

 

The Proposed Rule would expand the CFPB’s oversight of “larger participants” specifically to include those participating in the market for “general-use digital consumer payment applications,” which are those providing a covered payment functionality through a digital application for consumers’ general use in making consumer payment transaction(s). While nuanced and subject to a variety of exemptions, qualifications, and exclusions, the scope of potentially covered entities ultimately seems quite broad. The Proposed Rule then defines the covered “larger participants” as those nonbank providers with annual covered consumer payment transaction volume of at least five million transactions (with an exclusion for certain small businesses).

 

If finalized, the Proposed Rule would empower the CFPB to actively supervise covered larger participants for compliance with applicable federal consumer protection laws,including those related to funds transfers, privacy, and the prohibition against unfair, deceptive, and abusive acts and practices.

 

The Proposed Rule suggests that the CFPB intends to take a broad approach to its supervision of covered providers. First, the CFPB noted that its supervisory authority extends to service providers of those covered persons who are subject to its supervision, which includes larger participants. In addition, the CFPB stated that its supervisory authority is not limited to the products or services that qualified the person for supervision, but also includes other activities of such a person that involve other consumer financial products or services or are subject to the federal consumer financial laws. Taken altogether, the Proposed Rule has the potential to subject a wide range of companies and activities to CFPB scrutiny.

 

The Proposed Rule is subject to a notice and comment period before it can be finalized, with comments due by January 8, 2024, or 30 days after publication in the Federal Register, whichever is later. Companies potentially implicated by the Proposed Rule should carefully review the Proposed Rule and determine whether it would be beneficial to participate in this comment period, as it presents a crucial opportunity to contribute your insights and perspectives, as well as voice any concerns you may have.

 

Please see our Client Alert for a more in-depth discussion of the Proposed Rule.

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