CFPB finalizes rule to supervise some Big Tech firms

Bloomberg News

WASHINGTON — The Consumer Financial Protection Bureau has finalized its rule to supervise the largest nonbank companies that offer digital funds transfers and payment wallets. 

While the CFPB did not name the companies, it likely includes payment giants like Apple, Google, PayPal and others. The CFPB said that it has always had enforcement authority over large payments companies, but that the rule will allow the bureau to conduct proactive examinations to make sure that the companies are complying with the law. 

"Digital payments have gone from novelty to necessity and our oversight must reflect this reality," said CFPB Director Rohit Chopra in a statement. "The rule will help to protect consumer privacy, guard against fraud, and prevent illegal account closures." 

The bureau will supervise these companies in areas like privacy and surveillance, ensuring that tech companies comply with federal law allowing consumers to opt out of certain data collection and sharing practices, ensuring that popular payments apps manage disputes on their own rather than shifting them to banks, credit unions and credit card companies, and reducing harm to consumers if they lose access to an app without notice. 

In the final rule, the CFPB made several significant changes from its initial proposal. The bureau significantly raised the transaction threshold at which companies would require supervision to 50 million payments from 5 million, and limited the rule's scope to only consider transactions conducted in U.S. dollars.

Payments

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The Dodd-Frank Act gave the CFPB the power to designate so-called "larger participants" in a specific financial market, a designation that allows the bureau to conduct supervisory exams. Chopra has long warned of the impact of unsupervised tech firms' growing influence in the payments sector. 

"Every single government agency is being impacted by how big tech companies are infiltrating sectors of the economy," Chopra said in the Senate Banking Committee in 2021. Shortly after being sworn into office he publicly demanded that Amazon, Apple, Google, Facebook, PayPal and Square turn over information about payment products and practices. 

In their comments to the bureau, bankers largely supported the idea of regulation on nonbanks to be more consistent with depository institutions, but recommended that the CFPB more thoroughly define its examination process. 

Tech firms, meanwhile, pushed back firmly against the rule. TechNet, a group of senior executive and technology CEOs, said that the CFPB might have bypassed a congressional requirement to consult with the Federal Trade Commission, opening the rule up to an Administrative Procedures Act challenge. 

While the three main prudential bank regulators — the Federal Reserve, the Federal Deposit Insurance Corp. and the Comptroller of the Currency — have backed off policymaking since the election, Chopra has continued to push for the policy that he's pursued throughout his tenure at the bureau. Chopra can be dismissed by the president at will and it widely expected to be dismissed by President-elect Trump after he takes office in January.

Earlier this week, he called on Congress to reconsider deposit insurance limits after the failure of a tiny Oklahoma bank will cause uninsured depositors — likely small businesses, houses of worship or farmers — to take a haircut on their uninsured deposits.