In a significant expansion of its regulatory reach, the Consumer Financial Protection Bureau (CFPB) unveiled a proposal on November 7 that would bring some of the most influential players in the burgeoning digital payment sector under its supervisory purview. The move, aimed at nonbank entities that facilitate a substantial volume of digital transactions, underscores the agency's effort to expand its regulatory power in the evolving landscape of financial technology.
The CFPB's proposed rule seeks to modify existing guidelines by adding provisions that specifically target "larger participants" within the digital wallet and payment application spheres. Under the rule, the criteria for an entity to be considered a "larger participant" are twofold: the provision of general-use digital consumer payment applications must meet the specified transactional threshold, and the entity must not qualify as a small business under the Small Business Administration's criteria.
Notably, this initiative would subject such nonbank companies to comprehensive examinations and ensure adherence to established federal consumer financial protection laws, including, but not limited to, the Electronic Fund Transfer Act and the Gramm-Leach-Bliley Act, alongside the Dodd-Frank Act's prohibitions against unfair, deceptive, or abusive acts and practices. This appears to be part of a larger effort by the CFPB to oversee nonbank fintechs.
The CFPB, as Rohit Chopra, the Bureau's Director, elucidated in a statement accompanying the proposal, views "payment systems as critical infrastructure for our economy." He continued, indicating a clear directive, that the "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 CFPB has been aggressively asserting its right to supervise nonbank entities by defining "larger participants" operating in markets for consumer financial products and services. This latest initiative is the sixth in a series of rulemakings by the CFPB focused on bringing large nonbank entities within the CFPB's regulatory purview. The first five rules covered larger participants in consumer reporting, consumer debt collection, student loan servicing, international money transfers, and automobile financing. This reflects a determined stride toward enveloping digital payment services—a domain historically dominated by supervised banks—within its regulatory fold.
Legal professionals in companies that offer services relating to peer-to-peer payments, funds transfers, or digital payment applications are observing the CFPB's latest proposal closely, scrutinizing its implications for both the future of financial technology innovation and the broader ecosystem of consumer financial services. As the comment period unfolds between now and January 8, 2024, industry stakeholders and consumer advocates alike are poised to engage in what promises to be a robust debate on the scope and scale of financial regulation in the digital age.
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