On November 7, 2023, the Consumer Financial Protection Bureau ("CFPB") issued a proposed rule that would grant it supervisory authority over major nonbank technology companies in the consumer digital payments space.
Although these nonbank entities already are subject to CFPB enforcement authority, this new designation would subject them to CFPB oversight in the same manner that the CFPB examines larger banks and nonbanks in specific markets like mortgage lending and credit reporting.
The proposed rule would amend the definition of "larger participants" in consumer financial markets to include nonbank payment providers that process more than five million "consumer payment transactions" annually. Consumer payments involving personal or family purchases and peer-to-peer fund transfers would be covered, but transactions that involve the exchange of currencies or those transactions moving funds into, out of, or between cryptocurrencies would be excluded. Also excluded are payments that a nonbank processes for a consumer to buy goods or services from that same nonbank's store. However, transactions involving the exchange of crypto assets for goods and services in place of currency will count toward the threshold. The CFPB estimates that approximately 17 companies would be covered by the proposal's definition, accounting for approximately 88% of the online direct payment market.
This shift is significant. It would expand the CFPB's supervisory authority to entities in the technology space that directly impact consumer spending and activity, such as peer-to-peer payment platforms and providers of digital wallets that store credit card information. In a statement accompanying the proposed rule, CFPB Director Rohit Chopra said the proposed rule will "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's proposal is now in the notice-and-comment process. Interested parties may provide comments on the proposal until January 8, 2024, at which point the CFPB may begin to finalize the rule.
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