CFPB Finalizes Rule to Supervise Large Nonbank Digital Payment Companies
The Consumer Financial Protection Bureau (CFPB) announced a final rule aimed at extending federal oversight to the largest nonbank companies offering digital payment and wallet apps. This regulation will bring major players handling over 50 million transactions annually under the CFPB’s supervisory framework, similar to the oversight already applied to banks, credit unions, and other financial institutions.
CFPB Director Rohit Chopra emphasized the importance of this move, stating, “Digital payments have gone from novelty to necessity, and our oversight must reflect this reality.” The rule, Chopra explained, is designed to safeguard consumer privacy, prevent fraud, and address issues like account closures, which can significantly disrupt consumers’ financial lives.
Digital payment apps have rapidly transformed from a convenience to an essential financial tool for millions of consumers. These apps now rival traditional payment methods like credit and debit cards, particularly among middle and lower-income individuals who rely on them for daily transactions. This expansion has been fueled by the entry of global technology giants into the payments market. However, unlike banks and credit unions, many of these tech firms have operated without direct CFPB supervision—until now.
The final rule empowers the CFPB to proactively supervise large nonbank payment companies, addressing critical concerns, including:
Privacy and Surveillance
Tech firms managing digital payment apps collect extensive data about users’ transactions. The rule enforces compliance with federal privacy laws, including consumer opt-outs from certain data collection practices and prohibitions on misrepresentations regarding data protection.
Errors and Fraud
Federal regulation already provides consumers with the right to dispute erroneous or fraudulent transactions. However, some payment apps have been accused of shifting responsibility to banks or credit unions rather than addressing disputes internally.
The CFPB will now:
- Ensure app providers investigate disputes; and
- Focus on protecting vulnerable groups like older adults and active-duty servicemembers from fraud.
Changes from the Initial Proposal
For the most part, the final rule reflects the rule as it was proposed; however, the final rule does include some key revisions based on feedback from the industry, including:
- Higher transaction threshold: Companies with over 50 million U.S.-dollar transactions annually are covered, ensuring only the largest players are supervised.
- Narrower scope: The rule excludes non-dollar transactions, focusing exclusively on U.S. payments.
Implementation Timeline
The final rule will take effect 30 days after its publication in the Federal Register. This marks the CFPB’s sixth rule defining larger participants in consumer financial markets, alongside earlier rules for credit reporting, debt collection, and other key sectors.
With this regulation, the CFPB seeks to level the playing field and ensure that tech giants handling billions in transactions operate under the same consumer protection standards as traditional financial institutions.
You can read the final rule using the following link – Defining Larger Participants of a Market for General-Use Digital Consumer Payment Applications. If you have any questions regarding this final rule or if you are facing any other regulatory concerns, don’t hesitate to reach out to one of our advisors through a consultation request. As always, we are here to serve you and help relieve the burden of compliance from your institution.