The Consumer Financial Protection Bureau has approved a new law that will expand the scope of supervision of non-bank financial services companies, including various applications designed for payments and wallets. Major technology and fintech players, such as Apple, Google, Amazon, PayPal, Block, and peer services such as Venmo and Zelle, will be affected.
The new regulation is an extension of firms that process at least 50 million consumer transactions annually. This extends to popular services that include more than 13 billion payments each year. In a CFPB statement, the new law should ensure that such companies are held to the same legal standards as other traditional banks and credit unions, including stronger protections for consumers who inform financial decisions.
The CFPB does not have direct oversight of these digital payment services, although it does oversee electronic money transfers, and the new law will give the agency the right to conduct ongoing audits of these technology giants to be able to demand records and interview their employees to ensure their compliance with consumer protection laws.
The director of the CFPB, Rohit Chopra, emphasized the ever-growing importance of digital payments, where “what started as an alternative to cash has turned into an important financial tool.” For his part, Chopra also said that increased oversight will help protect consumer privacy, prevent fraud, and stop illegal account closures. The law addresses a growing trend in which Americans are using digital payment apps instead of traditional bank accounts, especially among low-income and low-income users. The CFPB has expressed concern about the rapid growth of these services, especially as many companies partner with banks to avoid regulatory scrutiny.
The new law comes after a year of discussions and proposals, including an earlier draft that suggested companies manage the performance of 5 million jobs a year. The final limit, however, is set at 50 million, making it seven large companies. Notably, payment services limited to certain merchants, such as the Starbucks app, are not included in the regulation.
The increased oversight is widely welcomed by the banking industry, which has long called for greater scrutiny of technology firms entering the financial services space. The Consumer Bankers Association praised the legislation as an important step to ensure that non-banking companies comply with their responsibility to consumers.
This rule will take effect 30 days after publication in the Federal Register. While future leadership may change the direction of the new law, it is currently focused on the technology industry, something that goes hand in hand with efforts to manage the rapidly changing digital payments landscape.
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