A year after the U.S. Consumer Financial Protection Bureau said it wanted to strengthen regulations governing the growing number of non-bank companies offering financial services, it has now made its framework official.
One big change from the initial proposal is that the CFPB’s rules will only apply to fintech firms that process over 50 million transactions, whereas the bureau had initially considered including any company processing over five million payments.
This narrowed scope means only the largest payments companies, such as digital wallet providers Google, Amazon, and Apple, and peer-to-peer platforms like PayPal, Venmo, Zelle, and Block’s Cash App, will fall under the rules’ purview. The regulation will not apply to payments platforms operating at a single retailer, such as Starbucks’ digital app.
Novelty to Necessity
The new regulations allow the CFPB the same oversight over tech firms as it has over banks and credit unions. The bureau will be able to conduct examinations of these companies, obtaining records and interviewing employees to ensure the fintechs are compliant.
“Digital payments have gone from novelty to necessity and our oversight must reflect this reality,” said CFPB Director Rohit Chopra in a prepared statement. “The rule will help to protect consumer privacy, guard against fraud, and prevent illegal account closures.”
A First Step
Digital payments are the centerpiece of the emerging worldwide payments infrastructure. According to CNBC, the apps that would fall under the CFPB’s new framework process over 13 billion consumer payments each year. These apps have increasingly been used like bank accounts, and the CFPB said digital payments platforms have gained “particularly strong adoption” with consumers in the low- to middle-income brackets.
As these platforms gained significant traction, there have been increasing calls for a stronger regulatory framework from both lawmakers and traditional banking players. Those calls have accelerated since the costly collapse of Synapse, a fintech company that failed to maintain compliance for its client institutions.
Even though Synapse would not have fallen under the CFPB’s oversight by the new rules, the framework is likely just the first step in regulating the surging industry. The rules will take effect 30 days after their publication in the Federal Register.