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CFPB proposes to expand oversight of digital payment apps offered by big tech firms

Proposed rule gives CFPB the authority to conduct supervisory examinations of larger nonbank providers of digital wallets and payment apps 

WASHINGTON, D.C. —  Under a proposed rule announced by the Consumer Financial Protection Bureau, big tech companies and larger nonbank firms that provide digital wallets and payment app services would be subject to the same supervisory examination process as banks. The proposal aims to strengthen federal oversight as digital apps have become widely used by consumers to make purchases and payments.

“Americans are increasingly relying on digital payment apps as a convenient way to make everyday purchases or to transfer money to friends and family,” said Delicia Hand, director of financial fairness at Consumer Reports. “As these tools continue to grow in popularity, it is critical that big tech firms are competing fairly and abiding by the same rules that banks, credit unions, and other financial institutions must follow when processing digital payments. Expanding the CFPB’s supervisory authority over digital payment providers will help ensure they are following the law so that consumers can use these apps safely and securely.”

The CFPB’s proposed rule covers larger firms that handle more than 5 million transactions each year. Under the proposal, the CFPB would have the authority to conduct examinations of these providers to determine whether they are abiding by laws that protect consumers from unfair, deceptive, and abusive acts and practices, as well as applicable privacy rights and money transfer laws.

Earlier this year, CR conducted an evaluation of peer-to-peer (P2P) payment apps and found that users could lose money to fraud or scams and face privacy risks because app providers share their personal information widely and make it difficult for users to delete their data. While P2P payment apps have proven popular, users can lose money when they accidentally make an erroneous payment or fall victim to fraud or scams.

CR also found that Apple Cash, Cash App, and Venmo require users to meet sometimes confusing conditions to ensure their funds held in the payments portion of the app are protected by Federal Deposit Insurance Corporation insurance. Users could lose money if they haven’t completed additional app or product registration requirements and the P2P companies suffer financial losses or declare bankruptcy. This is unlike banks which are required to maintain fund insurance, so additional oversight of these entities is needed to ensure consumers’ funds are protected.

Consumer Reports evaluated P2P payment apps using its Fair Digital Finance Framework, which CR developed to examine the benefits of digital finance products and services and the potential risks they may pose for consumers. The Framework was created with input from academics, fintech companies, regulators, and consumer advocates to identify consumer friendly practices, improve industry practices, and spur policymakers to adopt needed safeguards.