The Consumer Financial Protection Bureau proposed a new rule today that would subject large nonbank companies, including digital wallet providers and payments apps, to undergo the same supervisory exam process as banks — leveling the payments playing field.

Digital application usership has been on the rise in recent years as consumers looked to the apps to send money or make payments. However, consumer complaints from app users have also ticked up, according to a release today from the CFPB.

In fact, digital wallet transactions are expected to rise from $9 trillion in 2023 to more than $16 trillion in 2028, according to a Juniper Research study released in July.

According to the CFPB proposal, the affected tech companies would be those handling more than 5 million transactions per year.

PayPal, for example, processed 22.3 million transactions in 2022, according to Statista. PayPal competitors include Cash App and Melio.

“Payment systems are critical infrastructure for our economy. These activities used to be conducted almost exclusively by supervised banks,” said CFPB Director Rohit Chopra said in the proposal. “Today’s rule would crack down on one avenue for regulatory arbitrage by ensuring large technology firms and other nonbank payments companies are subjected to appropriate oversight.”

The rule proposes that large nonbank companies would:

• Adhere to applicable funds transfer, privacy and other consumer protection laws; and
• Play by the same rules as banks and credit unions.

Implications of the rule

The proposed rule could present both pros and cons within the payments landscape when it comes to limiting competition, Kelly Dempski, vice president of digital business solutions at fintech SoftServe, told Bank Automation News. The Austin, Texas-based SoftServe offers advising and end-to-end solutions for financial services, healthcare, software media and retail.

“As the CFPB puts it, this proposed regulation could level the playing field for nonbanks and depository institutions, ultimately benefiting the consumer by putting their needs and protections at the heart of an evolving era of finance and financial services,” Dempski said.

“But for Big Tech players, it means more overhead changes in processes across operations, culture and management that could create an array of repercussions — positive and negative,” he said.

Regulation has been anticipated within payments, the attempt to create fair competition may have “unintended consequences,” Dempski said. For example, it could be a good thing to limit certain competitors, but it could also push consumers to financial institutions that are less mature in the payments space.

This proposal will require a learning period as financial institutions and tech providers navigate the ruling, Dempski said, noting, “Many players will have to find new ways to gracefully adhere to these new policies while satisfying all parties involved.”

CFPB rulings

The latest proposal follows the CFPB’s October Personal Financial Data Rights rule proposal which would give consumers control over their personal data, according to the Oct. 19 CFPB release.

Under the rule, consumers would have power over their own data, the ability to move away from bad service, obtain data free of junk fees, and reduce risky data collection practices, according to the release.