The Consumer Financial Protection Bureau released a final version of 1 on Thursday Rule It announced that it could soon also supervise non-banking firms that provide financial services akin to payments and wallet apps.
Tech giants and payments firms that process not less than 50 million transactions annually will fall under the review, which is designed to be sure that the newer entrants are complying with the laws that banks and credit unions adhere to, the CFPB said in an announcement release.
According to the CFPB, seven non-banks qualify for the brand new exam. Payment services from Apple, Google And Amazon, in addition to fintech firms, including PayPal And block and peer-to-peer services Venmo and cell are affected by the change.
While the CFPB already had some authority over digital payment firms as a consequence of its oversight of electronic funds transfers, the brand new rule allows it to treat technology firms more like banks. It requires firms to be subject to “proactive audits” to make sure compliance with legal requirements and to request records and interview employees.
“Digital payments have moved from novelty to necessity and our oversight must reflect that reality,” said CFPB Director Rohit Chopra. “The regulation will help protect consumer privacy, prevent fraud and prevent illegal account closures.”
A 12 months ago, the CFPB said It desired to expand its oversight to technology and fintech firms that provide financial services but have avoided greater scrutiny by partnering with banks. Americans are increasingly using payment apps as de facto bank accounts, storing money and making on a regular basis purchases on their mobile phones.
The hottest apps covered by the rule collectively process greater than 13 billion consumer payments per 12 months and luxuriate in “particularly strong adoption among low- and middle-income users,” the CFPB said Thursday.
“What began as a convenient alternative to cash has grown into a major financial tool, processing over a trillion dollars in payments between consumers and their friends, families and businesses,” the regulator said.
The original proposal would have subjected firms that process not less than 5 million transactions annually to a few of the same audits that the CFPB conducts on banks and credit unions. That threshold was raised to 50 million transactions in the ultimate rule, limiting expanded authority from about 17 firms to only seven, the agency said Thursday.
One of the businesses, Zelle, owned by Early Warning Services, said it was supervised by the CFPB Office of the Comptroller of the Currency since its founding in 2017.
“We operate within the regulatory framework and do so with the knowledge that innovation, safety and regulation are not mutually exclusive,” a spokesperson said.
Payment apps that only work with a selected retailer, e.g Starbucksare excluded from the regulation.
The recent CFPB rule is considered one of the rare cases through which the U.S. banking industry has publicly supported the regulator's actions; Banks have long believed that technology firms entering the financial services space should face greater scrutiny.
The rule “represents an important step forward for the CFPB to regularly ensure that nonbank market participants are effectively meeting their obligations to consumers,” Lindsey Johnson, president of the Consumer Bankers Association, said in an email.
The CFPB said the rule will take effect 30 days after it’s published within the Federal Register.
It is unknown whether the incoming Trump administration will determine to switch or scrap the brand new rule, however it is feasible that the expanded oversight of tech firms will likely be consistent with future CFPB leadership.
image credit : www.cnbc.com