Are Consumer Payments the CFPB’s Next Battleground in Fintech?

Are Consumer Payments the CFPB’s Next Battleground in Fintech?

January 23, 2024

By: Tyler Brown

Big Tech, fintech, and the banking industry are locked in a dispute over rules for consumer digital payments and what the Consumer Financial Protection Bureau (CFPB) can or should do about them. In December, the CFPB released a proposed rule “to define a market for general-use consumer payment applications,” including digital wallet and peer-to-peer (P2P) apps. It in theory would clarify the CFPB’s supervisory authority over Big Tech and fintech based on language in the Dodd-Frank Act.

The proposed rule appears friendly to the banking industry, purporting to make technology companies and fintechs “play by the same rules as banks and credit unions.” To no one’s surprise, the fintech and technology industries have accused the CFPB of ill-considered rulemaking and regulatory overreach.

In January, the banking, technology, and fintech industries responded to the proposed rule with official comments. Based on the responses, the American Bankers Association and the CFPB are on one side, and the technology and fintech industries (represented by the Computer and Communications Industry Association and the Financial Technology Association) are on the other.

“The CFPB’s ability to monitor for emerging risks is critical as new product offerings blur the traditional lines of banking and commerce […the rule] can help level the playing field between nonbanks and depository institutions, which the CFPB regularly supervises and which also provide general-use digital consumer payment applications.”

— Consumer Financial Protection Bureau

“We recommend that the CFPB evaluate its supervision to ensure that the requirements for nonbanks to meet their consumer protection obligations are examined and enforced consistently with the examination and enforcement practices applied to banks without changing the requirements of those banks.”

— American Bankers Association

“The Proposed Rule […] fails to focus on a specific market, fails to identify specific consumer harms in that market, and fails to adequately address the costs and benefits of its attempt to combine disparate markets.”

— Financial Technology Association

The CFPB’s concerns are to ensure “markets for consumer financial products and services that are fair, transparent, and competitive.” It says it wants to make sure that Big Tech doesn’t get in the way of open banking or “the development of open ecosystems for payments.” The agency also implies that its consumer protection mandate extends to the collection, use, and retention of consumers’ financial data by apps that are used in consumer payments. In its research on digital wallets published several years ago, the CFPB notes that a way digital wallet providers monetize their products is by using the data unique to each consumer generated by their activity to inform product development or marketing.

Meanwhile, the banking industry stakes its position on regulatory “fairness,” or the idea that the technology and fintech industries should fall under the same scrutiny as traditional institutions, while those industries say that the CFPB’s proposed rule is broad, vague, and fails to address a real problem. Both arguments have merit: Fintech and Big Tech for the most part don’t have the same compliance burden as banks — but, to the Financial Technology Association’s point, in search of unproven consumer harm, the CFPB may be trying to define a market that’s too broad to effectively regulate.

There’s no guarantee that this proposed rule will become final. But tension between the CFPB and the technology and fintech industries will likely persist regardless. The proposal picks up a protracted battle between the banking industry and nonbanks over control of the customer relationship, which includes day-to-day competition between banking apps, wallets like Apple Pay and Google Pay, and P2P apps like Venmo. And the CFPB seems intent on acting as referee — as it argues, “regardless of whether they are subject to the CFPB’s supervisory authority [nonbanks] are subject to the CFPB’s regulatory and enforcement authority.” As such, we can expect more to come.