On Nov. 21, CFPB final rule to bring supervision to Big Tech, others.
CFPB reported it finalized a rule on federal oversight of popular digital payment apps.
Rule Defining larger participants of a market for general-use digital consumer payment applications, brings supervision to Big Tech, other widely used digital payment apps.
Finalized in order to protect personal data, reduce fraud, and stop illegal debanking.
Follows CFPB Nov 2023 proposal to supervise large nonbank companies, see #190567.
In the final rule, the CFPB made several significant changes from the proposal.
Final Rule Overview
Final Rule will help CFPB to ensure digital payment apps – specifically if handling over 50mn transactions per year – follow federal law. just like large banks, CUs, others.
Sixth rulemaking by the CFPB to define larger participants operating in markets for consumer financial products and services, see #6780, #7177, and #19510.
Proposed would have defined larger participant as any nonbank covered person that, in prior calendar year, both facilitated at least 5mn consumer payment transactions.
By providing general-use digital consumer payment apps, not small business concern.
Final rule significantly increased transaction threshold to 50mn annual transactions.
Further, limited the rule's scope to count only transactions conducted in US dollars.
CFPB received 59 comments from consumer advocate groups, nonprofits, companies, industry associations, State attorneys general, Members of Congress, and others.
Added 12 CFR 1090.109, General-use digital consumer payment applications market.
CFPB Enforcement Authority
Established CFPB’s supervisory authority over nonbank covered persons that are larger participants in a market for general-use digital consumer payment applications.
While CFPB has always had enforcement authority over these companies, rule gave the CFPB authority to conduct proactive exams to ensure companies complying with law.
The final rule did not impose new substantive consumer protection requirements.
As finalized, the rule will enable the CFPB to supervise companies in five key areas.
Five key areas including privacy and surveillance, errors and fraud, and debanking.
Larger Participants
Larger participants of this market will be subject to the CFPB’s supervisory authority under the Consumer financial protection act (CFPA), codified at 12 USC 5514.
A nonbank covered person qualifies as a larger participant if it meets final rule criteria.
If it facilitates an annual covered consumer payment transaction volume of at least 50 million transactions as defined in the rule; and is not a small business concern.
Defines larger participants of a market for general-use digital consumer payment apps.
CFPB may require submissions for purpose of assessing if person is larger participant.
Final Rule Market
Market encompasses specific activities; market definition generally includes nonbank covered persons that provide funds transfer or payment wallet functionalities.
Provided through a digital payment application for consumers’ general use in making consumer payments transactions, defined to include payments to other persons.
Payments other persons for personal, household, or family purposes, with exclusions.
Examples include consumer financial products, services described as digital wallets, payment apps, funds transfer apps, peer-to-peer/person to person/P2P payment apps.
Identifies a limited set of digital payment applications that do not fall within the proposed market definition because they do not have general use for rule purposes.
The Final Rule sets forth a test to determine whether a nonbank covered person is a larger participant of the general-use digital consumer payment applications market.
A person will be able to dispute whether it qualifies as a larger participant in market.
If an entity claims not to be a larger participant, it will then have an opportunity to submit documentary evidence and written arguments in support of its claim.
Nonbank Covered Person
The Final Rule sets forth a test to determine whether a nonbank covered person is a larger participant of the general-use digital consumer payment applications market.
A nonbank covered person is a larger participant if it satisfies two criteria.
It, with affiliates, must provide general use digital consumer payment apps, annual volume of at least 50mn consumer payment transactions denominated in U.S. dollars.
Must not be a small business concern based on the applicable SBA size standard.
Any nonbank covered person that qualifies as a larger participant would remain larger participant until 2 years from first day of tax year they last met larger-participant test.
Effectiveness
Final rule becomes effective in 30 days from pending publication in federal register.
Dec. 2024 Fed Reg Final Rule
On Dec. 10, 2024, CFPB published final rule in federal register, effective Jan. 9, 2025.
