CFPB Nonbank Digital Pay Oversight


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.

Regulators CFPB
Entity Types CNSM; Corp; MSB
Reference RF CFPB-2023-0053, PR, 11/21/2024; RIN 3170-AB17; CFPA; Citation: 12 CFR 1090; 12 USC 5514;
Functions Compliance; Exams; Financial; Legal; Market Conduct; Operations; Privacy; Product Administration; Product Design; Record Retention; Reporting; Technology
Countries United States of America
Category
State
Products Cryptocurrency; Deposits; Payments
Regions Am
Rule Type Final
Rule Date 11/21/2024
Effective Date 12/21/2024
Rule Id 234010
Linked to Rule :190567
Reg. Last Update 11/21/2024
Report Section US Consumer

Last substantive update on 11/22/2024