Tech giants get reality check: Government oversight incoming for financial services

Earlier this month, it was reported that the Consumer Financial Protection Bureau (CFPB) was looking to put Google under its supervision due to the tech giant’s practices with financial services. This reality has come to fruition and Google isn’t the only tech firm now under the watchdog’s gaze.

Today, the CFPB announced that it has finalized a rule to begin supervising tech firms that offer digital wallets and payment apps. The rule specifically applies to any tech company that handles more than 50 million transactions a year, like Google and Apple. Going forward, these entities will be treated more like big banks, meaning the CFPB will be making sure these companies follow federal financial laws.

“Digital payments have gone from novelty to necessity and our oversight must reflect this reality,” CFPB Director Rohit Chopra states. “The rule will help to protect consumer privacy, guard against fraud, and prevent illegal account closures.”

Once the rule goes into effect, the CFPB will be able to supervise these companies in three areas:

• Privacy and Surveillance: Tech companies collect vast amounts of data. The law allows consumers to opt out of certain data collection and sharing practices. It also prohibits misrepresentations about data protection practices.
• Errors and Fraud: Under longstanding federal law, consumers have the right to dispute transactions that are incorrect or fraudulent, and financial institutions must take steps to look into them. The CFPB is particularly concerned about how digital payment apps can be used to defraud older adults and active duty servicemembers. Some popular payment apps appear to design their systems to shift disputes to banks, credit unions, and credit card companies, rather than managing them on their own.
• Debanking: Given the volume of payments consumers make through many popular payment apps, consumers can face serious harms when they lose access to their app without notice or when their ability to make or receive payments is disrupted. Consumers have reported concerns to the CFPB about disruptions to their lives due to closures or freezes.

The rule that was finalized today differs from the original proposal from 2023. In that initial proposal, the threshold was 5 million transactions a year. This new rule also limits the scope to only count transactions made in US dollars.

The final rule is scheduled to go into effect 30 days after publication in the Federal Register.