The Consumer Financial Protection Bureau (CFPB or Bureau) has signaled that it intends to propose a rule that would allow it to exercise supervisory authority over a greater number of nonbank financial companies that participate in the consumer payments market.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), the CFPB has authority to examine “larger participants” in various consumer financial products and services markets that the Bureau designates by rule — past examples include consumer reporting, debt collection, student loan servicing, international remittances, and auto finance. The CFPB’s proposed rule would “further the scope” of the CFPB’s supervision over the consumer payments market to include nonbank larger participants.
The agenda states that a notice of proposed rulemaking is expected in July 2023.
This proposal represents the culmination of the CFPB’s attempts to regulate the payments industry that started around the time that Rohit Chopra took over as the Director of the CFPB. In October 2021, the CFPB issued orders to collect information on the business practices of large technology companies operating payments systems in the United States. At the time, the CFPB said that it needed the information to “better understand how these firms use personal payments data and manage data access to users so the Bureau can ensure adequate consumer protection.” More recently, Director Chopra and members of Congress discussed possible amendments to Regulation E to remove barriers that prevent consumers from recovering money from banks and payments companies when bad actors fraudulently induce consumers into sending money to the bad actors through peer-to-peer apps. Although payments companies are already required to comply with state and federal laws, CFPB supervisory examinations will be a new experience if the CFPB follows through with the proposed rule.
We also note that this forthcoming larger participant rules comes at a time where the CFPB seems to be using its supervisory authority in a more expansive way than in the past. Numerous nonbanks have received information requests from the CFPB recently, inquiring about whether they are larger participants in markets already subject to CFPB jurisdiction, which suggests that the Bureau intends to begin performing examinations of more companies in those markets. Further, the Bureau has notified a number of nonbanks that they are being considered for supervision under the “risks to consumers” provision in Dodd-Frank, which the Bureau announced that it planned to use more extensively in 2022. Supervision has become an even more active venue for the Bureau to advance its policy objectives, and now it appears that the CFPB intends to bring this authority to bear on the payments industry.