Limiting the CFPB’s Supervision
The Consumer Financial Protection Bureau is proposing a rule that would curtail its supervisory role over nonbank entities, effectively exempting buy-now-pay-later services and digital wallets from oversight. This shift echoes past efforts to narrow the agency’s purview.
In its proposal, the CFPB asserts, “The Bureau should focus only on those products and services that Congress has mandated.” Established in 2010 under the Consumer Financial Protection Act, the CFPB’s current framework was formed well before platforms like Venmo, Zelle, and Affirm came into existence.
The rule aims to restrict the scope of businesses the CFPB can regulate, which could result in fewer entities being designated for supervision. Public comments on this proposal are invited until September 25th via this link.
Recent Government Actions
This action aligns with the Trump administration’s broader push to limit CFPB powers. Earlier this month, a federal court allowed the administration to proceed with plans to drastically reduce the agency’s workforce and vacate its headquarters lease.
The current CFPB legislation allows it to supervise nonbank entities engaging in practices that pose consumer risks through financial products or services. The Biden administration sought to expand oversight to include digital wallets and payment apps, aligning them more closely with traditional banking institutions under CFPB scrutiny due to growing concerns over consumer complaints.
Tech Giants and Their Oversight
While the CFPB historically had authority over companies like PayPal and CashApp, involving tech giants such as Apple and Google under direct oversight was a new step. The Biden administration’s proposals would have subjected apps like Google Pay and Apple Pay to CFPB rules for the first time.
The key concerns revolved around ensuring that nonbanks handling more than 5 million transactions annually adhered to consumer protection standards similar to those of major banks and financial institutions already under CFPB supervision. The focus was on resolving issues like fraudulent charges and missing balances linked to these payment methods.
In January, a coalition of tech companies challenged the proposed rule, arguing that these apps merely store credit card information without making payments directly. For now, their arguments have prevailed in this particular instance.
