US consumer watchdog proposes rules for Big Tech payments, digital wallets
By Douglas Gillison and Hannah Lang
9:15 PM UTC – November 7, 2023
WASHINGTON (Reuters) – The top U.S. consumer financial watchdog on Tuesday proposed to regulate tech giants’ digital payments and smartphone wallet services, saying they rival traditional payment methods in scale and scope but lack consumer safeguards.
The Consumer Financial Protection Bureau’s (CFPB) proposal would subject companies like Alphabet (GOOGL.O), Apple (AAPL.O), PayPal (PYPL.O) and Block’s CashApp (SQ.N) to bank-like supervision, with CFPB examiners inspecting their privacy protections, executives’ conduct and compliance with laws barring unfair and deceptive practices.
If finalized, the proposal would cover about 17 companies that together send more than 13 billion payments annually, according to a CFPB official. The agency declined to name the other platforms that would be covered beyond GooglePay, ApplePay, PayPal and CashApp.
Apple, PayPal and CashApp did not immediately respond to a request for comment. Google declined to comment.
The proposal marks a long-anticipated and ambitious move by CFPB Director Rohit Chopra to assert the agency’s full authority over Big Tech, a sector he has frequently criticized for privacy and competition issues.
Since becoming director in 2021, Chopra has steadily increased CFPB scrutiny of the sector, seeking information in 2021 on how Big Tech companies use consumer data and last year launching an inquiry into their payments platforms.
In a statement on Tuesday, Chopra said the tech sector had expanded into financial services traditionally provided by the closely regulated banking sector.
“Today’s rule would crack down on one avenue for regulatory arbitrage by ensuring large technology firms and other nonbank payments companies are subjected to appropriate oversight,” he said.
In a speech last month, Chopra said CFPB research had found tech giants collected vast amounts of consumer payments data with few limits, scant transparency and confusing corporate policies, putting consumers at risk of Chinese-style surveillance by the companies.
Speaking about Tuesday’s proposal, senior CFPB officials said it was imperative to look into privacy compliance at these larger firms with a wealth of consumer data, noting that many of their business models focus on monetizing that data.
Representatives of Big Tech companies have previously highlighted their efforts to protect consumer data.
Tuesday’s proposal would apply to companies handling more than five million transactions a year. The agency said the rule would also foster competition by ensuring that both traditional financial players and the tech sector were equally subject to the same oversight.
In a statement, the Consumer Bankers Association called the proposal “a step in the right direction.”
“For a healthy, innovative, and competitive financial services ecosystem to function, consumers need to know that they are protected equally, regardless of who they do business with to meet their financial needs,” said CBA President and CEO Lindsey Johnson.
The Electronic Transactions Association, representing banks, fintechs and big tech companies, said in a statement it wants “to ensure the proposal achieves the goals of consumer protection and consistent application of public policy for all players.”
The proposal is now subject to a notice-and-comment period expected to end in early 2024.
Reporting by Douglas Gillison and Hannah Lang in Washington; Additional reporting by Chris Prentice in New York; Editing by Matthew Lewis, Mark Potter and David Gregorio
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How will the proposed regulations impact the digital payments and smartphone wallet services provided by tech giants such as Alphabet, Apple, PayPal, and CashApp?
The Impact of Proposed Regulations on Tech Giants’ Digital Payments and Smartphone Wallet Services
In a recent development, the Consumer Financial Protection Bureau (CFPB) has proposed regulations aimed at overseeing the digital payments and smartphone wallet services provided by tech giants. The CFPB argues that these services have grown to rival traditional payment methods in scale and scope but lack adequate consumer safeguards. The proposed regulations would subject companies like Alphabet, Apple, PayPal, and CashApp to bank-like supervision, with CFPB examiners inspecting their privacy protections, executives’ conduct, and compliance with laws prohibiting unfair and deceptive practices.
If finalized, the proposal would cover approximately 17 companies that collectively send over 13 billion payments annually. While the CFPB did not disclose the names of the other platforms that would be covered, it explicitly mentioned GooglePay, ApplePay, PayPal, and CashApp. The response from the companies affected by the proposal has been mixed, with Apple, PayPal, and CashApp refraining from immediate comment and Google declining to comment altogether.
This proposal by CFPB Director Rohit Chopra represents a significant move to assert the agency’s authority over Big Tech, a sector that has been criticized for privacy and competition issues. Since assuming the role of director in 2021, Chopra has progressively increased the scrutiny of the tech sector, seeking information on how companies use consumer data and launching an inquiry into their payments platforms. According to Chopra, the tech sector has expanded its presence in financial services traditionally provided by closely regulated banks.
The proposed regulations aim to tackle regulatory arbitrage and ensure that large technology firms and nonbank payments companies are subjected to appropriate oversight. In a speech last month, Chopra highlighted concerns about tech giants collecting vast amounts of consumer payment data with limited transparency and confusing corporate policies, thereby putting consumers at risk of surveillance. CFPB officials emphasized the need to look into privacy compliance at these larger firms that possess substantial consumer data, as many of their business models revolve around monetizing that data.
The proposed regulations would apply to companies processing more than five million transactions per year, promoting competition by ensuring equal oversight for both traditional financial players and the tech sector. The Consumer Bankers Association praised the proposal as a step in the right direction, emphasizing the importance of equal consumer protection regardless of the business entity involved. The Electronic Transactions Association, representing banks, fintechs, and big tech companies, expressed a desire for the proposal to achieve the goals of consumer protection and consistent application of public policy for all players.
While the proposal is currently open to a notice-and-comment period, which is expected to conclude in early 2024, it serves as a significant indication of the CFPB’s intent to regulate tech giants’ digital payments and smartphone wallet services more comprehensively. It remains to be seen how the proposal will evolve during the comment period and whether any amendments will be made based on feedback from stakeholders.
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