Exploring the Friction Between Payment Apps and the CFPB

The Consumer Financial Protection Bureau is ramping up its efforts to more effectively monitor tech companies providing payment apps, citing rising consumer complaints. However, the tech industry is pushing back, quietly but firmly. The battle is centered on the distinction between technology and finance, and which companies fall into which bucket.

“The CFPB has been eyeing the overlap of financial services and technology companies for a while, especially as the link has become more important,” said James Wester, Co-Head of Payments for Javelin Strategy & Research. “Technology always lags innovation, so part of this is an effort by regulators to simply catch up with the state of innovation.”

In November, the CFPB proposed rules that “would ensure that these nonbank financial companies—specifically those larger companies handling more than 5 million transactions per year—adhere to the same rules as large banks, credit unions, and other financial institutions already supervised by the CFPB.” The proposal is portrayed as a response to mounting consumer complaints regarding difficulties in resolving fraudulent charges or recovering missing balances linked to their payment options. 

While the CFPB currently monitors PayPal and CashApp when it comes to international money transfers, the new proposals would make Apple and Google subject to CFPB oversight for the first time. The CFPB is seeking the authority to conduct on-site examinations at these companies, akin to those conducted at banks, including a review of their financial operations.

“I think the CFPB’s intent is to have a much wider regulatory purview, which will give them the ability to regulate all of the tech industry,” Carl Holshouser, Executive Vice President at the lobbying group TechNet, told the Washington Post.

Finding an Argument

The tech side of this payment app dispute seems to be throwing everything at the wall and seeing what sticks. In March, Brian Johnson, Managing Director of Patomak Global Partners, a financial services regulatory consultancy, testified before Congress that the CFPB had not identified “any new or growing risk to consumers from the offering or provision of consumer financial products or services.” But, CFPB’s intention to intensify its oversight is precisely to find out whether such risks exist.

French Hill, Chairman of the House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion, has stepped up to support the apps’ side. “There is no doubt that this proposal will decrease incentives to innovate in the payments space and leave consumers encumbered with fewer firms from which to choose a payment method—that decreases competition,” he said in March. 

What makes the outcome hard to foresee is that there are already a host of laws affecting this industry, outside the purview of the CFPB.

“Payments are already highly regulated, both at the state and federal level,” Wester said. “It’s not quite clear what the end state will be.”