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Bates Research  |  11-21-23

Consumer Compliance Alert: CFPB Proposes New Rule Covering Digital Payment Apps

Image © [momius] /Adobe Stock

The Consumer Financial Protection Bureau (CFPB) has recently proposed a new rule to define the market for general-use digital consumer payment applications. The proposed market would cover providers of funds transfer and wallet functionalities through digital applications for consumers’ general use in making person-to-person payments for personal, family, or household purposes. Larger participants of this market would be subject to the CFPB’s supervisory authority under the Consumer Financial Protection Act (CFPA).

Under the proposed rule, the CFPB would establish a framework for regulating digital payment applications that are not issued by banks or credit unions. These "general-use" payment apps are those that facilitate transactions between consumers and merchants, such as mobile payment apps like PayPal and Venmo. The rule would require these apps to provide consumers with clear and concise information about fees, security measures, and other important details.

One of the key objectives of the new rule is to address the potential risks of using digital payment apps, such as unauthorized transactions, data breaches, and other security issues. The CFPB believes that the lack of regulation in the digital payments market has contributed to these risks, and that the proposed rule will help to mitigate them.

The proposed rule would also require digital payment app providers to conduct periodic risk assessments and implement appropriate risk management measures. This would help to ensure that these apps are able to detect and prevent fraud, as well as protect sensitive consumer data from unauthorized access.

Overall, the proposed rule demonstrates the CFPB's commitment to promoting consumer protection in the digital payments industry. By establishing clear and consistent standards for digital payment app providers, the CFPB hopes to ensure that consumers can make informed decisions about which apps to use, and that their personal and financial information is kept safe and secure.

While the proposed rule is still in the early stages of development, it has already garnered support from a range of stakeholders, including consumer advocacy groups, industry associations, and lawmakers. If implemented, the rule would represent a major step forward in the regulation of the digital payments market, and could have far-reaching implications for the industry as a whole.

As discussed in our recent article, the CFPB engages in rigorous examinations of financial institutions to ensure that they follow all applicable laws and regulations, have effective compliance management systems in place, and provide meaningful consumer protections. 

Examinations help the CFPB assess whether a company complies with consumer financial protection laws and regulations. During an examination, CFPB examiners review company policies and procedures to ensure they meet legal requirements, evaluate the effectiveness of the company’s compliance management system, and assess how well the company is meeting its obligation to protect consumers. Examiners also communicate directly with consumers to understand how products and services are performing in the marketplace. By performing a consumer protection review, businesses can be assured they are compliant with all applicable laws and regulations.

How Bates Helps:

When it comes to safeguarding consumers, Bates Group is a leader in providing comprehensive consumer protection reviews. Our team of industry experts and former state and federal regulators helps companies understand the applicable laws and regulations and how to stay compliant in today’s complex environment.

Bates Group offers independent consumer compliance reviews to evaluate compliance processes and procedures, identify areas where there may be gaps or opportunities for improvement, and develop strategies for compliance. Bates has also helped many organizations comply with CFPB guidelines by providing “readiness” reviews before a CFPB examination.

To book your consumer compliance readiness review and independent consumer compliance review, please contact Bates today.


Consumer Compliance Alert: CFPB Proposes New Rule Covering Digital Payment Apps

Brandi Reynolds

Managing Director, BSA/AML Compliance, FinTech & Virtual Assets