Apple, Google Likely Targets in Consumer Watchdog Payments Rule

A US financial regulator will soon have the chance to police big tech companies such as Apple Inc. and Alphabet Inc.’s Google for the role they play in the consumer payments market.

First, however, the Consumer Financial Protection Bureau must decide how to write a rule that captures the biggest nonbank players in the growing payments market, amid concerns about how the tech companies use consumer data and resolve payment disputes.

Observers say that companies including PayPal Holdings Inc.’s Venmo unit and Block Inc.’s Cash App service will almost certainly fall under the the CFPB’s forthcoming “larger participant” rule, which the agency listed in a regulatory agenda released this month.

But the CFPB could also rope in Apple, Google, and even Meta Platforms Inc.’s Facebook, all of which have made successful forays into consumer payments.

Given the skepticism that CFPB Director Rohit Chopra has shown about tech giants entering the payments market, it’s likely that the rule will bring those companies under the agency’s purview, said Todd Baker, a senior fellow at Columbia University’s Richard Paul Richman Center for Business, Law, and Public Policy.

“The growing businesses at Apple, Facebook, Walmart and Google, which increasingly compete with Venmo and Square, will likely be included in any definition,” he said.

The CFPB has the power under the Dodd-Frank Act to choose at least some of the companies that it regulates. The agency’s larger participant rules give it the authority to directly supervise the biggest players in any consumer finance market.

In its 12-year history, the CFPB has created such rules for the debt collection, consumer credit reporting, student loan servicing, and international remittance markets, among others.

The key to any larger participant rule is defining the market. Once that’s in place, the CFPB can determine the biggest players, usually using some combination of total customers and annual revenue, said Eamonn Moran, senior counsel at Norton Rose Fulbright US LLP and a former counsel in the CFPB’s Office of Regulations.

“That still doesn’t totally narrow down the types of payments company,” he said.

The agency will likely consider other factors for the payments rule, Baker said.

“One key question is whether the CFPB’s consumer payment definition will include nonbank payment providers with bank partnerships already regulated by prudential supervisors,” he said, referring to the Federal Reserve, the Federal Deposit Insurance Corp., and the Office of the Comptroller of the Currency.

The payments industry is taking a cautious approach to the CFPB’s efforts so far.

The Electronic Transactions Association “supports the concept of same activity, same risk, same regulatory outcome and we look forward to working with Director Chopra on a positive policy environment that encourages, not stifles, innovation,” Scott Talbott, the ETA’s senior vice president for government affairs, said in an email.

Payment Rails

Companies that are simply providing a rail for consumer payments to pass through, such as Apple Pay or Google Pay, may object to being included in a CFPB larger participant rule, said Adam Shapiro, a partner with the Klaros Group, a financial regulatory advisory firm.

“You could make an argument that there is a range of things that those companies are doing where their role is much more limited than the role of a Venmo, or a PayPal, or a Cash App,” he said.

Big tech businesses are likely to get caught up, however, in the digital wallets they provide to users. Those tools can store money and provide services that would be high on the CFPB’s agenda, said Chris Napier, the head of Mitchell Sandler LLC’s fintech practice.

Compliance Check

Once the CFPB determines which consumer payment companies will come under its direct supervision, agency examiners will be able to closely monitor them for compliance with Reg E, the operating rules for the Electronic Fund Transfer Act, as well as for unfair, deceptive, and abusive acts and practices (UDAAP) that potentially harm consumers.

The CFPB is likely to keep a close eye on how payment processors handle errors and fraud, Napier said.

“That’s where a lot of their concerns and questions lie, in terms of whether these guys are doing it correctly,” he said.

One area of concern that Chopra’s CFPB has consistently raised is the use of payments data by big tech companies.

Chopra called the entrance of big tech into finance “one of the most high stakes questions we have to confront as an industry, as regulators and as a public” in a July 2022 interview with Bloomberg Law.

One of the agency’s first actions after Chopra’s confirmation was to seek information from Google, Apple, Facebook, Amazon, PayPal and other tech businesses about how they use consumer data.

The CFPB isn’t a privacy regulator, so it’s unclear exactly what the agency is doing with the information. However, CFPB supervisors have the power to refer data privacy and security problems to other agencies, including the Federal Trade Commission.

The CFPB expects to issue a notice of proposed rulemaking for larger participants in the payments market before the end of the year.