CBA Statement on CFPB’s Larger Participant Rule

Consumer Bankers Association (CBA) President and CEO Lindsey Johnson today released the following statement after the Consumer Financial Protection Bureau (CFPB) issued a larger participant rule regarding consumer digital payments.

“By bringing supervisory attention to large non-bank payment firms in line with expectations for banks offering similar products, the CFPB is taking 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. Congress created the CFPB to limit loopholes and opportunities for regulatory arbitrage, specifically by facilitating more consistent regulatory and supervisory treatment across all entities providing consumer financial products or services.”

Background

Under the Dodd-Frank Act, the CFPB has authority to supervise nonbank entities considered to be “a larger participant of a market for other consumer financial products or services.”  The CFPB has previously utilized this authority to issue rules allowing for CFPB supervision of “larger participant” nonbanks in the consumer reporting, consumer debt collection, student loan servicing, and international money transfers markets. By issuing a larger participant rule for fintech firms in the consumer payments market, the CFPB can oversee and supervise these nonbanks to ensure they comply with applicable law and consumers are protected. Over the past ten years, consumers have increasingly been using P2P companies such as Venmo to send and receive money and make online purchases. In 2021, about seventy six percent of Americans had used P2P payment platforms. In 2022, fifty three percent of individuals who used mobile payment apps are using them to pay for online purchases. What consumers might not be aware of is that these P2P companies are not protected or regulated in the same way as depository institutions and credit cards issuers are. A 2022 CBA survey found the vast majority of Americans (86%) are concerned that crypto and fintech firms are not held to the same federal regulatory standards as traditional banks. By a 2:1 margin, they also believe Congress and the CFPB need to do more to protect fintech users from harm and abuse. Despite offering financial products and services to consumers in numbers that rival some of the country’s largest supervised banks, nonbank consumer payment companies operate outside of the supervisory framework that allows the Bureau to monitor their activities and prevent consumer harm.  In a November 2022 report, the U.S. Department of the Treasury noted that “[n]ew entrant nonbank firms have a growing presence across core consumer finance markets and are increasingly managing the points through which consumers access financial products and services. This trend has been particularly acute in the markets for payments and consumer lending. The available data supports the view that while entering core consumer finance markets via a bank charter remains limited, fintech firms have been entering the market in increasing numbers. Over 1,200 fintech firms, focused on consumer deposits, lending, and payments, formed in the decade following the 2007-08 global financial crisis.”  Similarly, according to the New York Federal Reserve Bank, fintechs and other nonbanks now issue nearly three-quarters of all unsecured personal loans.

CBA Advocacy

• In August 2023, CBA published a blog urging the CFPB to bolster consumer protections in the digital payments market. You can read the blog HERE.
• In September 2022, CBA and the Center for Responsible Lending submitted a letter calling for a larger participant rule for personal consumer loans. You can read the letter HERE.
• In May 2022, CBA submitted a letter to the CFPB calling for increased oversight of fintech lenders. You can read the letter HERE.