Former regulators say CFPB is ‘no longer sleeping’ on payments

For years, there were usually less than a handful of cases at the Consumer Financial Protection Bureau that involved payments. That is rapidly becoming a thing of the past.

CFPB director Rohit Chopra has made payments a top priority, and is looking closely at impacts on competition and the impact of rapid payments innovation on consumers, according to Thomas Ward, a partner at Sidley Austin in Washington, D.C., and a former CFPB enforcement director between  February 2021 and May 2021. 

“Payments has always been a sleepy space at the bureau,” said Ward during a panel at American Banker’s Payments Forum in Phoenix this week, noting the Biden Administration and CFPB are taking a more active approach as technology companies that provide payments become larger.

Almost immediately after becoming CFPB chief in October 2021, Chopra warned about the growing influence of large technology firms on financial services. The CFPB also ordered firms including Google, Apple, Amazon, Block (Square), Meta (Facebook) and PayPal to turn over information about their products, plans and practices related to payments. “Payments businesses are network businesses and can gain tremendous scale and market power,” the CFPB’s order said.

The technology companies mentioned in the CFPB order are leading the trend toward financial “super apps,” which use stored payment credentials to offer a broader set of financial services. These firms are not regulated at the same level as banks, and their moves to pair payments with other services often raise privacy concerns from regulators and elected officials. The Facebook-affiliated stablecoin Diem, for example, was subject to nearly constant regulatory pressure for more than two years before Diem sold its assets to Silvergate Bank, which still plans to issue the stablecoin. 

Regulators also frequently scrutinize Apple’s payment policies, which require developers to use Apple’s internal payment system, along with fees of up to 30% for developers on its platform. Apple also controls access to the secure element on the iPhone for contactless payments. 

Apple has faced lawsuits over these policies, as well as antitrust investigations in a number of countries. Most recently, the European Union stepped up its investigation of Apple, accusing Apple of “abusing its dominant position” by limiting access to the secure element.      

The CFPB is also investigating fintechs that offer buy now/pay later lending, ordering Affirm, Afterpay, Klarna, PayPal and Zip to provide information that will allow the CFPB to assess the impact of their products on consumer debt.  

“The bureau is concerned there is a payments market that’s growing outside of its purview,” Ward said. “Payments regulators are no longer sleeping.” 

What’s particularly interesting, according to Ward, is the CFPB mentioned two Chinese payment apps, Alipay and WeChat Pay, saying the apps are “deeply embedded” into the lives of Chinese citizens, covering payments, messaging and e-commerce. This mix of products and scale give little choice to consumers but to use the two apps. 

“The CFPB is concerned the same sort of thing may happen here in the U.S.,” Ward said.

Russia’s invasion of Ukraine has also created new compliance challenges for financial services and payment providers. Hundreds of banks and payment firms have discontinued operations in Russia in the months since the war began, and there is increasing pressure on banks to ensure they are adhering to U.S. policy, which includes rules against doing business with sanctioned parties in Russia.

“Sanctions enforcement is now more of a priority for the government,” said Sujit Raman, general counsel of TRM labs, which supports risk management and compliance for financial institutions and cryptocurrency businesses. 

Raman, a former U.S. Associate Deputy Attorney General at the Justice Department, said the department has formed two task forces to make sure payment companies ensure their gateways are not being accessed by sanctioned entities.  

“They are encouraging an awareness of who is transacting or who is getting paid,” Raman said. 

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