CFPB Expands Oversight to Large Digital Payment Providers

The Case

On Thursday, November 21, 2024, the Consumer Financial Protection Bureau (CFPB) published a final rule that will soon give it supervisory authority over large companies in the general-use digital consumer payment applications market. This rule will become effective 30 days after it is published in the Federal Register and will subject large participants in the digital payments market to periodic examination by the CFPB to assess whether the entity is complying with existing federal consumer financial laws. 

To be a larger participant under the rule and thus subject to the CFPB’s new authority, an entity (1) must have an annual volume of more than 50 million consumer payment transactions and (2) must not be a small business concern as defined by the Small Business Administration. The 50 million transaction threshold is a significant increase from the initial proposed rule, which contemplated a five million transaction threshold.

Regulatory Implications

The CFPB’s final rule significantly broadens its supervisory reach to nonbank financial entities in the digital payments sector. By aligning digital payment providers with the oversight applied to banks and credit unions, the CFPB aims to enhance consumer protection in this rapidly growing market. Key implications include:

Routine Examinations:

Large digital payment providers processing over 50 million transactions annually will now undergo periodic examinations. These reviews will assess adherence to federal consumer financial laws, such as the Electronic Funds Transfer Act and rules prohibiting unfair, deceptive, or abusive acts or practices (UDAAP).

Focus on Compliance Systems:

Although the rule does not introduce new substantive requirements, it highlights the need for robust compliance management systems (CMS). The CFPB will scrutinize whether firms have documented policies and controls to manage regulatory obligations effectively.

Resource and Operational Impact:

For many nonbank entities unfamiliar with CFPB supervision, the examination process may demand substantial time and resources. Initial examinations often reveal areas needing improvement, requiring firms to allocate resources for necessary adjustments and enhancements.

This final rule signals the CFPB’s broader intent to apply consistent regulatory standards across financial markets, emphasizing consumer protection in the rapidly growing digital payments industry.

Practical Guidance for Firms

Companies qualifying as “larger participants” under this rule must take proactive steps to prepare for CFPB supervision:

1. Evaluate current compliance frameworks to identify vulnerabilities related to federal consumer financial laws and regulations.

2. Implement a structured and documented CMS that addresses regulatory obligations, risk management practices, and operational controls.

3. Organize mock examinations to simulate the CFPB review process, helping teams identify weaknesses and refine their responses.

4. Provide training on CFPB expectations, focusing on compliance processes, recordkeeping, and UDAAP requirements.

5. Maintain detailed documentation of policies, procedures, and compliance activities to facilitate transparency during examinations.

InnReg helps digital payment providers navigate new regulatory expectations by performing risk assessments, developing compliance management systems, and facilitating mock CFPB examinations. Our tailored approach supports companies in building resilient compliance programs and reducing disruptions during supervisory oversight.