Here’s one area where both large and small banks agree that the Consumer Financial Protection Bureau should flex its muscles: oversight of big technology companies and online payment platforms.
In recent comment letters, banking trade groups and industry lawyers were nearly unanimous in urging the CFPB to level the playing field with Big Tech platforms that offer similar services as traditional financial institutions but are not regulated in the same way.
"Similar to the examination and oversight authority prudential regulators have on the financial industry, regulators must play an equally active role in defining and identifying the risks big tech poses to consumers and businesses alike,” Steven Estep, assistant vice president of operational risk at the Independent Community Bankers of America, said in a letter to the bureau.
In October, CFPB Director Rohit Chopra ordered six of the largest tech firms — Amazon, Apple, Alphabet’s Google, Facebook. PayPal and Square — to
Some commenters also focused on the need for consumer protections to prevent users from suffering fraud-related losses. The agency's focus on big tech payment systems comes as the bureau is also working on a rulemaking to establish standards for sharing consumers' financial data.
Just as lawmakers have expressed their ire at the tech sector by calling CEOs before Congress, Chopra has given banks an outlet to air their concerns about encroaching competition.
”Technology companies wield great power and influence over the market with limited incentive to ethically manage consumer financial data,” Estep said.
The data-sharing rule is expected to be released to the public by April. Chopra said the comments will inform the rule, which is required under Section 1033 of the Dodd-Frank Act. The comments also will be used to inform policies developed by the Federal Reserve System on real-time payments.
"The CFPB’s inquiry is one of many efforts within the Federal Reserve System to plan for the future of real-time payments and to ensure a fair and competitive payments system in our country," Chopra said in a statement in October.
Community bankers want the CFPB to ensure all payments firms including data aggregators are subject to the data security and privacy standards of the Gramm-Leach-Bliley Act.
The biggest theme to emerge from the comment letters was the immediate need to hold payment platforms liable for fraud-related losses from peer-to-peer payments. Many consumers mistakenly believe that payment apps are subject to the same protections as credit cards.
“The Bureau should ensure potential consumer protections are applied consistently to all companies offering payments products and financial services, including big techs,” wrote Brian Fritzsche, assistant vice president and regulatory counsel at the Consumer Bankers Association, and Matthew Daigler, vice president and senior counsel at the American Bankers Association.
Some suggested the CFPB should clarify that payment providers and banks are both considered “financial institutions” under the Electronic Funds Transfer Act. The law, which is implemented by Regulation E, created protections for consumers on debit cards, electronic withdrawals and transfers.
Jared Ross, the former president of the League of Southeastern Credit Unions, said the group’s 321 members want the CFPB to amend Reg E to clarify what types of fraud are covered.
“There is growing concern among our member credit unions as to how to handle fraud that originates through these companies’ platforms and how credit unions should or should not interact with them,” Ross wrote.
“Traditional financial institutions know to what degree we have to do our part to prevent fraud and to reimburse our members when they are the victims of fraud," Ross continued. "It is possible that our Fintech counterparts do not have the same understanding and that these cases then get pushed off onto our member credit unions.”
Gail Hillebrand, who spent nine years as the CFPB’s former associate director for consumer education and engagement, said the bureau should create a new category under the EFTA for “fraudulent inducement,” to incentivize payment firms to crack down on scammers.
“The payments intermediary cannot escape its EFTA obligations simply because it is not a chartered financial institution,” she wrote.
She said the CFPB also should require quarterly reports about errors and fraud from payment providers, and monitor advertising claims by payment apps that contain phrases such as “safe,” “easy to use,” and “banking.”
Banks and payment providers should face enforcement actions for engaging in “unfair, deceptive and abusive acts and practices,” if they do not meet consumers’ expectations about payment safety and consumer protection, she added.
“Failure to engage in active fraud analysis and take preventative steps is or may be a UDAAP,” Hillebrand wrote.
Community bankers also want technology companies to be restricted from receiving
“Not only would a technology company in control of an ILC be able to dictate who receives loans, potentially cutting off access to credit to competitors, but they would dramatically change the competitive landscape of the U.S. economy as a whole, removing the neutrality traditional banks bring to the provision of credit,” Estep said.
