CFPB seeks to supervise Big Tech firms under larger participant rule

Samuel Corum/Bloomberg

Giant nonbank payment companies Apple, Google, PayPal and others face the prospect of being examined and supervised as early as next year by the Consumer Financial Protection Bureau.

This week the CFPB released its spring rulemaking agenda that lists significant rules it plans to issue including one new item: a larger participant rule to examine consumer payment markets. The rule will allow the CFPB to conduct oversight of Big Tech companies and potentially test its authority by specifically determining how companies monetize data that may unfairly impact consumers. 

"The CFPB has the authority over these systems but we don't know how the technology companies will push back," said Ed Groshans, senior policy and research analyst at Compass Point Research & Trading. "I don't think any of the large technology companies are going to be pleased, but they are involved in fintech and this is part-and-parcel of being in that land."

Under the Dodd-Frank Act, the CFPB can designate so-called "larger participants," in a specific market, allowing the agency to conduct supervisory exams and test for compliance with federal consumer protection laws. The rule will set specific parameters defining which entities the agency will have authority over. The bureau's agenda lists the rule as coming out in spring 2023. Currently most technology and payments companies are licensed by states as money transmitters.

CFPB Director Rohit Chopra has repeatedly warned about the expanding reach of large technology companies and how they have infiltrated the financial sector. Chopra previously served as a member of the Federal Trade Commission in the Trump administration and in that role he frequently lambasted tech companies for using their size and market power to undermine fair competition. He has said that consumers know little about how large technology companies are using consumer data in their payments platforms.

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In late 2021, Chopra ordered six major firms — Amazon, Apple, Alphabet's Google, Facebook, PayPal and Square — to turn over information on their payments systems. The CFPB asked for detailed information on payment products and services and the use of personal payments data. The agency asked the companies to respond to a series of questions including whether payment data is being shared with data brokers and other third parties. The CFPB has not issued a report from that order on its findings. 

Some experts suggest the CFPB will use its examination authority to determine if Big Tech firms are engaging in "unfair, deceptive and abusive acts and practices," that are prohibited by federal law. 

Last year, bank trade groups asked the CFPB to issue a larger participant rule over data aggregators, arguing that the explosive growth of aggregation services has created more risks for consumers — particularly to data privacy and security — which could result in uneven enforcement.

The CFPB already has authority over payments under the Electronic Fund Transfer Act. Under Dodd-Frank, the CFPB was given the authority to supervise nonbanks in the mortgage, private student loan and payday loan industries. The bureau has also issued larger participant rules for consumer reporting, debt collection, student loan servicing and remittances.