CFPB Adopts Rule Establishing Oversight on Large Digital Payment Applications
Commentary by Gage Raju-Salicki
The CFPB issued a final rule establishing supervisory authority over "larger participant" nonbanks that offer "general-use digital consumer payment applications."
The CFPB stated that the final rule defines the market as including providers of digital applications offering funds transfer and payment wallet functionalities for general consumer use in personal, family, or household payments. Examples include "digital wallets," "payment apps," "peer-to-peer (P2P) apps" and similar services.
Under the rule, a nonbank will be subject to CFPB supervision if it (i) facilitates at least 50 million consumer payment transactions annually through general-use digital payment applications and (ii) is not a "small business concern" as defined by the Small Business Administration's size standards.
The CFPB asserted that it derives authority to regulate these entities under 12 U.S.C. 5514 ("Supervision of nondepository covered persons") which grants the Bureau supervisory powers over "larger participant[s] of a market for consumer financial products or services."
The rule is set to go into effect 30 days after publication in the Federal Register.
Commentary
The CFPB's final rule does not apply to digital assets. That is a significant victory for the crypto industry.
As to digital assets and crypto wallets, the final rule represents a total reversal from the proposed rule. In the proposed rule, the CFPB explained that the defined term "funds" would "not be limited to fiat currency or legal tender" but would include "digital assets . . . [such as] crypto-assets[.]" In the release adopting the final rule, the CFPB stated: "[a]fter considering comments on the inclusion of certain digital assets transactions in the proposed definition of 'consumer payment transaction,' the CFPB has decided, for purposes of this Final Rule, to exclude such transactions from coverage under the Rule." The CFPB cautioned that it would "continue to gather data and information regarding the nature of such transactions[.]"
This development raises a number of questions: what should be done with respect to crypto and Regulation E ("Electronic Fund Transfers")? Will there be a distinction made between custodial and self-hosted wallets? What will future CFPB rulemaking look like with respect to crypto?