Defining Larger Participants of a Market for General-Use Digital Consumer Payment Applications

<RULE> CONSUMER FINANCIAL PROTECTION BUREAU <CFR>12 CFR Part 1090</CFR> <DEPDOC>[Docket No. CFPB-2023-0053]</DEPDOC> <RIN>RIN 3170-AB17</RIN> <SUBJECT>Defining Larger Participants of a Market for General-Use Digital Consumer Payment Applications</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Consumer Financial Protection Bureau. <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Consumer Financial Protection Bureau (CFPB) issues this rule to define larger participants of a market for general-use digital consumer payment applications. Larger participants of this market will be subject to the CFPB's supervisory authority under the Consumer Financial Protection Act (CFPA). A nonbank covered person qualifies as a larger participant if it facilitates an annual covered consumer payment transaction volume of at least 50 million transactions as defined in the rule, and it is not a small business concern. </SUM> <DATES> <HD SOURCE="HED">DATES:</HD> This rule is effective January 9, 2025. </DATES> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> George Karithanom, Regulatory Implementation and Guidance Program Analyst, Office of Regulations, at 202-435-770. If you require this document in an alternative electronic format, please contact <E T="03">CFPB_Accessibility@cfpb.gov.</E> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Overview</HD> Section 1024 of the CFPA, <SU>1</SU> <FTREF/> codified at 12 U.S.C. 5514, gives the CFPB supervisory authority over all nonbank covered persons  <SU>2</SU> <FTREF/> offering or providing three enumerated types of consumer financial products or services: (1) Origination, brokerage, or servicing of consumer loans secured by real estate and related mortgage loan modification or foreclosure relief services; (2) private education loans; and (3) payday loans. <SU>3</SU> <FTREF/> The CFPB also has supervisory authority over “larger participant[s] of a market for other consumer financial products or services, as defined by rule[s]” the CFPB issues. <SU>4</SU> <FTREF/> In addition, the CFPB has the authority to supervise any nonbank covered person that it “has reasonable cause to determine by order, after notice to the covered person and a reasonable opportunity . . . to respond . . . is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services.”  <SU>5</SU> <FTREF/> <FTNT> <SU>1</SU>  Consumer Financial Protection Act of 2010, title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124 Stat. 1376, 1955 (2010) (hereinafter, “CFPA”). </FTNT> <FTNT> <SU>2</SU>  The provisions of 12 U.S.C. 5514 apply to certain categories of covered persons, described in section (a)(1), and expressly excludes from coverage persons described in 12 U.S.C. 5515(a) (very large insured depository institutions and credit unions and their affiliates) or 5516(a) (other insured depository institutions and credit unions). The term “covered person” means “(A) any person that engages in offering or providing a consumer financial product or service; and (B) any affiliate of a person described [in (A)] if such affiliate acts as a service provider to such person.” 12 U.S.C. 5481(6). </FTNT> <FTNT> <SU>3</SU>  12 U.S.C. 5514(a)(1)(A), (D), (E). </FTNT> <FTNT> <SU>4</SU>  12 U.S.C. 5514(a)(1)(B), (a)(2); <E T="03">see also</E> 12 U.S.C. 5481(5) (defining “consumer financial product or service”). </FTNT> <FTNT> <SU>5</SU>  12 U.S.C. 5514(a)(1)(C); <E T="03">see also</E> 12 CFR part 1091 (prescribing procedures for making determinations under 12 U.S.C. 5514(a)(1)(C)). In addition, the CFPB has supervisory authority over very large depository institutions and credit unions and their affiliates. 12 U.S.C. 5515(a). Furthermore, the CFPB has certain authorities relating to the supervision of other depository institutions and credit unions. 12 U.S.C. 5516(c)(1). One of the CFPB's objectives under the CFPA is to ensure that “Federal consumer financial law is enforced consistently, without regard to the status of a person as a depository institution, in order to promote fair competition[.]” 12 U.S.C. 5511(b)(4). </FTNT> This rule (the Final Rule) is the sixth in a series of CFPB rulemakings to define larger participants of markets for consumer financial products and services for purposes of CFPA section 1024(a)(1)(B). <SU>6</SU> <FTREF/> The Final Rule establishes the CFPB's supervisory authority over nonbank covered persons that are larger participants in a market for “general-use digital consumer payment applications.” In establishing the CFPB's supervisory authority over such persons, the Final Rule does not impose new substantive consumer protection requirements. In addition, some nonbank covered persons that would be subject to the CFPB's supervisory authority under the Final Rule also may be subject to other CFPB supervisory authorities, including for example under CFPA section 1024 as a larger participant in another market defined by a previous CFPB larger participant rule. Finally, regardless of whether they are subject to the CFPB's supervisory authority, nonbank covered persons generally are subject to the CFPB's regulatory and enforcement authority and to applicable Federal consumer financial law. <FTNT> <SU>6</SU>  The first five rules defined larger participants of markets for consumer reporting, 77 FR 42874 (July 20, 2012) (Consumer Reporting Rule), consumer debt collection, 77 FR 65775 (Oct. 31, 2012) (Consumer Debt Collection Rule), student loan servicing, 78 FR 73383 (Dec. 6, 2013) (Student Loan Servicing Rule), international money transfers, 79 FR 56631 (Sept. 23, 2014) (International Money Transfer Rule), and automobile financing, 80 FR 37496 (June 30, 2015) (Automobile Financing Rule). </FTNT> The market described in the Final Rule includes providers of funds transfer and payment wallet functionalities through digital payment applications for consumers' general use in making payments to other persons for personal, family, or household purposes. Examples include consumer financial products and services that are commonly described as “digital wallets,” “payment apps,” “funds transfer apps,” “peer-to-peer payment apps,” “person-to-person payment apps,” “P2P apps,” and the like. Providers of consumer financial products and services delivered through these digital applications help consumers to make a wide variety of consumer payment transactions, including payments to friends and family and payments for purchases of nonfinancial goods and services. The CFPB is authorized to supervise nonbank covered persons that are subject to CFPA section 1024(a) for purposes of (1) assessing compliance with Federal consumer financial law; (2) obtaining information about such persons' activities and compliance systems or procedures; and (3) detecting and assessing risks to consumers and consumer financial markets. <SU>7</SU> <FTREF/> The CFPB conducts examinations of various scopes of supervised entities. In addition, the CFPB may, as appropriate, request information from supervised entities prior to or without conducting examinations. <SU>8</SU> <FTREF/> Section 1090.103(d) of the CFPB's existing larger participant regulations also provides that the CFPB may require submission of certain records, documents, and other information for purposes of assessing whether a person qualifies as a larger participant of a market as defined by a CFPB larger participant rule. <SU>9</SU> <FTREF/> <FTNT> <SU>7</SU>  12 U.S.C. 5514(b)(1). The CFPB's supervisory authority also extends to service providers of those covered persons that are subject to supervision under 12 U.S.C. 5514(a)(1). 12 U.S.C. 5514(e); <E T="03">see also</E> 12 U.S.C. 5481(26) (defining “service provider”). </FTNT> <FTNT> <SU>8</SU>   <E T="03">See, e.g.,</E> 12 U.S.C. 5514(b)(1) (authorizing the CFPB both to “require reports and conduct examinations on a periodic basis” of nonbank covered persons subject to supervision). </FTNT> <FTNT> <SU>9</SU>  12 CFR 1090.103(d). </FTNT> Consistent with CFPA section 1024(b)(2), the CFPB has established and implemented a risk-based supervisory program that is designed to prioritize supervisory activity among nonbank covered persons subject to CFPA section 1024(a) on the basis of risk. <SU>10</SU> <FTREF/> The CFPB's prioritization process takes into account, among other factors, the size of each entity, the volume of its transactions involving consumer financial products or services, the size and risk presented by the market in which it is a participant, the extent of relevant State oversight, and any field and market information that the CFPB has on the entity. Specifically, as the CFPB Supervision and Examination Manual explains in greater detail, the CFPB evaluates risks to consumers at market-wide and the institution product line levels. At the market-wide level, the CFPB considers and compares risks to consumers across different types of products ( <E T="03">e.g.,</E> mortgage loans or debt collectors) along with the relative product market size in the overall consumer finance marketplace. At the institution product line level, the CFPB evaluates and compares risks across entities that, regardless of status as a nonbank or an insured depository institution or credit union, offer the same or similar products ( <E T="03">e.g.,</E> providers of mortgage loans). When evaluating risks across entities in an institution product line, the CFPB considers which entities have business models and market shares that pose greater risk of harm to consumers. The CFPB also places significant weight on “field and market intelligence,” which includes findings from pri ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 638k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━