Apple’s Digital Wallets: One Step Closer to Regulation?

Under a newly proposed rule, nonbank companies such as Meta Platforms Inc., Apple Inc., and Alphabet Inc., which provide digital wallets and payment apps, would be subject to the supervision of the US Consumer Financial Protection Bureau. This rule intends to bring these nonbanks closer to the regulatory standards applied to traditional financial institutions.

Firms that process more than 5 million transactions a year will be regulated like banks, credit unions and other financial institutions that are already under CFPB oversight, the agency said in a statement Tuesday. CFPB investigators would be able to monitor payment apps for compliance with federal money transmission and unfair, deceptive or abusive laws if the rule is finalized. The agency can already intervene if non-banks are operating illegally, but it cannot regularly supervise their activities under current rules.

“Today’s rule would stifle one avenue of regulatory arbitrage by ensuring that large technology companies and other non-bank payments companies are subject to appropriate oversight,” CFPB Director Rohit Chopra said in a statement.

The use of digital payments to store and send money — services such as PayPal Holdings Inc.’s Venmo and Block Inc.’s Cash App — have become more common in recent years as consumers use their phones and other electronic devices to get things done. Banks have largely facilitated these services in the past, but technology companies have now stepped in, according to the CFPB, and safeguards consumers usually take for granted, including deposit insurance, may not be in place.

The CFPB does not have jurisdiction over deposit protections, so it would not be able to enforce these types of protections even if additional oversight is approved, but the agency would be able to tell if companies are making false claims.

The proposal is aimed directly at Apple Pay and Google Pay. The CFPB already oversees PayPal and Block, so the agency is likely to have at least some visibility into the operations of Venmo and Cash App.

The CFPB estimates that the proposed rule would cover 17 companies representing 88 percent of all digital payments each year. The agency estimates that those companies processed about 13 billion transactions, equivalent to $1.7 trillion in payments in 2021.

The CFPB is already investigating Venmo’s error resolution processes, PayPal said in a Nov. 2 regulatory filing. The company announced that it would cooperate with the investigation.

Under Chopra, the CFPB has been looking at big tech companies’ access to consumer payments and other financial services. Chopra’s first task as director in October 2021 was to demand from Apple, Google, Amazon Inc. and other major technology companies information about their payment activities.

In September, the CFPB warned Apple about its policy of requiring iPhone users to make all payments through Apple Pay instead of allowing direct integration with apps like Venmo. Google’s Android operating system, on the other hand, allows competitors to offer alternatives to Google Pay.

Comments on the regulator’s proposal are due by January 8 or 30 days after the proposed regulation is published.

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