/>iOn November 21, the CFPB announced the arrival of its finalized larger participant rule (the “Rule”) regulating nonbank companies offering digital funds transfer and payment wallet applications to consumers.
The Rule’s primary aim is to establish the CFPB’s supervisory authority over nonbank covered persons that are larger participants in a market for “general-use digital consumer payment applications,” pursuant to the powers granted to it under the federal Consumer Financial Protection Act (CFPA). See 12 U.S.C. 5514(a)(1)(B), (a)(2). The Bureau defines that market as encompassing companies that provide “a covered payment functionality through a digital application for consumers’ general use in making consumer payment transaction.” The comment to the Rule notes that this includes providers of funds transfer and payment wallet functionalities such as “digital wallets,” “payment apps,” “funds transfer apps,” “peer-to-peer payment apps,” “person-to-person payment apps,” and “P2P apps.”
Under the Rule, a nonbank covered person is subject to the Bureau’s supervisory authority if it conducts more than $50 million consumer payment transactions annually. This transaction threshold is a significant increase from the proposed version of the rule, which had a $5 million threshold.
Also, and possibly in response to the evolving market for digital assets, the CFPB restricted the Rule’s scope to include only transactions conducted in U.S. dollars. In its comments, the Bureau stated that “[t]he Final Rule limits the definition of ‘annual covered consumer payment transaction volume’ to transactions denominated in U.S. dollars. With this clarification, and a corresponding edit to paragraph (b)(3)(i), the larger-participant test in this Final Rule excludes transfers of digital assets — including crypto-assets such as Bitcoin and stablecoins.”
The Rule is effective 30 days after publication in the Federal Register.
Putting It Into Practice: The Rule marks the most recent development in regulators’ push to enhance oversight of the digital payments environment. The CFPB also recently released a report highlighting the risks that storing funds in digital payment apps poses to consumers (previously discussed here). Companies that qualify as larger participants in the digital consumer payment app market would be wise to spend some time preparing for the CFPB’s impending oversight. However, with a change in administration on the horizon, it will be interesting to see, what, if any changes are made to the Rule next year.
