A smartphone with the PayPal logo is placed on top of a laptop in this illustration taken July 14, 2021. REUTERS/Dado Ruvic/Illustration/File Photo Acquire Licensing Rights
WASHINGTON, Nov 7 (Reuters) – The top U.S. consumer financial watchdog on Tuesday proposed regulating tech giants’ digital payments and smartphone wallet services, saying they compete with traditional payment methods in scale and reach, but their lack of safety precautions for users.
The proposal by the Consumer Financial Protection Bureau (CFPB) would subject companies such as Alphabet ( GOOGL.O ), Apple ( AAPL.O ), PayPal ( PYPL.O ) and Block’s CashApp ( SQ.N ) to banking oversight, with CFPB examiners verifying their privacy protection, executive conduct and compliance with laws prohibiting unfair and deceptive practices.
If finalized, the proposal would cover about 17 companies that together send more than 13 billion payments annually, according to a CFPB official. The agency declined to name the other platforms that would be covered beyond GooglePay, ApplePay, PayPal and CashApp.
Apple, PayPal and CashApp did not immediately respond to a request for comment. Google declined to comment.
The proposal marks a long-awaited and ambitious move by CFPB Director Rohit Chopra to assert the agency’s full authority over Big Tech, a sector he has often criticized for privacy and competition issues.
Since becoming director in 2021, Chopra has steadily stepped up the CFPB’s scrutiny of the sector, seeking information in 2021 about how big tech companies use consumer data and last year launching an investigation into their payment platforms.
In a statement on Tuesday, Chopra said the technology sector has expanded into financial services traditionally provided by the tightly regulated banking sector.
“Today’s rule would limit one avenue for regulatory arbitrage by ensuring that large technology firms and other non-bank payments companies are subject to appropriate oversight,” he said.
In a speech last month, Chopra said the CFPB’s investigation found that tech giants were collecting vast amounts of consumer payment data with few restrictions, scant transparency and confusing corporate policies, putting consumers at risk of China-style surveillance by companies.
Speaking about Tuesday’s proposal, senior CFPB officials said it was imperative to look at privacy compliance at these larger firms with a wealth of consumer data, noting that many of their business models focus on monetizing that data.
Representatives of major technology companies have previously emphasized their efforts to protect user data.
Tuesday’s proposal will apply to companies processing more than five million transactions a year. The agency said the rule would also promote competition by ensuring that both traditional financial players and the technology sector are equally subject to the same oversight.
In a statement, the Consumer Bankers Association called the proposal “a step in the right direction.”
“For a healthy, innovative and competitive financial services ecosystem to function, consumers need to know they are protected equally no matter who they do business with to meet their financial needs,” said CBA President and CEO Lindsay Johnson.
The Electronic Transactions Association, which represents banks, financial technology and major technology companies, said in a statement that it wanted to “ensure that the proposal achieves the goals of consumer protection and consistent application of public policy for all players.”
The proposal is now subject to a notice and comment period expected to end in early 2024.
Reporting by Douglas Gillison and Hannah Lang in Washington; Additional reporting by Chris Prentice in New York; Editing by Matthew Lewis, Mark Potter and David Gregorio
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