The US consumer watchdog hands Wall Street a rare win with a Big Tech crackdown. By pushing down on extensive technology businesses that are rapidly intruding on banking territory, the United States consumer watchdog, which is not often known for siding with Wall Street bankers, has delivered them a rare gain.

The Consumer Financial Protection Bureau (CFPB) presented a proposal last week to regulate payments and smartphone wallets offered by industry giants in technology, such as Apple (AAPL.O) and Google (GOOGL.O). The agency argued that these services now compete with traditional banks’ offerings in scale and breadth and that they should be subject to the same consumer safeguards.

The long-anticipated move by CFPB Director Rohit Chopra, who has built his career on targeting Big Tech over privacy and competition issues, gives a competitive boost to lenders who are grappling with an onslaught of new rules, including capital hikes and caps on debit and credit card fees as well as stricter fair lending standards. Chopra’s career has been built on targeting Big Tech over privacy and competition issues.

“At this point, the attitude of the banking sector is comparable to that of a bunker. According to Todd Phillips, a professor at Georgia State University, “They are getting hit from a lot of different places.” “So when a regulator says, We are going to start treating your competition a lot like we treat you, that is good news.”

The regulation of financial services provided by big tech companies in the United States is disjointed. Businesses must apply for a money transmitter license in each state, subject to various agencies’ monitoring.

The CFPB’s proposed regulation would increase monitoring requirements and mandate compliance with its standards for privacy protections, executive conduct, and unfair and deceptive business practices by large tech companies.

According to the CFPB, the regulation would impact seventeen firms, including Apple, Google, PayPal (PYPL.O), and Block’s (SQ.N.) CashApp. These companies collectively processed around $1.7 trillion worth of payments in 2021. According to statistics provided by the Federal Reserve, all non-cash prices in 2021 were $128.51 trillion. This figure does not include the value of wire transfers, typically used for making significant payments.

Under its regulations governing foreign money transfers, the Consumer Financial Protection Bureau (CFPB) currently oversees PayPal and CashApp; however, Apple and Google would be subject to CFPB monitoring for the first time. Both Google and Apple did not reply to requests for comments after being allowed to do so.

“Silicon Valley is already a major part of the financial marketplace,” the Consumer Financial Protection Bureau (CFPB) stated. According to the agency, there would be more competition if significant technology businesses operating in the payments sector were subjected to the same level of monitoring as banks.

Although companies rely on banks to handle payments made using bank-issued credit and debit cards, some companies, like Apple, charge banks a fee for processing these transactions. The Consumer Financial Protection Bureau (CFPB) has voiced its worry that technology corporations may be monetizing user data at the expense of consumer privacy.

Extensive technology corporations have, by some metrics, surpassed regional and community banks regarding consumer confidence in digital payment methods, according to research by McKinsey that the CFPB has cited. Analysts believe that if not subject to regulatory scrutiny, these companies may exploit their rising dominance in the consumer payments market to acquire additional businesses such as lending and card issuance.

Concerned about this trend, the banking sector has pressured financial authorities to clamp down on digital giants. They have argued in public letters, blogs, and congressional testimony that these companies are putting customers’ privacy in danger.

They demanded that the Consumer Financial Protection Bureau identify “larger participants” in the nonbank market for consumer financial products and use the authority granted to it by the Dodd-Frank Act of 2010. The Bank Policy Institute, a Washington-based trade group, is one of the organizations supporting that fight.

“It’s just not necessarily always clear to your average consumer what the differences are between a regulated and insured bank and a totally unregulated tech company,” said Paige Pidano Paridon, senior associate general counsel at BPI. “It’s just not necessarily always clear to your average consumer what the differences are between a regulated and insured bank and a totally unregulated tech company.”

Banks, for instance, are required by law to declare their information-sharing activities to their customers, and they are subject to restrictions regarding the types of client data they are allowed to share with third parties.

“LEG UP,”
Representatives of Big Tech have accused the Consumer Financial Protection Bureau (CFPB) of attempting to protect conventional lenders.

Last Monday, the Chamber of Progress, a group of companies in the technology industry that includes Apple and Google as members, stated that the idea was “more about giving Wall Street a leg up” than safeguarding consumers. The CFPB did not answer a question about that assertion.

Chopra has also been critical of the procedures that banks use, and, among other things, she has focused on the fees that banks charge their customers.

Even though big tech companies have significant finances and lots of resources to deal with the increased scrutiny, the regulation might limit how they utilize customer data and how well they safeguard it.

Additionally, legal experts have stated that the CFPB possesses the apparent jurisdiction to oversee the payment companies of Big Tech, which suggests that the sector may not dispute the idea. The Consumer Financial Protection Bureau is now collecting opinions from the general public until early 2024.

According to John Coleman, a partner at Orrick, Herrington & Sutcliffe, “From the perspective of large technology companies, you might even prefer to be supervised because the agency is not going away.”