[Federal Register Volume 88, Number 221 (Friday, November 17, 2023)]
[Proposed Rules]
[Pages 80197-80216]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-24978]
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CONSUMER FINANCIAL PROTECTION BUREAU
12 CFR Part 1090
[Docket No. CFPB-2023-0053]
RIN 3170-AB17
Defining Larger Participants of a Market for General-Use Digital
Consumer Payment Applications
AGENCY: Consumer Financial Protection Bureau.
ACTION: Proposed rule; request for public comment.
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SUMMARY: The Consumer Financial Protection Bureau (CFPB) proposes a
rule to define a market for general-use digital consumer payment
applications. The proposed market would cover providers of funds
transfer and wallet functionalities through digital applications for
consumers' general use in making payments to other persons for
personal, family, or household purposes. Larger participants of this
market would be subject to the CFPB's supervisory authority under the
Consumer Financial Protection Act (CFPA).
DATES: Comments should be received on or before January 8, 2024.
ADDRESSES: You may submit comments, identified by Docket No. CFPB-2023-
0053 or RIN 3170-AB17, by any of the following methods:
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments. A brief summary of
this document will be available at https://www.regulations.gov/docket/CFPB-2023-0053.
Email: [email protected]. Include Docket No.
CFPB-2023-0053 or RIN 3170-AB17 in the subject line of the message.
Mail/Hand Delivery/Courier: Comment Intake--LP Payment
Apps Rulemaking, Consumer Financial Protection Bureau, c/o Legal
Division Docket Manager, 1700 G Street NW, Washington, DC 20552.
Because paper mail in the Washington, DC area and at the CFPB is
subject to delay, commenters are encouraged to submit comments
electronically.
Instructions: The CFPB encourages the early submission of comments.
All submissions should include the agency name and docket number or
Regulatory Information Number (RIN) for this rulemaking. In general,
all comments received will be posted without change to https://www.regulations.gov.
All comments, including attachments and other supporting materials,
will become part of the public record and are subject to public
disclosure. Proprietary information or sensitive personal information,
such as account numbers or Social Security numbers, or names of other
individuals, should not be included. Comments will not be edited to
remove any identifying or contact information.
FOR FURTHER INFORMATION CONTACT: Christopher Young, Deputy Assistant
Director, and Owen Bonheimer, Senior Counsel, Office of Supervision
Policy, at 202-435-7700. If you require this document in an alternative
electronic format, please contact [email protected].
SUPPLEMENTARY INFORMATION:
I. Overview
Section 1024 of the CFPA,\1\ codified at 12 U.S.C. 5514, gives the
CFPB supervisory authority over all nonbank covered persons \2\
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.\3\ The CFPB also has supervisory authority
over ``larger participant[s] of a market for other consumer financial
products or services,'' as the CFPB defines by rule.\4\ 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
[[Page 80198]]
conduct that poses risks to consumers with regard to the offering or
provision of consumer financial products or services.'' \5\
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\1\ 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'').
\2\ 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) or
5516(a). 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).
\3\ 12 U.S.C. 5514(a)(1)(A), (D), (E).
\4\ 12 U.S.C. 5514(a)(1)(B), (a)(2); see also 12 U.S.C. 5481(5)
(defining ``consumer financial product or service'').
\5\ 12 U.S.C. 5514(a)(1)(C); see also 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 mandates 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).
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This proposed rule (the Proposed Rule) would be a 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).\6\ The Proposed Rule would establish the CFPB's
supervisory authority over certain nonbank covered persons
participating in a market for ``general-use digital consumer payment
applications.'' \7\ In establishing the CFPB's supervisory authority
over such persons, the Proposed Rule would not impose new substantive
consumer protection requirements or alter the scope of the CFPB's other
authorities. In addition, some nonbank covered persons that would be
subject to the CFPB's supervisory authority under the Proposed Rule
also may be subject to other CFPB supervisory authorities under CFPA
section 1024, including, for example, 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.
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\6\ 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).
\7\ As the CFPB noted in its first larger participant rule
covering the consumer reporting market, the CFPB's supervisory
authority ``is not limited to the products or services that
qualified the person for supervision, but also includes other
activities of such a person that involve other consumer financial
products or services or are subject to Federal consumer financial
law.'' 77 FR 42874, 42880 (July 20, 2012), cited by Larger
Participant Debt Collection Rule, 77 FR 65775, 65776 n.15 (Oct. 31,
2012). For example, selling, providing, or issuing of stored value
or payment instruments is associated with the activity that falls
within the proposed market definition, and may constitute a consumer
financial product or service that the CFPB may supervise when
examining a larger participant of the proposed market.
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The proposed market would include providers of funds transfer and
wallet functionalities through digital applications for consumers'
general use in making payments to other persons for personal, family,
or household purposes. Examples include many consumer financial
products and services that are commonly described as ``digital
wallets,'' ``payment apps,'' ``funds transfer 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 subject
to CFPA section 1024 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.\8\ 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.\9\ Section 1090.103(d) of the CFPB's existing larger
participant regulations provides that the CFPB may require submission
of certain records, documents, and other information for purposes of
assessing whether a person is a larger participant of a covered
market.\10\
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\8\ 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); see also 12 U.S.C. 5481(26) (defining ``service
provider'').
\9\ See 12 U.S.C. 5514(b) (authorizing the CFPB both to conduct
examinations and to require reports from entities subject to
supervision).
\10\ 12 CFR 1090.103(d).
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The CFPB prioritizes supervisory activity among nonbank covered
persons on the basis of risk, taking 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.\11\ Such field and market information can include, for
example, information from complaints and any other information the CFPB
has about risks to consumers and to markets posed by a particular
entity.
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\11\ For further description of the CFPB's supervisory
prioritization process, see CFPB Supervision and Examination Manual
(updated September 2023), part I.A at 11-12, available at https://www.consumerfinance.gov/compliance/supervision-examinations/ (last
visited Oct. 27, 2023).
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The specifics of how an examination takes place vary by market and
entity. However, the examination process generally proceeds as follows.
CFPB examiners contact the entity for an initial conference with
management and often request records and other information. CFPB
examiners ordinarily also review the components of the supervised
entity's compliance management system. Based on these discussions and a
preliminary review of the information received, examiners determine the
scope of an on-site or remote examination and then coordinate with the
entity to initiate this portion of the examination. While on-site or
working remotely, examiners spend some time discussing with management
the entity's compliance policies, processes, and procedures; reviewing
documents and records; testing transactions and accounts for
compliance; and evaluating the entity's compliance management system.
Examinations may involve issuing confidential examination reports,
supervisory letters, and compliance ratings. In addition to the process
described above, the CFPB also may conduct other supervisory
activities, such as periodic monitoring.\12\
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\12\ The CFPB is aware that States have been active in
regulation of money transmission by money services businesses and
that many States actively examine money transmitters. If the CFPB
adopts the Proposed Rule, the CFPB would coordinate with appropriate
State regulatory authorities in examining larger participants.
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II. Summary of the Proposed Rule
The CFPB is authorized to define larger participants in markets for
consumer financial products or services. Subpart A of the CFPB's
existing larger-participant rule, 12 CFR part 1090, prescribed
procedures, definitions, standards, and protocols that apply for all
markets in which the CFPB defines larger participants.\13\ Those
generally-applicable provisions also would apply to the general-use
digital consumer payment application market described by the Proposed
Rule. The definitions in Sec. 1090.101 should be used to interpret
terms in the Proposed Rule unless otherwise specified.
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\13\ 12 CFR 1090.100 through 103.
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The CFPB includes relevant market descriptions and associated
larger-participant tests, as it develops them, in
[[Page 80199]]
subpart B.\14\ Accordingly, the Proposed Rule defining larger
participants of a market for general-use digital consumer payment
applications would become Sec. 1090.109 in subpart B.
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\14\ 12 CFR 1090.104 (consumer reporting market); 12 CFR
1090.105 (consumer debt collection market); 12 CFR 1090.106 (student
loan servicing market); 12 CFR 1090.107 (international money
transfer market); 12 CFR 1090.108 (automobile financing market).
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The Proposed Rule would define a market for general-use digital
consumer payment applications that would cover specific activities. The
proposed market definition generally includes nonbank covered persons
that provide funds transfer or wallet functionalities through a digital
application for consumers' general use in making consumer payments
transactions as defined in the Proposed Rule. The Proposed Rule defines
``consumer payment transactions'' to include payments to other persons
for personal, household, or family purposes, excluding certain
transactions as described in more detail in the section-by-section
analysis in part IV below. The Proposed Rule also provides specific
examples of digital payment applications that do not fall within the
proposed market definition because they do not have general use for
purposes of the Proposed Rule.
The Proposed Rule would set forth a test to determine whether a
nonbank covered person is a larger participant of the general-use
digital consumer payment applications market. A nonbank covered person
would be a larger participant if it satisfies two criteria. First, the
nonbank covered person (together with its affiliated companies) must
provide general-use digital consumer payment applications with an
annual volume of at least five million consumer payment transactions.
Second, the nonbank covered person must not be a small business concern
based on the applicable Small Business Administration (SBA) size
standard. As prescribed by existing Sec. 1090.102, any nonbank covered
person that qualifies as a larger participant would remain a larger
participant until two years from the first day of the tax year in which
the person last met the larger-participant test.\15\
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\15\ 12 CFR 1090.102.
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As noted above, Sec. 1090.103(d) of the CFPB's existing larger
participant regulation provides that the CFPB may require submission of
certain records, documents, and other information for purposes of
assessing whether a person is a larger participant of a covered
market.\16\ This authority would be available to facilitate the CFPB's
identification of larger participants of the general-use digital
consumer payment applications market, just as in other markets defined
in subpart B. In addition, pursuant to existing Sec. 1090.103(a), a
person would be able to dispute whether it qualifies as a larger
participant in the general-use digital payment applications market. The
CFPB would notify an entity when the CFPB intended to undertake
supervisory activity; the entity would then have an opportunity to
submit documentary evidence and written arguments in support of its
claim that it was not a larger participant.\17\
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\16\ 12 CFR 1090.103(d).
\17\ 12 CFR 1090.103(a).
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The CFPB invites comment on all aspects of this notice of proposed
rulemaking and on the specific issues on which it solicits comment
elsewhere herein, including on any appropriate modifications or
exceptions to the Proposed Rule.
III. Legal Authority and Procedural Matters
A. Rulemaking Authority
The CFPB is issuing the Proposed Rule pursuant to its authority
under the CFPA, as follows: (1) sections 1024(a)(1)(B) and (a)(2),
which authorize the CFPB to supervise nonbanks that are larger
participants of markets for consumers financial products or services,
as defined by rule; \18\ (2) section 1024(b)(7), which, among other
things, authorizes the CFPB to prescribe rules to facilitate the
supervision of covered persons under section 1024; \19\ and (3) section
1022(b)(1), which grants the CFPB the authority to prescribe rules as
may be necessary or appropriate to enable the CFPB to administer and
carry out the purposes and objectives of Federal consumer financial
law, and to prevent evasions of such law.\20\
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\18\ 12 U.S.C. 5514(a)(1)(B), (a)(2).
\19\ 12 U.S.C. 5514(b)(7).
\20\ 12 U.S.C. 5512(b)(1).
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B. Consultation With Other Agencies
In developing the Proposed Rule, the CFPB has consulted with or
provided an opportunity for consultation and input to the Federal Trade
Commission (FTC), as well as with the Board of Governors of the Federal
Reserve System, the Commodity Futures Trading Commission, the Federal
Deposit Insurance Corporation, the Financial Crimes Enforcement
Network, the National Credit Union Administration, the Office of the
Comptroller of the Currency, and the Securities and Exchange
Commission, on, among other things, consistency with any prudential,
market, or systemic objectives administered by such agencies.\21\
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\21\ Specifically, 12 U.S.C. 5514(a)(2) directs the CFPB to
consult, prior to issuing a final rule to define larger participants
of a market pursuant to CFPA section 1024(a)(1)(B), with the FTC. In
addition, 12 U.S.C. 5512(b)(2)(B) directs the CFPB to consult,
before and during the rulemaking, with appropriate prudential
regulators or other Federal agencies, regarding consistency with
objectives those agencies administer. The manner and extent to which
provisions of 12 U.S.C. 5512(b)(2) apply to a rulemaking of this
kind that does not establish standards of conduct are unclear.
Nevertheless, to inform this rulemaking more fully, the CFPB
performed the consultations described in those provisions of the
CFPA.
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C. Proposed Effective Date of Final Rule
The Administrative Procedure Act generally requires that rules be
published not less than 30 days before their effective dates.\22\ The
CFPB proposes that, once issued, the final rule for this proposal would
be effective 30 days after it is published in the Federal Register.
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\22\ 5 U.S.C. 553(d).
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IV. Section-by-Section Analysis
Part 1090
Subpart B--Markets
Section 1090.109 General-Use Digital Consumer Payment Applications
Market
The Proposed Rule would add a new Sec. 1090.109 to existing
subpart B of part 1090 of the CFPB's rules to establish CFPB
supervisory authority over nonbank covered persons who are larger
participants in a market for general-use digital consumer payment
applications.\23\ Proposed Sec. 1090.109 includes the proposed market
definition and market-related definitions in paragraph (a) and a test
to define larger participants in a market for general-use digital
consumer payment applications in paragraph (b).
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\23\ As discussed further below, the general-use digital payment
applications described in the Proposed Rule are ``financial products
or services'' under the CFPA. 12 U.S.C. 5481(15)(A)(iv), (vii).
Nonbanks that offer or provide such financial products or services
to consumers primarily for personal, family, or household purposes
are covered persons under the CFPA. 12 U.S.C. 5481(5)(A), (6).
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Many nonbanks provide consumer financial products and services that
allow consumers to use digital applications accessible through personal
computing devices, such as mobile phones, tablets, smart watches, or
computers, to transfer funds to other persons. Some nonbanks also
provide consumer financial products and services that allow consumers
to use digital applications on their personal computing devices to
store payment credentials they can then use to purchase goods or
services at a variety
[[Page 80200]]
of stores, whether by communicating with a checkout register or a self-
checkout machine, or by selecting the payment credential through a
checkout process at ecommerce websites. Subject to the definitions,
exclusions, limitations, and clarifications discussed below, the
proposed market definition generally would cover these consumer
financial products and services.
The CFPB is proposing to establish supervisory authority over
nonbank covered persons who are larger participants in this market
because this market has large and increasing significance to the
everyday financial lives of consumers.\24\ Consumers are growing
increasingly reliant on general-use digital consumer payment
applications to initiate payments.\25\ Recent market research indicates
that 76 percent of Americans have used at least one of four well-known
P2P payment apps, representing substantial growth since the first of
the four was established in 1998.\26\ Even among consumers with annual
incomes lower than $30,000 who have more limited access to digital
technology,\27\ 61 percent reported using P2P payment apps.\28\ And
higher rates of use by U.S. adults in lower age brackets may drive
further growth well into the future.\29\ Across the United States,
merchant acceptance of general-use digital consumer payment
applications also has rapidly expanded as businesses seek to make it as
easy as possible for consumers to make purchases through whatever is
their preferred payment method.\30\
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\24\ In proposing a larger participant rule for this market, the
CFPB is not proposing to determine the relative risk posed by this
market as compared to other markets. As explained in its previous
larger participant rulemakings, ``[t]he Bureau need not conclude
before issuing a [larger participant rule] that the market
identified in the rule has a higher rate of non-compliance, poses a
greater risk to consumers, or is in some other sense more important
to supervise than other markets.'' 77 FR 65779.
\25\ See CFPB, ``Issue Spotlight: Analysis of Deposit Insurance
Coverage Through Payment Apps'' (June 1, 2023), available at https://www.consumerfinance.gov/data-research/research-reports/issue-spotlight-analysis-of-deposit-insurance-coverage-on-funds-stored-through-payment-apps/full-report/ (last visited Oct. 23, 2023); see
also McKinsey & Company, ``Consumer digital payments: Already
mainstream, increasingly embedded, still evolving'' (Oct. 20, 2023)
(describing results of consulting firm's annual survey reporting
that for the first time, more than 90 percent of U.S. consumers
surveyed in August 2023 reported using some form of digital payment
over the course of a year), available at https://www.mckinsey.com/industries/financial-services/our-insights/banking-matters/consumer-digital-payments-already-mainstream-increasingly-embedded-still-evolving (last visited Oct. 30, 2023); J.D. Power, ``Banking and
Payments Intelligence Report'' (Jan. 2023) (reporting results of a
survey of Americans that found that from the first quarter of 2021
to the third quarter of 2022, the number of respondents who had used
a mobile wallet in the past three months rose from 38 percent to 49
percent), available at https://www.jdpower.com/business/resources/mobile-wallets-gain-popularity-growing-number-americans-still-prefer-convenience (last visited Oct. 23, 2023); ``PULSE Study Finds
Debit Issuers Focused on Digital Payments, Mobile Self-Service,
Fraud Mitigation'' (Aug. 17, 2023) (reporting that nearly 80 percent
of debit card issuers reported increases in consumers' use of mobile
wallets in 2022), available at https://www.pulsenetwork.com/public/insights-and-news/news-release-2023-debit-issuer-study/ (last
visited Oct. 30, 2023); FIS, ``The Global Payments Report'' (2023)
at 174 (industry study reporting that in 2022 digital wallets become
the leading payment preference of U.S. consumers shopping online),
available at https://www.fisglobal.com/en/global-payments-report
(last visited Oct. 30, 2023); ``Digital Payment Industry in 2023:
Payment methods, trends, and tech processing payments
electronically,'' Insider Intelligence (Jan. 9, 2023) (projecting
2023 P2P volume in the United States to reach over $1.1 trillion),
available at https://www.insiderintelligence.com/insights/digital-payment-services (last visited Oct. 30, 2023); Consumer Reports
Survey Group, ``Peer-to-Peer Payment Services'' (Jan. 10, 2023)
(Consumer Reports P2P Survey) at 2 (reporting results from a survey
finding that four in ten Americans use P2P services at least once a
month), available at https://advocacy.consumerreports.org/wp-content/uploads/2023/01/P2P-Report-4-Surveys-2022.pdf (last visited
Oct. 23, 2023); Kevin Foster, Claire Greene, and Joanna Stavins,
``2022 Survey and Diary of Consumer Payment Choice: Summary
Results'' (Sept. 17, 2022) at 8 (reporting results of 2022 survey
conducted by Federal Reserve System staff reporting that two thirds
of consumers had adopted one or more online payment accounts in the
previous 12 months--a share that was nearly 20 percent higher than
five years earlier), available at https://www.atlantafed.org/-/media/documents/banking/consumer-payments/survey-diary-consumer-payment-choice/2022/sdcpc_2022_report.pdf (last visited Oct. 30,
2023); FDIC, ``FDIC National Survey of Unbanked and Underbanked
Households'' (2021) at 33 (Table 6.4 reporting finding that nearly
half of all households (46.4 percent) used a nonbank app in 2021),
available at https://www.fdic.gov/analysis/household-survey/2021report.pdf (last visited Oct. 23, 2023).
\26\ See, e.g., Monica Anderson, ``Payment apps like Venmo and
Cash App bring convenience--and security concerns--to some users''
(Sept. 8, 2022), available at https://www.pewresearch.org/short-reads/2022/09/08/payment-apps-like-venmo-and-cash-app-bring-convenience-and-security-concerns-to-some-users/ (last visited Oct.
23, 2023).
\27\ Emily A. Vogels, ``Digital divide persists even as
Americans with lower incomes make gains in tech adoption'' (June 22,
2021) (reporting results of early 2021 survey by Pew Research
Center, finding 76 percent of adults with annual household incomes
less than $30,000 have a smartphone and 59 percent have a desktop or
laptop consumer, compared with 87 percent and 84 percent
respectively of adults with household incomes between $30,000 and
$99,999, and 97 percent and 92 percent respectively of adults with
household incomes of $100,000 or more), available at https://www.pewresearch.org/short-reads/2021/06/22/digital-divide-persists-even-as-americans-with-lower-incomes-make-gains-in-tech-adoption/
(last visited Oct. 23, 2023).
\28\ Consumer Reports P2P Survey at 2.
\29\ See id. (85 percent of surveyed consumers aged 18 to 29 and
85 percent of surveyed consumers aged 30 to 44 reported using a
digital payment application, compared with 67 percent of consumers
aged 45 to 59 and 46 percent of consumers aged 60 and over); see
also Ariana-Michele Moore, ``The U.S. P2P Payments Market:
Surprising Data Reveals Banks are Missing the Mark'' (June 2023
AiteNovarica Impact Report) at 8 (Figure 13 reporting 94 percent and
86 percent adoption of P2P accounts and digital wallets among the
youngest adult cohort born between 1996 and 2002, compared with 57
percent and 40 percent among the oldest cohort born before 1995),
available at https://aite-novarica.com/report/us-p2p-payments-market-surprising-data-reveals-banks-are-missing-mark (last visited
Oct. 23, 2023).
\30\ See Geoff Williams, ``Retailers are embracing alternative
payment methods, though cards are still king'' (Dec. 1, 2022)
(National Retail Federation article citing its 2022 report
indicating that 80 percent of merchants accept Apple Pay or plan to
do so in the next 18 months, and 65 percent of merchants accept
Google Pay or plan to do so in the next 18 months), available at
https://nrf.com/blog/retailers-are-embracing-alternative-payment-methods-though-cards-are-still-king (last visited Oct. 23, 2023);
see also The Strawhecker Group (TSG), ``Merchants respond to
Consumer Demand by Offering P2P Payments'' (June 8, 2022) (reporting
results of TSG and Electronic Transactions Association survey of
over 500 small businesses merchants finding that 82 percent accept
payment through at least one digital P2P option), available at
https://thestrawgroup.com/merchants-respond-to-consumer-demand-by-offering-p2p-payments/ (last visited Oct. 23, 2023).
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Consumers rely on general-use digital consumer payment applications
for many aspects of their everyday lives. In general, consumers make
payments to other individuals for a variety of reasons, including
sending gifts or making informal loans to friends and family and
purchasing goods and services, among many others.\31\ Consumers can use
digital applications to make payments to individuals for these
purposes, as well as to make payments to businesses, charities, and
other organizations. According to one recent market report, nonbank
digital payment apps have rapidly grown in the past few years to become
the most popular way to send money to other individuals other than
cash,\32\ and are used for a higher number of such transactions than
cash.\33\ For many consumers, general-use digital consumer payment
applications offer an alternative, technological replacement for non-
digital payment methods.\34\
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Consumers increasingly have adopted general-use digital consumer
payment applications \35\ as part of a broader movement toward noncash
payments.\36\ Amid growing merchant acceptance of general-use digital
consumer payment applications, consumers with middle and lower incomes
use digital consumer payment applications for a share of their overall
retail spending that rivals or exceeds their use of cash.\37\ Such
applications now have a share of ecommerce payments volume that is
similar to or greater than other traditional payment methods such as
credit cards and debit cards used outside of such applications.\38\
Such applications also have been gaining an increasing share of in-
person retail spending.\39\
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\31\ June 2023 AiteNovarica Impact Report at 8 (Figure 1
reporting 66 percent of 5,895 consumers surveyed reported making at
least one domestic P2P payment in 2022 whether via digital means or
not, and of consumers who made P2P payments in 2022, 70 percent did
so for birthday gifts, 64 percent for holiday gifts, 49 percent for
other gift occasions, 46 percent to lend money, 41 percent to make a
charitable contribution, 39 percent paid for services, 39 percent
purchased items, 31 percent provided funds in an emergency
situation, and 18 percent provided financial support).
\32\ Id. at 25 (Figure 14 reporting that 74 percent of consumers
made P2P payments in cash and 69 percent used certain alternative
digital P2P payment services).
\33\ Id. at 27-28 (Figure 15 reporting that, compared with 20
percent of transactions in cash, 37 percent of P2P transactions made
through alternative P2P payment services, even before including
Zelle, prepaid cards, and domestic money transfer services).
\34\ See Marqueta, ``2022 State of Consumer Money Movement
Report'' (May 26, 2022) at 5 (reporting results of industry survey
finding that 56 percent of US consumers felt comfortable leaving
their non-digital wallet at home and taking their phone with them to
make payments), available at https://www.marqeta.com/resources/2022-state-of-consumer-money-movement (last visited Oct. 23, 2023).
\35\ June 2023 AiteNovarica Impact Report at 24 (Figure 13
reporting 81 percent of U.S. adults surveyed held one or more P2P
accounts and 69 percent had one or more digital wallets).
\36\ ``The Federal Reserve Payments Study: 2022 Triennial
Initial Data Release'' (indicating a rapid increase in core non-cash
payments between 2018 and 2021 and a rapid decline in ATM cash
withdrawals during the same period), available at https://www.federalreserve.gov/paymentsystems/fr-payments-study.htm (last
visited Oct. 23, 2023).
\37\ PYMNTS, ``Digital Economy Payments: The Ascent of Digital
Wallets'' (Feb. 2023) at 16-17 (December 2022 survey finding 6.1
percent of overall consumer spending by consumers with lower incomes
made using digital consumer payment applications, compared with 9.9
percent of consumer spending by consumers with middle-level
incomes), available at https://www.pymnts.com/study/digital-economy-payments-ecommerce-shopping-retail-consumer-spending/ (last visited
Oct. 23, 2023).
\38\ See FIS, ``Global Payments Report'' (2023) at 176
(reporting 32 percent share of ecommerce transactions, by value,
made using a digital wallet, compared with 30 percent by credit card
and 20 percent by debit card), available at https://www.fisglobal.com/en/global-payments-report (last visited Oct. 23,
2023).
\39\ See, e.g., ``2023 Pulse Debit Issuer Study'' (Aug. 17,
2023) at 11 (reporting that mobile wallet use at point of sale
doubled in 2022, representing nearly 10 percent of total debit card
purchase transactions in 2022), available at https://www.pulsenetwork.com/public/debit-issuer-study/ (last visited Oct.
30, 2023); ``Digital Economy Payments: The Ascent of Digital
Wallets'' at 12 (December 2022 survey finding 7.5 percent of in-
person consumer purchase volume made with a digital consumer payment
application). See also CFPB Issue Spotlight, ``Big Tech's Role in
Contactless Payments: Analysis of Mobile Devices Operating Systems
and Tap-to-Pay Practices'' (Sept. 7, 2023) (Competition Spotlight)
(describing market report by Juniper Research forecasting that the
value of digital wallet tap-to-pay transactions will grow by over
150 percent by 2028), available at https://www.consumerfinance.gov/data-research/research-reports/big-techs-role-in-contactless-payments-analysis-of-mobile-device-operating-systems-and-tap-to-pay-practices/full-report/ (last visited Oct. 23, 2023).
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The Proposed Rule would bring nonbanks that are larger participants
in a market for general-use digital consumer payment applications
within the CFPB's supervisory jurisdiction.\40\ Supervision of larger
participants, who engage in a substantial portion of the overall
activity in this market, would help to ensure that they are complying
with applicable requirements of Federal consumer financial law, such as
the CFPA's prohibition against unfair, deceptive, and abusive acts and
practices, the privacy provisions of the Gramm-Leach-Bliley Act and its
implementing Regulation P,\41\ and the Electronic Fund Transfer Act and
its implementing Regulation E.\42\ In addition, as firms increasingly
offer funds transfer and wallet functionalities through general-use
digital consumer payment applications, the rule would enable the CFPB
to monitor for new risks to both consumers and the market.\43\ The
CFPB's ability to monitor for emerging risks is critical as new product
offerings blur the traditional lines of banking and commerce.\44\
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\40\ 12 U.S.C. 5514(a)(1)(B).
\41\ See generally 12 CFR part 1016 (CFPB's Regulation P
implementing 15 U.S.C. 6804).
\42\ 15 U.S.C. 1693 et seq., implemented by Regulation E, 12 CFR
part 1005. See, e.g., 12 CFR 1005.11 (Procedures for financial
institutions to resolve errors). This incentive for improved
compliance applies not only to nonbank covered persons when
providing a general-use digital consumer payment application, but
also when providing related products, such as stored value accounts.
\43\ See, e.g., CFPB, ``The Convergence of Payments and
Commerce: Implications for Consumers'' (Aug. 2022) at sec. 4.1
(highlighting the potential that consumer financial data and
behavioral data are used together in increasingly novel ways),
available at https://files.consumerfinance.gov/f/documents/cfpb_convergence-payments-commerce-implications-consumers_report_2022-08.pdf (last visited Oct. 27, 2023).
\44\ See generally id.
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Finally, the Proposed Rule can help level the playing field between
nonbanks and depository institutions, which the CFPB regularly
supervises and which also provide general-use digital consumer payment
applications.\45\ Greater supervision of nonbanks in this market
therefore would further the CFPB's statutory objective of ensuring that
Federal consumer financial law is enforced consistently between
nonbanks and depository institutions in order to promote fair
competition.
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\45\ For example, some depository institutions and credit unions
provide general bill payment services and other types of electronic
fund transfers through digital applications for consumer deposit
accounts.
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109(a)(1) Market Definition--Providing a General-Use Digital Consumer
Payment Application
Proposed Sec. 1090.109(a)(1) would describe the market for
consumer financial products or services covered by the Proposed Rule as
encompassing ``providing a general-use digital consumer payment
application.'' The term would be defined to mean providing a covered
payment functionality through a digital application for consumers'
general use in making consumer payment transaction(s). This term
incorporates other terms defined in proposed Sec. 1090.109(a)(2):
``consumer payment transaction(s),'' ``covered payment functionality,''
``digital application,'' and ``general use.'' The term ``covered
payment functionality'' includes a ``funds transfer functionality'' and
a ``wallet functionality,'' terms which proposed Sec. 1090.109(a)(2)
also defines. The term ``consumer payment transaction(s)'' also
incorporates another term--``State,'' which proposed Sec.
1090.109(a)(2) defines. The section-by-section analysis of proposed
Sec. 1090.109(a)(2) below discusses these and other aspects of the
proposed definitions of these terms.
The CFPB seeks comment on all aspects of the proposed market
definition, including whether the market definition in proposed Sec.
1090.109(a)(1) or the market-related definitions in proposed Sec.
1090.109(a)(2), discussed in the section-by-section analysis below,
should be expanded, narrowed, or otherwise modified.
109(a)(2) Market-Related Definitions
Proposed Sec. 1090.109(a)(2) would define several terms that are
relevant to the market definition described above.
Consumer Payment Transaction(s)
The proposed market definition applies to providing covered payment
functionalities through a digital application for a consumer's general
use in making consumer payment transactions. Proposed Sec.
1090.109(a)(2) would define the term ``consumer payment transactions''
to mean the transfer of funds by or on behalf of a consumer physically
located in a State to another person primarily for personal, family, or
household purposes. The proposed definition would clarify that, except
for transactions excluded under paragraphs (A) through (D), the term
applies to transfers of consumer funds and transfers made by extending
consumer credit. Paragraphs (A) through (D) of the proposed definition
would exclude the
[[Page 80202]]
following four types of transactions: (A) An international money
transfer as defined in Sec. 1090.107(a) of this part; (B) A transfer
of funds that is (1) linked to the consumer's receipt of a different
form of funds, such as a transaction for foreign exchange as defined in
12 U.S.C. 5481(16), or (2) that is excluded from the definition of
``electronic fund transfer'' under Sec. 1005.3(c)(4) of this chapter;
(C) A payment transaction conducted by a person for the sale or lease
of goods or services that a consumer selected from an online or
physical store or marketplace operated prominently in the name or such
person or its affiliated company; and (D) An extension of consumer
credit that is made using a digital application provided by the person
who is extending the credit or that person's affiliated company.\46\
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\46\ Subpart A of the CFPB's existing larger-participant rule
includes a definition of ``affiliated company'' that would apply to
the use of that term in the Proposed Rule. See 12 CFR 1090.101.
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The Proposed Rule would define the term ``consumer payment
transaction'' for purposes of the Proposed Rule. Payment transactions
that are excluded from, or otherwise do not meet, the definition of
``consumer payment transaction'' in the Proposed Rule would not be
covered by the market definition in the Proposed Rule. However, persons
facilitating those transactions may still be subject to other aspects
of the CFPB's authorities besides its larger participant supervisory
authority established by the Proposed Rule.
The first component of the proposed definition of ``consumer
payment transaction'' is that the payment transaction must result in a
transfer of funds by or on behalf of the consumer. This component
therefore focuses on the sending of a payment, and not on the receipt.
The proposed definition would encompass a consumer's transfer of their
own funds--such as funds held in a linked deposit account or in a
stored value account. It also would encompass a creditor's transfer of
funds to another person on behalf of the consumer as part of a consumer
credit transaction.\47\ For example, a nonbank's wallet functionality
may hold a credit card account or payment credential that a consumer
uses to obtain an extension of credit from an unaffiliated depository
institution. If the consumer uses the digital wallet functionality to
purchase nonfinancial goods or services using such a credit card, the
credit card issuing bank may settle the transaction by transferring
funds to the merchant's bank for further transfer to the merchant, and
a charge may appear on the consumer's credit card account. That
transfer of funds may constitute part of a consumer payment transaction
under the Proposed Rule regardless of whether it is an electronic fund
transfer subject to Regulation E.\48\
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\47\ In certain circumstances, consumer credit transactions
would be excluded from the proposed definition of ``consumer payment
transaction,'' for example as described in the exclusion in
paragraph (D) discussed below.
\48\ See also generally Sec. 1005.12(a) (describing
relationship between Regulation E and other laws including the Truth
in Lending Act and its implementing regulation, Regulation Z).
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The CFPA does not include a specific definition for the term
``funds,'' but that term is used in various provisions of the CFPA,
including in section 1002(15)(A)(iv), which defines the term
``financial product or service'' to include ``engaging in deposit-
taking activities, transmitting or exchanging funds, or otherwise
acting as a custodian of funds or any financial instrument for use by
or on behalf of a consumer.'' \49\ Without fully addressing the scope
of that term, the CFPB believes that, consistent with its plain
meaning, the term ``funds'' in the CFPA is not limited to fiat currency
or legal tender, and includes digital assets that have monetary value
and are readily useable for financial purposes, including as a medium
of exchange. Crypto-assets, sometimes referred to as virtual currency,
are one such type of digital asset.\50\ For example, relying on plain
meaning dictionary definitions, courts have found that certain crypto-
assets, including Bitcoin, constitute ``funds'' for purposes of other
Federal statutes because they ``can be easily purchased in exchange for
ordinary currency, acts as a denominator of value, and is used to
conduct financial transactions.'' \51\ For these reasons, under the
Proposed Rule, the transfer of funds in the form of the digital assets
described above by or on behalf of a consumer physically located in a
State to another person primarily for person, family, or household
purposes would qualify as a ``consumer payment transaction'' unless one
of the proposed exclusions to the definition of that term applies. And,
by extension, providing a covered payment functionality through a
digital application for consumers' general use in making such consumer
payment transactions would fall within the proposed market definition.
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\49\ 12 U.S.C. 5481(15)(A)(iv).
\50\ See generally FSOC, ``Report on Digital Asset Financial
Stability Risks and Regulation'' (Oct. 3, 2022) at 7 (``For the
purposes of this report, the term `digital assets' refers to two
categories of products: `central bank digital currencies' (CBDCs)
and `crypto-assets.' This report largely focuses on crypto-assets.
Crypto-assets are a private sector digital asset that depends
primarily on cryptography and distributed ledger or similar
technology. For the purpose of this report, the term crypto-assets
encompasses many assets that are commonly referred to as `coins' or
`tokens' by market participants.''), available at https://home.treasury.gov/system/files/261/FSOC-Digital-Assets-Report-2022.pdf (last visited Oct. 23, 2023).
\51\ United States v. Faiella, 39 F. Supp. 3d 544, 545 (S.D.N.Y.
2014) (citing examples of financial transactions that can be
conducted using Bitcoin as including purchases of goods and
services); see also United States v. Iossifov, 45 F.4th 899, 913
(6th Cir. 2022) (Bitcoin); United States v. Murgio, 209 F. Supp. 3d
698, 707 (S.D.N.Y. 2016) (Bitcoin); United States v. Ulbricht, 31 F.
Supp. 3d 540, 570 (S.D.N.Y. 2014) (Bitcoin); United States v.
Budovsky, No. 13-CR-368-DLC, 2015 WL 5602853 at *14 (S.D.N.Y Sept.
23, 2015) (E-Gold).
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The second component of the proposed definition of ``consumer
payment transaction'' is that the consumer must be physically located
in a State, a term the proposal would define by reference to
jurisdictions that are part of the United States as discussed in the
section-by-section analysis below. This component would be satisfied,
for example, when the consumer uses a general-use digital consumer
payment application on a personal computing device or at a point of
sale that is physically located in a State. By contrast, with this
limitation, if a consumer is physically located outside of any State at
the time of engaging in a payment transaction, then the payment
transaction would not be a consumer payment transaction covered by the
Proposed Rule.\52\ Thus, this limitation would clarify that the
proposed market definition does not include payments initiated by a
consumer physically located in a foreign country.\53\ Based on its
understanding of the market, the CFPB expects that participants in the
proposed market will generally be aware of indicators regarding the
consumer's location at the time of a transaction (e.g., based on the
point of sale, the location of the consumer's device, or the consumer's
residence). The CFPB requests comment on this limitation.
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\52\ This definitional limitation is for purposes of defining
the market in the Proposed Rule. Transactions excluded from the
definition of consumer payment transaction in this rule may still be
payment transactions with a consumer purpose.
\53\ In addition, when a consumer located in a foreign country
makes a payment received at a location in the United States, that
payment would not count as an international money transfer as
defined in that larger participant rule because the payment is not
made to be received by a designated recipient at a location in a
foreign country.
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The third component of the proposed definition of ``consumer
payment transaction'' is that the funds transfer must be made to
another person besides the consumer. For example, the other person
could be another consumer, a business, or some other type of entity.
This component would distinguish the
[[Page 80203]]
proposed market for general-use digital payment applications that
facilitate payments consumers make to other persons from adjacent but
distinct markets that include other consumer financial products and
services, including the activities of taking deposits; selling,
providing, or issuing of stored value; and extending consumer credit by
transferring funds directly to the consumer. For example, this
component of the proposed definition would exclude transfers between a
consumer's own deposit accounts, transfers between a consumer deposit
account and the same consumer's stored value account held at another
financial institution, such as loading or redemptions, as well as a
consumer's withdrawals from their own deposit account such as by an
automated teller machine (ATM).
The fourth component of the proposed definition of ``consumer
payment transaction'' is that the funds transfer must be primarily for
personal, family, or household purposes. The proposed definition of
``consumer payment transaction'' includes this component to define
those payment transactions that are, by their nature, consumer
transactions. Under a relevant definition of consumer financial
products and services in CFPA section 1002(5)(A), a financial product
or service is a consumer financial product or service when it is
offered or provided for use by consumers primarily for personal,
family, or household purposes.\54\ The Proposed Rule would define a
consumer payment transaction as one that is primarily for personal,
family, or household purposes, and would define the relevant market
activity (providing a general-use digital consumer payments
application) by reference to its use with respect to consumer payment
transactions. Although a general-use digital consumer payment
application also could help individuals to make payments that are not
for personal, family, or household purposes, such as purely commercial
(or business-to-business) payments, those payments would not fall
within the proposed definition of ``consumer payment transaction.''
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\54\ 12 U.S.C. 5481(5)(A).
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In addition, the proposed definition of ``consumer payment
transaction'' would exclude four types of transfers. First, paragraph
(A) of the proposed definition would exclude international money
transfers as defined in Sec. 1090.107(a). In its 2014 international
money transfer larger participant rulemaking, the CFPB determined that
the complexities involved in international money transfers, such as
foreign exchange rates, foreign taxes, and legal, administrative, and
language complexities, as well as the CFPB's remittances rule,
justified treating that market as a separate market from the domestic
money transfer market for purposes of that larger participant rule.\55\
In proposing this larger participant rule, the CFPB is not proposing to
alter the international money transfer larger participant rule. Rather,
the CFPB is proposing this larger participant rule to define a separate
market, focused on the use of digital payment technologies to help
consumers make payment transactions that are not international money
transfers as defined in the international money transfer larger
participant rule. Accordingly, the proposed definition of ``consumer
payment transaction'' would exclude an international money transfer as
defined in Sec. 1090.107(a). To the extent that nonbank international
money transfer providers facilitate those transactions, whether through
a digital application or otherwise,\56\ that activity remains part of
the international money transfer market, and the CFPB may be able to
supervise such a nonbank if it meets the larger-participant test in the
international money transfer larger participant rule.
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\55\ 79 FR 56631, 56635 (Sept. 3, 2014). For additional
information regarding the remittance rule, see CFPB, ``Remittance
Transfers,'' available at https://www.consumerfinance.gov/compliance/compliance-resources/deposit-accounts-resources/remittance-transfer-rule/ (last visited Oct. 22, 2023).
\56\ See CFPB, ``Remittance Rule Assessment Report'' (Oct. 2018,
rv. April 2019) at 143 (describing trends including ``widespread use
of mobile phones to transfer remittances and the growth of online-
only providers''), available at https://files.consumerfinance.gov/f/documents/bcfp_remittance-rule-assessment_report.pdf (last visited
Oct. 25, 2023).
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Second, for clarity, paragraph (B) the proposed definition of
``consumer payment transaction'' would exclude a transfer of funds by a
consumer (1) that is linked to the consumer's receipt of a different
form of funds, such as a transaction for foreign exchange as defined in
12 U.S.C. 5481(16), or (2) that is excluded from the definition of
``electronic fund transfer'' under Sec. 1005.3(c)(4) of this chapter.
Paragraph (1) of this proposed exclusion would clarify, for example,
that the market as defined in the Proposed Rule does not include
transactions consumers conduct for the purpose of exchanging one type
of funds for another, such as exchanges of fiat currencies (i.e., the
exchange of currency issued by the United States or of a foreign
government for the currency of a different government), a purchase of a
crypto-asset using fiat currency, a sale of a crypto-asset in which the
seller receives fiat currency in return, or the exchange of one type of
crypto-asset for another type of crypto-asset. Paragraph (2) would
clarify that transfers of funds the primary purpose of which is the
purchase or sale of a security or commodity in circumstances described
in Regulation E section 3(c)(4) and its associated commentary also
would not qualify as consumer payment transactions for purposes of the
Proposed Rule.\57\
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\57\ 12 CFR 1005.3(c)(4).
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Third, paragraph (C) would exclude a payment transaction conducted
by a person for the sale or lease of goods or services that a consumer
selected from an online or physical store or marketplace operated
prominently in the name of such person or its affiliated company.\58\
This exclusion would clarify that, when a consumer selects goods or
services in a store or website operated in the merchant's name and the
consumer pays using account or payment credentials stored by the
merchant who conducts the payment transaction, such a transfer of funds
generally is not a consumer payment transaction covered by the Proposed
Rule.
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\58\ See 12 CFR 1090.101 (definition of ``affiliated company'').
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This exclusion also would clarify that when a consumer selects
goods or services in an online marketplace and pays using account or
payment credentials stored by the online marketplace operator or its
affiliated company,\59\ such a transfer of funds generally is not a
consumer payment transaction covered by the Proposed Rule. For such
transactions to qualify for this exclusion, the funds transfer must be
for the sale or lease of a good or service the consumer selected from a
digital platform operated prominently in the name (whether entity or
trade name) of an online marketplace operator or their affiliated
company.\60\ However,
[[Page 80204]]
this exclusion does not apply when a consumer uses a payment or account
credential stored by a general-use digital consumer payment application
provided by an unaffiliated person to pay for goods or services on the
merchant's website or an online marketplace. For example, when a
consumer selects goods or services for purchase or lease on a website
of a merchant, and then from within that website chooses an
unaffiliated person's general-use digital consumer payment application
as a payment method, then paragraph (C) would not exclude the resulting
consumer payment transaction.
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\59\ A common industry definition of an online marketplace
operator is an entity that engages in certain activities, including
``[b]ring[ing] together [consumer payment card holders] and
retailers on an electronic commerce website or mobile application''
where ``[i]ts name or brand is: [ ]Displayed prominently on the
website or mobile application[; ]Displayed more prominently than the
name and brands of retailers using the Marketplace[; and is] Part of
the mobile application name or [uniform resource locator.]'' VISA,
``Visa Core Rules and Visa Product and Service Rules'' (Apr. 15,
2023) (``VISA Rules''), Rule 5.3.4.1 (defining the criteria for an
entity to qualify as a ``Marketplace'' for purposes of the VISA
Rules), available at https://usa.visa.com/dam/VCOM/download/about-visa/visa-rules-public.pdf (last visited Oct. 23, 2023).
\60\ This aspect of the example is consistent with the
understanding of some significant payments industry participants as
to what is considered a digital marketplace. See id.
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The purpose of this proposed exclusion to the definition of
``consumer payment transaction'' is to clarify the scope of the
proposed market and to clarify which transactions count toward the
proposed threshold in the larger-participant test in proposed Sec.
1090.109(b). For example, some online marketplace operators may provide
general-use digital consumer payment applications for consumers to use
for the purchase or lease of goods or services the consumer selects on
websites of unaffiliated merchants. Absent the exclusion in paragraph
(C), the providing of such a general-use digital consumer payment
application could result in counting all transactions through such an
application, including for goods and services the consumer selects from
the online marketplace, toward the larger-participant test threshold in
proposed Sec. 1090.109(b). Yet the CFPB is not seeking to define a
market or determine larger-participant status in this rulemaking by
reference to payment transactions conducted by merchants or online
marketplaces through their own payment functionalities for their own
sales transactions. How a merchant or online marketplace conducts
payments to itself for sales through its own platform raises distinct
consumer protection concerns from the concerns raised by general-use
digital consumer payment applications that facilitate consumers'
payments to third parties. The CFPB therefore believes it appropriate
to exclude the former type of payment transactions from the market
defined in the Proposed Rule.
In this regard, the scope of the term ``consumer payment
transaction'' is narrower than the CFPB's authority under the CFPA,
which can extend to payment transactions conducted by merchants or
online marketplaces for sales through their own platforms under certain
circumstances. The CFPA defines a consumer financial product or service
to include ``providing payments or other financial data processing
products or services to a consumer by any technological means,
including processing or storing financial or banking data for any
payment instrument . . . .'' \61\ Such activities generally are
consumer financial products or services under the CFPA unless a narrow
exclusion for financial data processing in the context of the direct
sale of nonfinancial goods or services applies.\62\ That exclusion
would not apply if a merchant or online marketplace's digital consumer
application stores, transmits, or otherwise processes payments or
financial data for any purpose other than initiating a payments
transaction by the consumer to pay the merchant or online marketplace
operator for the purchase of a nonfinancial good or service sold
directly by that merchant or online marketplace operator. Other
purposes beyond payments for direct sales could include using or
sharing such data for targeted marketing, data monetization, or
research purposes. The exclusion also would not apply if an online
marketplace operator's digital consumer application processes payments
or other financial data associated with the consumer's purchase of
goods or services at unaffiliated online or physical stores or third-
party goods or services on the operator's online marketplace.
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\61\ 12 U.S.C. 5481(15)(A)(vii).
\62\ ``[A] person shall not be deemed to be a covered person
with respect to financial data processing solely because the person
. . . is a merchant, retailer, or seller of any nonfinancial good or
service who engages in financial data processing by transmitting or
storing payments data about a consumer exclusively for purpose of
initiating payments instructions by the consumer to pay such person
for the purchase of, or to complete a commercial transaction for,
such nonfinancial good or service sold directly by such person to
the consumer.'' 12 U.S.C. 5481(15)(A)(vii)(I). The CFPB concludes
that this narrow exclusion is descriptive of the limited role that
many merchants play in processing consumer payments or financial
data.
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Finally, paragraph (D) would exclude an extension of consumer
credit that is made using a digital application provided by the person
who is extending the credit or that person's affiliated company. The
CFPB is proposing this exclusion so that the market definition does not
encompass consumer lending activities by lenders through their own
digital applications. In this rulemaking, the CFPB is not proposing to
define a market for extending consumer credit, as it did, for example,
in the larger participant rule for the automobile financing market.\63\
As a result of this proposed exclusion, for example, a nonbank would
not be participating in the proposed market simply by providing a
digital application through which it lends money to consumers to buy
goods or services. Thus, to the extent consumer credit transactions
would fall within the proposed definition of consumer payment
transactions, this would be because the relevant market participant
engages in covered payment-related activities beyond extending credit
to the consumer. For example, a nonbank may provide a wallet
functionality through a digital application that stores payment
credentials for a credit card through which an unaffiliated depository
institution or credit union extends consumer credit. The CFPB is
proposing a market definition that would reach that nonbank covered
person's activities because their role in the transaction is to help
the consumer to make a payment, not to themselves extend credit to the
consumer.
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\63\ 12 CFR 1090.108.
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Covered Payment Functionality
The proposed market definition applies to providing covered payment
functionalities through a digital application for a consumer's general
use in making payment transactions. Proposed Sec. 1090.109(a)(2) would
define two types of payment functionalities as covered payment
functionalities: a funds transfer functionality and a wallet
functionality. Proposed Sec. 1090.109(a)(2) would define each of those
two functionalities as described below.
A nonbank covered person would be participating in the proposed
market if its market activity includes only one of the two
functionalities, or both functionalities. Similarly, a particular
digital application may provide one or both functionalities. A
nonbank's level of participation in the proposed market would not be
based on which functionality is involved; rather, it would be based on
the annual covered payment transaction volume as defined in proposed
Sec. 1090.109(b).
The CFPB proposes to treat these two covered payment
functionalities as part of a single market for general-use digital
consumer payment applications. The technological and commercial
processes these two payment functionalities use to facilitate consumer
payments may differ in some ways. However, consumers can use both types
of covered payment functionalities for the same common purposes, such
as to make payments for retail spending and sending money to friends
and family. For example, a funds transfer functionality may transfer a
consumer's funds in a linked stored value account to a merchant to pay
for goods or services, or to friends or family. Similarly, a wallet
functionality may transmit a stored payment
[[Page 80205]]
credential to facilitate a consumer's payment to a merchant or to
friends and family. Indeed, the same nonbank covered person may provide
a digital application that encompasses both functionalities depending
on the payment method a consumer chooses. For example, a nonbank
covered person's digital application may allow the consumer to access a
wallet functionality to make a payment using a credit card for which a
third party extends credit, or a funds transfer functionality to make a
payment from a stored value account the nonbank provides. The role
these two functionalities play in a single market therefore is driven
by their common uses, not their specific technological and commercial
processes.
(A) Funds Transfer Functionality
The first payment functionality included in the definition in
covered payment functionality in proposed Sec. 1090.109(a)(2) is a
funds transfer functionality. Paragraph (A) would define the term
``funds transfer functionality'' for the purpose of this rule to mean,
in connection with a consumer payment transaction: (1) receiving funds
for the purpose of transmitting them; or (2) accepting and transmitting
payment instructions.\64\ These two types of funds transfer
functionalities generally describe how nonbanks help to transfer a
consumer's funds to other persons, sometimes referred to as P2P
transfers. The nonbank either already holds or receives the consumer's
funds for the purpose of transferring them, or it transmits the
consumers payment instructions to another person who does so. Paragraph
(1), for example, would apply to a nonbank transferring funds it holds
for the consumer, such as in a stored value account, to another person
for personal, family, or household purposes. Even if the nonbank
providing the funds transfer functionality does not hold or receive the
funds to be transferred, it generally would qualify under paragraph (2)
by transmitting the consumer's payment instructions to the person that
does hold or receive the funds for transfer. Paragraph (2), for
example, would apply to a nonbank that accepts a consumer's instruction
to send money from the consumer's banking deposit account to another
person for personal, family, or household purposes, and then transmits
that instruction to other persons to accomplish the fund transfer. A
common way a nonbank may engage in such activities is by acting as a
third-party intermediary to initiate an electronic fund transfer
through the automated clearinghouse (ACH) network. Another common way
to do so is to transmit the payment instructions to a partner
depository institution. However, in some circumstances, a nonbank may
be able to execute a consumer's payment instructions on its own, such
as by debiting the consumer's account and crediting the account of the
friend or family member, without transmitting the payment instructions
to another person. In those circumstances, the nonbank generally would
be covered by paragraph (1) because, to conduct the transaction in this
manner, the nonbank typically would be holding or receiving the funds
being transferred.
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\64\ Such funds transfer services are consumer financial
products or services under the CFPA. See 12 U.S.C. 5481(5)(A)
(defining ``consumer financial product or service'' to mean a
financial product or service ``offered or provided for use by
consumers primarily for personal, family, or household purposes'').
The CFPA defines a ``financial product or service'' to include
``engaging in deposit-taking activities, transmitting or exchanging
funds, or otherwise acting as a custodian of funds or any financial
instrument for use by or on behalf of a consumer.'' 12 U.S.C.
5481(15)(A)(iv); see also 12 U.S.C. 5481(29) (defining
``transmitting or exchanging funds''). The CFPA also defines a
``financial product or service'' to include generally ``providing
payments or other financial data processing products or services to
a consumer by any technological means, including processing or
storing financial or banking data for any payment instrument,''
subject to certain exceptions. 12 U.S.C. 5481(15)(A)(vii).
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The CFPB requests comment on the proposed definition of funds
transfer functionality, and whether it should be modified, and if so,
how and why.
(B) Wallet Functionality
The other payment functionality included in the definition in
covered payment functionality in proposed Sec. 1090.109(a)(1) is a
wallet functionality. Paragraph (B) would define the term wallet
functionality as a product or service that: (1) stores account or
payment credentials, including in encrypted or tokenized form; and (2)
transmits, routes, or otherwise processes such stored account or
payment credentials to facilitate a consumer payment transaction.\65\
Through this proposed definition, the proposed market would include
payment functionalities that work together first to store account or
payment credentials and second, to process such data to facilitate a
consumer payment transaction.
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\65\ The wallet functionality as described here is a consumer
financial product or service under the CFPA. See 12 U.S.C.
5481(15)(A)(vii) (defining ``financial product or service'' to
include ``providing payments or other financial data processing
products or services to a consumer by any technological means,
including processing or storing financial or banking data for any
payment instrument, or through any payments systems or network used
for processing payments data, including payments made through an
online banking system or mobile telecommunications network,''
subject to certain exceptions); see also 12 U.S.C. 5481(5)(A)
(defining ``consumer financial product or service'' to mean a
financial product or service ``offered or provided for use by
consumers primarily for personal, family, or household purposes'').
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As indicated above, paragraph (B)(1) of the proposed definition of
``wallet functionality'' would clarify that ``account or payment
credentials'' can take the form of encrypted or tokenized data. Storage
of account or payment credentials in these forms would satisfy the
first prong of the ``wallet functionality'' definition. For example,
the first prong would be satisfied by storing an encrypted version of a
payment account number or a token \66\ that is specifically derived
from or otherwise associated with a consumer's payment account number.
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\66\ Tokens now are often used for wallets to store a variety of
payment credentials including network-branded payment cards. See,
e.g., Manya Sini, ``Visa tokens overtake payments giant's physical
cards in circulation,'' Reuters.com (Aug. 24, 2022) (describing how
VISA's token service ``replaces 16-digital Visa account numbers with
a token that only Visa can unlock, protecting the underlying account
information.''), available at https://www.reuters.com/business/finance/visa-tokens-overtake-payments-giants-physical-cards-circulation-2022-08-24/ (last visited Oct. 23, 2023); In re
Mastercard Incorporated, FTC Docket No. C-4795 (May 13, 2023) ]] 24-
32 (describing how payment cards are ``tokenized'' for use digital
wallets by ``replacing the cardholder's primary account number (PAN)
[ ] with a different number to protect the PAN during certain stages
of the [ ] transaction.''), available at https://www.ftc.gov/legal-library/browse/cases-proceedings/mastercard-inc-matter (last visited
Oct. 23, 2023); American Express, ``American Express Tokenization
Service,'' available at https://network.americanexpress.com/globalnetwork/products-and-services/security/tokenization-service/
(last visited Oct. 23, 2023); Discover Digital Exchange, ``Powering
digital payment experiences,'' available at https://www.discoverglobalnetwork.com/solutions/technology-payment-platforms/discover-digital-exchange-ddx/ (last visited Oct. 23,
2023).
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Paragraph (B)(2) of the proposed definition of ``wallet
functionality'' would describe the types of processing of stored
account or payment credentials that would fall within the definition.
For example, consumers commonly use wallet functionalities provided
through digital applications to pay for purchases of goods or services
on merchant websites. To facilitate such a consumer payment
transaction, a consumer financial product or service may transmit a
stored payment credential to a merchant, its payment processor, or its
website designed to accept payment credentials provided by the wallet
functionality. This type of product or service would be covered by
paragraph (B)(2).
[[Page 80206]]
The CFPB requests comment on the proposed definition of the term
wallet functionality, whether it sufficiently encompasses digital
wallets in the market today, and whether it should be modified, and if
so, how and why.
Digital Application
The proposed market definition applies to providing covered payment
functionalities through a digital application for a consumer's general
use in making consumer payment transactions. Proposed Sec.
1090.109(a)(2) would define the term ``digital application'' as a
software program accessible to a consumer through a personal computing
device, including but not limited to a mobile phone, smart watch,
tablet, laptop computer, or desktop computer.\67\ The proposed
definition would specify that the term includes a software program,
whether downloaded to a personal computing device, accessible from a
personal computing device via a website using an internet browser, or
activated from a personal computing device using a consumer's biometric
identifier, such as a fingerprint, palmprint, face, eyes, or voice.\68\
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\67\ For purposes of the Proposed Rule, what matters is whether
the digital application is accessible through a personal computing
device, not whether a particular payment is made using a computing
device that a consumer personally owns. For example, if a consumer
logs into a digital application through a website using a work or
library computer and makes a consumer payment transaction, the
transfer would be subject to the Proposed Rule if that digital
application is one a consumer also may access through a personal
computing device.
\68\ For example, some nonbanks allow consumers to use
interactive voice technology to operate the nonbank's application
that resides on the phone itself. See, e.g., Lory Seraydarian,
``Voice Payments: The Future of Payment Technology?'' PlatAI Blog
(Mar. 7, 2022) (software firm analysis reporting that major P2P
participants'' allow their customers to use voice commands for peer-
to-peer transfers.''), available at https://plat.ai/blog/voice-payments/ (last visited Oct. 23, 2023).
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Market participants may provide covered payment functionalities
through digital applications in many ways. For example, a consumer may
access a nonbank covered person's covered payment functionality through
a digital application provided by that nonbank covered person. Or, a
consumer may access a nonbank covered person's covered payment
functionality through a digital application provided by an unaffiliated
third-party such as another nonbank, a bank, or a credit union.\69\ In
either case, a consumer typically first opens the digital application
on a personal computing device and follows instructions for associating
their deposit account, stored value account, or other payment account
information with the covered payment functionality for use in a future
consumer payment transaction. Then, when the consumer is ready to
initiate a payment, the consumer may access the digital application
again to authorize the payment.
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\69\ If a nonbank covered person provides a covered payment
functionality a consumer may access through a digital application
provided by a bank or credit union, the Proposed Rule would only
apply to the nonbank. Depository institutions and credit unions are
not subject to the CFPB's larger participant rules, which rely upon
authority in CFPA section 1024 that applies to nonbanks. 12 U.S.C.
5514.
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Moreover, consumers have many ways to access covered payment
functionalities through digital applications to initiate consumer
payment transactions. To make a P2P payment, a consumer may use an
internet browser or other app on a mobile phone or computer to access a
nonbank covered person's funds transfer functionality, such as a
feature to initiate a payment to friends or family or to access a
general-use bill payment function. The consumer then may direct the
nonbank covered person to transmit funds to the recipient or the
consumer may provide payment instructions for the nonbank covered
person to relay to the person holding the funds to be transferred. Or,
in an online retail purchase transaction, a consumer may access a
wallet functionality by clicking on or pressing a payment button on a
checkout screen on a merchant website. The consumer then may log into
the digital application or display a biometric identifier to their
personal computing device to authorize the use of a previously-stored
payment credential. Or, in an in-person retail purchase transaction, a
consumer may activate a covered payment functionality by placing their
personal computing device next to a merchant's retail payment terminal.
The digital application then may transmit payment instructions or
payment credentials to a merchant payment processor. For example, a
mobile phone may transmit such data by using near-field communication
(NFC) technology built into the mobile phone,\70\ by generating a
payment-specific quick response (QR) code on the mobile phone screen
that the consumer displays to the merchant payment terminal, or by
using the internet, a text messaging system, or other communications
network accessible through the mobile phone.
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\70\ See generally CFPB Competition Spotlight, supra n.39.
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Through the proposed definition of digital application, the
Proposed Rule excludes from the proposed market payment transactions
that do not rely upon use of a digital applications. For example,
gateway terminals merchants obtain to process the consumer's personal
card information are not personal computing devices of the consumer.
Merchants generally select these types of payment processing services,
which are provided to consumers at the point of sale to pay for the
merchant's goods or services. Their providers may be participating in a
market that is distinct in certain ways from a market for general-use
digital consumer payment applications. In addition, the proposed
definition of ``digital application'' would not cover the consumer's
presentment of a debit card, a prepaid card, or a credit card in
plastic, metallic, or similar form at the point of sale. In using
physical payment cards at the point of sale, a consumer generally is
not relying upon a ``digital application'' because the consumer is not
engaging with software through a personal computing device to complete
the transaction. However, when a consumer uses the same payment card
account in a wallet functionality provided through a digital
application, then those transactions would fall within the market
definition.
In addition, there are other examples of payment transactions that
do not rely upon the use of a digital application, including
transactions relying upon the in-person payment of physical fiat
currency (cash), and transactions where a consumer mails or hand
delivers a paper payment instrument such as a paper check.
The CFPB requests comment on the proposed definition of ``digital
application,'' and whether it should be modified, and if so, how and
why. For example, the CFPB requests comment regarding whether defining
the term ``digital application'' by reference to software accessible
through a personal computing device is appropriate, and if so, why, and
if not, why not and what alternative approach should be used and why.
General Use
The proposed market definition applies to providing covered payment
functionalities through a digital application for a consumer's general
use in making consumer payment transactions. Proposed Sec.
1090.109(a)(2) would define the term ``general use'' as the absence of
significant limitations on the purpose of consumer payment transactions
facilitated by the covered payment functionality provided through the
digital consumer payment application. In proposing the general
[[Page 80207]]
use qualification in the market definition, the CFPB seeks to confine
the market definition to those digital payment applications that
consumers can use for a wide range of purposes. Digital payment
applications with general use as described in the Proposed Rule can
serve broad functions for consumers, such as sending funds to friends
and family, buying a wide range of goods or services at different
stores, or both. As reflected in the non-exhaustive list of examples
discussed below, other consumer financial products and services provide
payment functionalities for more limited purposes. While those other
products and services also serve important functions for consumers,
they do not have the same broad use cases for consumers. As a result,
those products participate in a market or markets distinguishable from
a market from general-use digital consumer payment applications.
The proposed definition of general use would clarify that a digital
consumer payment application that would facilitate person-to-person, or
peer-to-peer (P2P), transfers of funds would qualify as having general
use. Even if a payment functionality provided through a digital
application is limited to P2P payments, and that constitutes a
limitation on the purpose of payments, that limitation would not be
significant for purposes of the proposed market definition. For
example, a P2P application that permits a consumer to send funds to any
family member, friend, or other person would qualify as general use,
even if that P2P application could not be used as a payment method at
checkout with merchants, retailers, or other sellers of goods or
services. A P2P application also would have general use for purposes of
the Proposed Rule even if it can only transfer funds to recipients who
also register with the application provider, or otherwise participate
in a certain network (sometimes referred to as ``closed loop'' P2P
systems). Although the network of potential recipients in a closed loop
system may be limited in certain respects, often any potential
recipient may have the option of joining such a system (and many
consumers already may have joined such systems), so the universe of
potential recipients for such payments often is still broad. Moreover,
a digital consumer payment application still may have general use even
when the universe of potential recipients for a funds transfer is
fixed, such as when a consumer can only make a transfer of funds to
friends or family located in a prison, jail, or other secure facility.
Such funds may be available to the recipient for a variety of purposes,
including to purchase food, toiletries, medical supplies, or phone
credits while incarcerated, and, if not used by the recipient while
incarcerated, may revert to an unrestricted account.\71\
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\71\ See, e.g., CFPB Report, ``Justice-Involved Individuals and
the Consumer Financial Marketplace'' (Jan. 2022) at sec. 3.1 (n.87
describing uses of these types of funds transfers) & sec. 4.1
(describing how, as observed in a CFPB enforcement action and an
investigative report on prison release cards, ``[w]hen released,
people exiting jail receive money they had when arrested, and
prisons disburse the balance of a person's commissary account,
including wages from prison jobs, public benefits, and money sent by
friends and family''), available at https://files.consumerfinance.gov/f/documents/cfpb_jic_report_2022-01.pdf
(last visited Oct. 23, 2023).
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To provide clarity as to the proposed market definition, the
proposed definition of general use would include examples of
limitations that would be significant for purposes of the proposal,
such that a covered payment functionality offered through a digital
consumer payment application with such limitations would not have
general use.\72\ The examples would illustrate some types of digital
consumer payment applications that would not have general use. The list
of examples is not exhaustive, and other types of digital consumer
payment applications would not have general use to the extent they
cannot be used for a wide range of purposes.
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\72\ The Proposed Rule includes these examples to illustrate the
scope of the term ``general use'' in the Proposed Rule, and thus the
scope of the proposed market definition. The examples are not a
statement of the CFPB's views regarding the scope of its authority
over consumer financial products and services under the CFPA.
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In addition, some payment functionalities may be provided through
two different digital consumer applications. For example, from a
merchant's ecommerce digital application, a consumer may click on a
payment button that links to a third-party general-use digital consumer
payment application, where the consumer authenticates their identity
and provides payment instructions or otherwise authorizes the payment.
Even if the merchant's digital application would not itself qualify as
having general use, the consumer's use of the third-party general-use
digital consumer payment application would still constitute covered
market activity with respect to the third-party provider.
The first example of a payment functionality that would not have
general use, in paragraph (A) of the proposed definition of general
use, would be a digital consumer payment application whose payment
functionality is used solely to purchase or lease a specific type of
services, goods, or property, such as transportation, lodging, food, an
automobile, a dwelling or real property, or a consumer financial
products and service. For example, when a consumer uses a payment
functionality in a digital application for a consumer financial product
or service to pay for that consumer financial product or service, such
as by providing payment card information to a credit monitoring app to
pay for credit monitoring services, this limited purpose for that
payment functionality would not have general use under the Proposed
Rule.\73\ Paragraph (A) of the proposed definition specifies these
examples of significant limitations, such that a payment functionality
provided through digital consumer payment application with these
limitations would not have general use.
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\73\ The term ``consumer financial product or service'' is
defined in CFPA section 1002(5) and includes a range of consumer
financial products and services including those in markets that the
CFPB supervises, described earlier in the Proposed Rule, as well as
other consumer financial products and services outside of supervised
markets over which the CFPB generally has enforcement and market
monitoring authority. See generally 12 U.S.C. 5481(5) (definition of
``consumer financial product or service'') & 12 U.S.C. 5481(15)
(definition of ``financial product or service'').
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Second, as indicated in paragraph (B) of the proposed definition of
general use, accounts that are expressly excluded from the definition
of ``prepaid account'' in paragraphs (A), (C), and (D) of Sec.
1005.2(b)(3)(ii) of Regulation E,\74\ also would not have general use
for purposes of the Proposed Rule. Those provisions in Regulation E
exclude certain tax-advantaged health medical spending accounts,
dependent care spending accounts, transit or parking reimbursement
arrangements, closed-loop accounts for spending at certain military
facilities, and many types of gift certificates and gift cards. While
these types of accounts may support payments through digital
applications with varied purposes to different types of recipients, the
accounts remain sufficiently restricted as to the purpose to warrant
exclusion from the proposed market here.
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\74\ 12 CFR 1005.2(b)(3)(ii).
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Third, as indicated in paragraph (C), a payment functionality
provided through a digital consumer payment application that solely
supports payments to pay a specific debt or type of debt or repayment
of an extension of consumer credit does not have general use. For
example, a consumer mortgage lender's mobile app or website may provide
a functionality that allows a
[[Page 80208]]
consumer to pay a loan. Or a debt collector's website may provide a
means for a consumer to pay a debt. These digital consumer payment
applications have a use that is significantly limited, to only pay a
specific debt or type of debt. In general, digital applications that
solely support payments to specific lenders, loan servicers, and debt
collectors would not be within the proposed market definition.\75\ The
CFPB considers such digital applications generally to be more part of
the markets for consumer lending, loan servicing, and debt collection.
The CFPB has issued separate larger participant rules for such markets
and CFPA section 1024(a) also grants the CFPB supervisory authority
over participants in certain lending markets, including mortgage
lending, private student lending, and payday lending. In addition,
other digital applications may only help a consumer to pay certain
other types of debts, such as taxes or other amounts owed to the
government, including fines. Under this proposed example, those payment
functionalities provided through those applications also would not have
general use.
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\75\ By contrast, as noted in the section-by-section analysis of
the exclusion in paragraph (C) of the definition of a ``consumer
payment transaction,'' if a consumer uses a general-use digital
consumer payment application as a method of making a payment to such
a payee, that general-use digital consumer payment application would
be participating in the market for those consumer payment
transactions.
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Fourth, as indicated in paragraph (D), a payment functionality
provided through a digital application that solely helps consumers to
divide up charges and payments for a specific type of goods or services
would be excluded. Some payment applications, for example, may be
focused solely on helping consumers to split a restaurant bill. This
example is a corollary of the example in paragraph (A). Since a payment
functionality limited to paying for food would not have general use
under paragraph (A), paragraph (D) would clarify that neither would a
payment functionality that enables splitting a bill for food have
general use.
The CFPB requests comment on the proposed definition of general use
and examples of significant limitations that take a payment
functionality provided through a digital consumer application out of
the general use category. The CFPB also requests comment on whether the
examples of significant limitations should be changed or clarified, and
whether additional examples of significant limitations should be
included, and if so, what examples and why.
State
Proposed Sec. 1090.109(a) would define the term ``State'' to mean
any State, territory, or possession of the United States; the District
of Columbia; the Commonwealth of Puerto Rico; or any political
subdivision thereof. For consistency, the CFPB is proposing to use the
same definition of ``State'' as used in the international money
transfer larger participant rule, Sec. 1090.107(a), which drew its
definition from Regulation E subpart A.\76\ The CFPB requests comment
on the proposed definition of State.
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\76\ See International Money Transfer Larger Participant Final
Rule, 79 FR 56641.
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109(b) Test To Define Larger Participants
Proposed Sec. 1090.109(b) would set forth a test to determine
which nonbank covered persons are larger participants in a market for
general-use digital consumer payment applications as described in
proposed Sec. 1090.109(a). Under the proposed test, a nonbank covered
person would be a larger participant if it meets each of two criteria
set forth in paragraphs (1) and (2) of proposed Sec. 1090.109(b)
respectively. First, paragraph (1) specifies that the nonbank covered
person must provide annual covered consumer payment transaction volume
as defined in paragraph (3) of proposed Sec. 1090.109(b) of at least
five million transactions. Second, paragraph (2) specifies that the
nonbank covered person must not be a small business concern based on
the applicable Small Business Administration (SBA) size standard listed
in 13 CFR part 121 for its primary industry as described in 13 CFR
121.107. Paragraphs (1), (2), and (3) of this proposed definition are
analyzed below.\77\
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\77\ Prior to issuing this proposal, the CFPB conducted analysis
of data sources as described below and in part V and part VI to
identify likely market participants, and, to the extent of available
data, to: (1) to inform its general understanding of the market;
and, relatedly, (2) to estimate the level of market activity by
market participants, the degree to which market participants would
be small entities, and the level of market activity by larger
participants. These estimates therefore rely to some degree on
preliminary entity-level analysis that is not dispositive of whether
the CFPB would ever seek to initiate supervisory activity at a given
entity or whether, in the event of a person's assertion that it is
not a larger participant, the person would be found to be a larger
participant.
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Criteria
The CFPB has broad discretion in choosing criteria for assessing
whether a nonbank covered person is a larger participant of a
market.\78\ The CFPB selects criteria that provide ``a reasonable
indication of a person's level of market participation and impact on
consumers.'' \79\ As the CFPB has noted in previous larger participant
rulemakings, for any given market, there may be ``several criteria,
used alone or in combination, that could be viewed as reasonable
alternatives.'' \80\
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\78\ See, e.g., 77 FR 42887 (consumer reporting larger
participant rule describing such discretion); 77 FR 65785 (same, in
consumer debt collection larger participant rule).
\79\ 77 FR 42887 (consumer reporting larger participant rule);
see also 80 FR 37513 (automobile financing larger participant rule
describing how aggregate annual originations are a ``meaningful
measure'' of such participation and impact); 78 FR 73393-94 (same,
for account volume criterion in student loan servicing larger
participant rule).
\80\ 77 FR 65785 (consumer debt collection larger participant
rule).
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Here, the CFPB is proposing to combine the two criteria described
above: the annual covered consumer payment transaction volume and the
size of the entity by reference to SBA size standards. The Proposed
Rule's larger-participant test would combine these criteria as follows:
a nonbank covered person would be a larger participant if its annual
covered consumer payment transaction volume exceeded the proposed
threshold, discussed in the section-by-section analysis further below,
and, during the same time period (i.e., the preceding calendar year),
it was not a small business concern.
The first criterion would be based on the number of consumer
payment transactions. Specifically, proposed Sec. 1090.109(b)(3) would
define the term ``annual covered consumer payment transaction volume''
as the sum of the number of the consumer payment transactions that the
nonbank covered person and its affiliated companies facilitated by
providing general-use digital consumer payment applications in the
preceding calendar year.\81\ This is an appropriate criterion for a
market defined by reference to products that facilitate certain
consumer payments. Each transaction counted under this criterion also
generally is a payment. In that way, a transaction is essentially a
well-understood unit of market activity.
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\81\ Under the CFPA, the activities of affiliated companies are
to be aggregated for purposes of computing activity levels in larger
participant rules. See 12 U.S.C. 5514(a)(1)(B), (3)(B).
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As in the CFPB's international money transfer larger participant
rule, here the number of transactions also reflects the extent of
interactions between the nonbank covered person providing the in-market
consumer financial product or service. Each one-time consumer payment
transaction typically results from a single interaction with at least
[[Page 80209]]
one consumer.\82\ And, in the case of recurring consumer payment
transactions, consumers also have at least one interaction with the
covered persons in the market. The number of transactions also is a
common indicator of market participation. State regulators, for
example, require money transmitters to report this metric.\83\
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\82\ See, e.g., 79 FR 56641 (international money transfer larger
participant rule noting that the absolute number of transactions
``reflects the extent of interactions'' between the provider and the
consumer because ``each transfer represents a single interaction
with at least one consumer.'').
\83\ See generally NMLS, ``Money Services Business Call
Report,'' available at https://mortgage.nationwidelicensingsystem.org/slr/common/Pages/MoneyServicesBusinessesCallReport.aspx (last visited Oct. 23, 2023).
---------------------------------------------------------------------------
The CFPB considered proposing different criteria, such as the
dollar value of transactions or the annual receipts from market
activity. However, it is not proposing either of those alternatives.
First, the proposed market includes digital wallets which often are
used for consumer retail spending, which can grow in amount through
inflation. For this market, a dollar value criterion may become
affected by inflation or other factors. In addition, as discussed in
the impacts analyses in parts V and VI, some of the data sources the
CFPB relied upon in formulating the Proposed Rule may be overinclusive
by including certain payments that are not within the market defined in
the Proposed Rule, such as certain business-to-business payments. Those
payments may have higher dollar values. By proposing number of
transactions as a criterion, the Proposed Rule is less affected by
those data distortions. At the same time, in general, a higher number
of transactions also may often comprise a higher dollar value of
transactions.
With respect to annual receipts, that data is less available,
especially for market participants that are not publicly traded or that
do not file call reports on money transmission at the State level. In
addition, in the context of the market at issue in the Proposed Rule,
an annual receipts criterion could miss significant market
participation and consumer impacts, such as where a provider is
subsidizing a product or otherwise not earning significant per-
transaction revenues. For example, when a consumer links their deposit
account directly to a general-use digital consumer payment application,
the provider may receive lower revenue for funds sent to friends and
family, compared with paying a merchant or using a network branded
payment card (where there is an interchange fee that may provide a
source of revenue). Yet, the risks to and impact on the consumer may be
just as significant from payments they make to individuals from a
linked deposit account.
As noted above, the CFPB is proposing a second criterion that also
must be satisfied for a nonbank covered person to be a larger
participant, in addition to the annual covered payment volume
criterion. Under the second criterion, the nonbank must not be a
``small business concern'' as that term is defined by section 3(a) of
the Small Business Act, 15 U.S.C. 632(a), and implemented by the SBA
under 13 CFR part 121, or any successor provisions. Thus, under the
Proposed Rule, an entity would be a small business concern if its size
were at or below the SBA standard listed in 13 CFR part 121 for its
primary industry as described in 13 CFR 121.107.\84\
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\84\ In addition, under the SBA's regulations, a concern's size
is measured by aggregating the relevant size metric across
affiliates. See 13 CFR 121.103(a)(6) (``In determining the concern's
size, the SBA counts the receipts, employees, or other measure of
size of the concern whose size is at issue and all of its domestic
and foreign affiliates, regardless of whether the affiliates are
organized for profit.'').
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The CFPB is proposing this second criterion because it does not
seek to use this rulemaking as a means of expending its limited
supervisory resources to examine small business concerns. The consumer
digital payments applications market is potentially broad and dynamic,
with rapid technological developments and new entrants. But many well-
known market participants have large business operations that have an
impact on millions of consumers. In light of its resources, the CFPB
believes that it would be preferable to focus on larger entities,
instead of requiring all entities with an annual covered consumer
payment transaction volume over five million to be subject to
supervisory review under the Proposed Rule. If a particular nonbank
covered person were a small business concern participating in this
market in a manner that posed risks to consumers, the CFPB has
authority to pursue risk-based supervision of such an entity pursuant
to CFPA section 1024(a)(1)(C).\85\
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\85\ 12 U.S.C. 5514(a)(1)(C). See generally 12 CFR part 1091
(regulations implementing CFPA section 1024(a)(1)(C)).
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The CFPB requests comment on its proposed criteria, including
whether, instead of basing the annual volume criterion described above
on number of consumer payment transactions, it should be based on a
different metric, such as the dollar value of consumer payment
transactions, and, if so, why.
Threshold
Under the Proposed Rule, a nonbank covered person would be a larger
participant in the market for general-use digital consumer payment
applications if the nonbank covered person satisfies two criteria.
First, it must facilitate an ``annual covered consumer payment
transaction volume,'' as defined in proposed Sec. 1090.109(b)(3) and
discussed above, of at least five million transactions. As explained in
proposed Sec. 1090.109(b)(3)(i) and discussed above, the volume is
aggregated across affiliated companies. Thus, the proposed threshold
includes the aggregate annual volume of both consumer-to-consumer or
consumer-to-business transactions facilitated by all general-use
digital consumer payment applications provided by the nonbank covered
person and its affiliated companies in the preceding year.\86\ Second,
under proposed Sec. 1090.109(b)(2) and explained above, the CFPB also
proposes to exclude from larger-participant status any entity in the
proposed market that is a small business concern based on applicable
SBA size standards.\87\ The CFPB
[[Page 80210]]
believes that this proposed threshold and the proposed small entity
exclusion, discussed above, are a reasonable means of defining larger
participants in this market.\88\
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\86\ The CFPB notes that the available data do not always
conform to the precise market scope of covered consumer payment
transactions. For example, the data do not always distinguish
between transactions in which a business sent funds, which would not
be covered consumer payment transactions, from transactions in which
a consumer sent funds. In addition, in some cases the data may
include funds a consumer transfers between one deposit or stored
value account and another, both of which belong to the consumer. The
current analysis includes transaction volume broadly defined, and
the CFPB cannot distinguish between this overall activity and
covered market activity (to the extent they differ). Therefore, the
current analysis may be an overestimate of covered market activity
and larger-participant status of providers of general-use digital
consumer payment applications subject to the larger-participant
threshold.
\87\ As discussed above and below, the exclusion would apply to
any nonbank that, together with its affiliated companies, is a small
business concern based on the applicable SBA size standard listed in
13 CFR part 121 for its primary industry as described in 13 CFR
121.107. The SBA defines size standards using North American
Industry Classification System (NAICS) codes. The CFPB believes that
many--but not all--entities in the proposed market for general-use
digital consumer payment applications are likely classified in NAICS
code 522320, ``Financial Transactions Processing, Reserve, and
Clearinghouse Activities,'' or NAICS code 522390, ``Other Activities
Related to Credit Intermediation.'' Entities associated with NAICS
code 522320 that have $47 million or less in annual receipts are
currently defined by the SBA as small business concerns; for NAICS
code 522390, the size standard is $28.5 million. However, other
entities that the CFPB believes to be operating in the proposed
market may be classified in other NAICS codes industries that use
different standards, including non-revenue-based SBA size standards,
such as the number of employees. While the CFPB has data to estimate
the SBA size status of some market participants, such as publicly-
traded companies, the CFPB lacks data sufficient to estimate the SBA
size status of some market participants. See SBA, Table of Small
Business Size Standards Matched to North American Industry
Classification System Codes, effective March 17, 2023, Sector 52
(Finance and Insurance), available at https://www.sba.gov/document/support-table-size-standards (last visited Oct. 26, 2023).
\88\ The CFPB has identified approximately 190 entities from
available data that provide general-use digital consumer payment
applications and may be subject to the Proposed Rule. Of those
entities, the CFPB has data on about half sufficient to estimate
larger-participant status, including whether those entities would be
subject to the small business exclusion built into the larger-
participant test. The estimate that approximately 17 entities would
be larger participants is based on the set of entities for which the
CFPB has sufficient information to estimate larger participant
status.
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The CFPB estimates that the proposed threshold would bring within
the CFPB's supervisory authority approximately 17 entities,\89\ about 9
percent of all known nonbank covered persons in the market for general-
use digital consumer payment applications.\90\ The CFPB notes at the
outset that this is a rough estimate because the available data on
entities operating in the proposed market for general-use digital
consumer payment applications is incomplete.\91\
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\89\ In developing this estimate of 17 entities, the CFPB
excluded entities where either (1) available information indicates
that the small entity exclusion applies or (2) the CFPB lacks
sufficient information regarding the entity's size to assess whether
the small entity exclusion applies.
\90\ The CFPB based its market estimates on data from several
sources. The CFPB obtained transaction and revenue data from six
technology platforms offering payment services through a CFPB
request pursuant to CFPA section 1022(c)(4). See ``CFPB Orders Tech
Giants to Turn Over Information on their Payment System Plans,''
(Oct. 21, 2021), available at https://www.consumerfinance.gov/about-us/newsroom/cfpb-orders-tech-giants-to-turn-over-information-on-their-payment-system-plans/ (last visited Oct. 23, 2023). The CFPB
was also able to access nonpublic transaction and revenue data for
potential larger participants from the Nationwide Mortgage Licensing
System & Registry (NMLS), a centralized licensing database used by
many States to manage their license authorities with respect to
various consumer financial industries, including money transmitters.
Specifically, the CFPB accessed quarterly 2022 and 2023 filings from
nonbank money transmitters in the Money Services Businesses (MSB)
Call Reports data (for a description of the types of data reported
in MSB call reports, see https://mortgage.nationwidelicensingsystem.org/slr/common/Pages/MoneyServicesBusinessesCallReport.aspx (last visited Oct. 23,
2023)). Additionally, the CFPB compiled a list of likely market
participants, as well as transaction and revenue data where
available, from several industry sources (including Elliptic
Enterprises Limited) and various public sources including the CFPB's
Prepaid Card Agreement Database, available at https://www.consumerfinance.gov/data-research/prepaid-accounts/search-agreements (last visited Oct. 23, 2023), company websites, press
releases, and annual report filings with the U.S. Securities and
Exchange Commission.
\91\ The CFPB's estimate that approximately 190 entities are
participating in the market may be an underestimate because, for
certain entities, the CFPB lacks sufficient information to assess
whether they provide a general-use digital consumer payment
application. In addition, for some entities that are among the
approximately 190 participants in the market, the CFPB lacks
sufficient information to assess whether certain products they offer
constitute a general-use digital consumer payment application.
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The CFPB anticipates that the proposed annual covered consumer
payment transaction volume threshold of five million would allow the
CFPB to supervise market participants that represent a substantial
portion of the market for general-use digital consumer payment
applications and have a significant impact on consumers. Available data
indicates that the market for general-use digital consumer payment
applications is highly concentrated, with a few entities that
facilitate hundreds of millions or billions of consumer payment
transactions annually, and a much larger number of firms facilitating
fewer transactions. The CFPB believes that a threshold of five million
is reasonable, in part, because it would enable the CFPB to cover in
its nonbank supervision program both the very largest providers of
general-use digital consumer payment applications as well as a range of
other providers of general-use digital consumer payment applications
that play an important role in the marketplace. Further, certain
populations of consumers, including more vulnerable consumers, may not
transact with the very largest providers and instead may transact with
the range of other providers that exceed the five million transaction
threshold.
According to the CFPB's estimates, the approximately 17 providers
of general-use digital consumer payment applications that meet the
proposed threshold collectively facilitated about 12.8 billion
transactions in 2021, with a total dollar value of about $1.7 trillion.
The CFPB estimates that these nonbanks are responsible for
approximately 88 percent of known transactions in the nonbank market
for general-use digital consumer payment applications.\92\ At the same
time, this threshold would likely subject to the CFPB's supervisory
authority only entities that can reasonably be considered larger
participants of the market defined in the Proposed Rule.
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\92\ See supra n.86-n.91. The 88 percent estimate is calculated
among all of the entities for which the CFPB has transaction
information.
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Proposed Sec. 1090.109(b)(3)(i) also would clarify how the
activities of affiliated companies of the nonbank covered person are
included in the test when the affiliated companies also participate in
the proposed market. It provides that, in aggregating transactions
across affiliated companies, an individual consumer payment transaction
would only be counted once even if more than one affiliated company
facilitated the transaction. It also provides that the annual covered
consumer payment transaction volumes of the nonbank covered person and
its affiliated companies are aggregated for the entire preceding
calendar year, even if the affiliation did not exist for the entire
calendar year.
Because the general-use digital consumer payment applications
market has evolved rapidly and market participants can grow quickly,
the CFPB also is not proposing a test that is based on averaging
multiple years of market activity. As a result, if an entity has less
than the threshold amount for one or more calendar years but exceeds
the threshold amount in the most recent calendar year, it would be a
larger participant. This will ensure that the CFPB can supervise
nonbanks that quickly become larger participants, without waiting
several years.
The CFPB also is considering a lower or higher threshold. For
example, an annual covered consumer payment transaction volume
threshold of one million might allow the CFPB to supervise
approximately 19 entities, still representing approximately 88 percent
of activity in this market.\93\ Lowering the threshold would not
substantially increase the number of entities subject to supervision,
in part because many entities that exceed a lower threshold would be
excluded as small entities, and would result in only a marginal
increase in market coverage. In comparison, the CFPB estimates that an
annual covered consumer payment transaction volume threshold of 10
million would allow the CFPB to supervise approximately 14 entities,
representing approximately 87 percent of activity in this market.\94\
However, at this higher threshold the CFPB would not be able to
supervise as varied a mix of nonbank larger participants that, as
discussed above, have a substantial impact on the full spectrum of
consumers in the market.
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\93\ See id. & supra n.86-n.91.
\94\ See id. & supra n.86-n.91.
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The CFPB seeks comment, including suggestions of alternatives on
the proposed threshold for defining larger participants of the market
for general-use digital consumer payment
[[Page 80211]]
applications as defined in the Proposed Rule.
V. Dodd-Frank Act Section 1022(b) Analysis
A. Overview
The CFPB is considering potential benefits, costs, and impacts of
the Proposed Rule.\95\ The CFPB requests comment on the preliminary
analysis presented below as well as submissions of additional data that
could inform the CFPB's analysis of the costs, benefits, and impacts of
the Proposed Rule.
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\95\ Specifically, 12 U.S.C. 5512(b)(2)(A) calls for the CFPB to
consider the potential benefits and costs of a regulation to
consumers and covered persons, including the potential reduction of
access by consumers to consumer financial products or services, the
impact on depository institutions and credit unions with $10 billion
or less in total assets as described in 12 U.S.C. 5516, and the
impact on consumers in rural areas. In addition, 12 U.S.C.
5512(b)(2)(B) directs the CFPB to consult, before and during the
rulemaking, with appropriate prudential regulators or other Federal
agencies, regarding consistency with objectives those agencies
administer. The manner and extent to which the provisions of 12
U.S.C. 5512(b)(2) apply to a rulemaking of this kind that does not
establish standards of conduct are unclear. Nevertheless, to inform
this rulemaking more fully, the CFPB performed the analysis and
consultations described in those provisions of the CFPA.
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The Proposed Rule would define a category of nonbank covered
persons that would be subject to the CFPB's nonbank supervision program
pursuant to CFPA section 1024(a)(1)(B). The proposed category would
include ``larger participants'' of a market for ``general-use digital
consumer payment applications'' described in the Proposed Rule.
Participation in this market would be measured on the basis of
aggregate annual transactions, defined in the Proposed Rule as ``annual
covered consumer payment transaction volume.'' If a nonbank covered
person, together with its affiliated companies, has an annual covered
consumer payment transaction volume (measured for the preceding
calendar year) of at least five million and is not a small business
concern, it would be a larger participant in the market for general-use
digital consumer payment applications. As prescribed by existing Sec.
1090.102, any nonbank covered person that qualifies as a larger
participant would remain a larger participant until two years after the
first day of the tax year in which the person last met the larger-
participant test.\96\
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\96\ 12 CFR 1090.102.
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B. Potential Benefits and Costs to Consumers and Covered Persons
This analysis considers the benefits, costs, and impacts of the key
provisions of the Proposed Rule against a baseline that includes the
CFPB's existing rules defining larger participants in certain
markets.\97\ Many States have supervisory programs relating to money
transfers, which may consider aspects of consumer financial protection
law. However, at present, there is no Federal program for supervision
of nonbank covered persons in the market for general-use digital
consumer payment applications with respect to Federal consumer
financial law compliance. The Proposed Rule extends the CFPB's
supervisory authority to cover larger participants of the defined
market for general-use digital consumer payment applications.
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\97\ The CFPB has discretion in any rulemaking to choose an
appropriate scope of analysis with respect to potential benefits and
costs and an appropriate baseline. The CFPB, as a matter of
discretion, has chosen to describe a broader range of potential
effects to inform the rulemaking more fully.
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The CFPB notes at the outset that limited data are available with
which to quantify the potential benefits, costs, and impacts of the
Proposed Rule. As described above, the CFPB has utilized various
sources for quantitative information on the number of market
participants, their annual revenue, and their number and dollar volume
of transactions.\98\ However, the CFPB lacks detailed information about
their rate of compliance with Federal consumer financial law and about
the range of, and costs of, compliance mechanisms used by market
participants. Further, as noted above in the section-by-section
analysis of the proposed threshold, the CFPB lacks sufficient
information on a substantial number of known market participants
necessary to estimate their larger-participant status.\99\
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\98\ See supra n.90.
\99\ As stated above, the CFPB estimates that approximately 190
entities operate in the market for providing general-use digital
consumer payment applications defined in the Proposed Rule. Of those
entities, the CFPB has data on roughly half sufficient to estimate
larger-participant status, including whether those entities would be
subject to the exclusion for small business concerns; approximately
17 of those would be larger participants under the proposed larger-
participant test.
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In light of these data limitations, this analysis generally
provides a qualitative discussion of the benefits, costs, and impacts
of the Proposed Rule. General economic principles, together with the
limited data that are available, provided insight into these benefits,
costs, and impacts. Where possible, the CFPB has made quantitative
estimates based on these principles and data as well as on its
experience of undertaking supervision in other markets.
The discussion below describes three categories of potential
benefits and costs. First, the Proposed Rule, if adopted, would
authorize the CFPB's supervision of larger participants of a market for
general-use digital consumer payment applications. Larger participants
of the proposed market might respond to the possibility of supervision
by changing their systems and conduct, and those changes might result
in costs, benefits, or other impacts. Second, if the CFPB undertakes
supervisory activity of specific providers of general-use digital
consumer payment applications, those entities may incur costs from
responding to supervisory activity, and the results of these individual
supervisory activities might also produce benefits and costs. Third,
the CFPB analyzes the costs that might be associated with entities'
efforts to assess whether they would qualify as larger participants
under the rule.
1. Benefits and Costs of Responses to the Possibility of Supervision
The Proposed Rule would subject larger participants of a market for
general-use digital consumer payment applications to the possibility of
CFPB supervision. That the CFPB would be authorized to undertake
supervisory activities with respect to a nonbank covered person who
qualified as a larger participant would not necessarily mean that the
CFPB would in fact undertake such activities regarding that covered
person in the near future. Rather, supervision of any particular larger
participant as a result of this rulemaking would be probabilistic in
nature. For example, the CFPB would examine certain larger participants
on a periodic or occasional basis. The CFPB's decisions about
supervision would be informed, as applicable, by the factors set forth
in CFPA section 1024(b)(2),\100\ relating to the size and transaction
volume of individual participants, the risks their consumer financial
products and services pose to consumers, the extent of State consumer
protection oversight, and other factors the CFPB may determine are
relevant. Each entity that believed it qualified as a larger
participant would know that it might be supervised and might gauge,
given its circumstances, the likelihood that the CFPB would initiate an
examination or other supervisory activity.
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\100\ 12 U.S.C. 5514(b)(2).
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The prospect of potential CFPB supervisory activity could create an
incentive for larger participants to allocate additional resources and
attention to compliance with Federal consumer financial law,
potentially leading to an increase in the level of
[[Page 80212]]
compliance. They might anticipate that by doing so (and thereby
decreasing risk to consumers), they could decrease the likelihood of
their actually being subject to supervisory activities as the CFPB
evaluated the factors outlined above. In addition, an actual
examination would be likely to reveal any past or present
noncompliance, which the CFPB could seek to correct through supervisory
activity or, in some cases, enforcement actions. Larger participants
might therefore judge that the prospect of supervision increases the
potential consequences of noncompliance with Federal consumer financial
law, and they might seek to decrease that risk by taking steps to
identify and cure or mitigate any noncompliance.
The CFPB believes it is likely that many market participants would
increase compliance in response to the CFPB's supervisory activity
authorized by the Proposed Rule. However, because finalization of the
Proposed Rule itself would not require any provider of general-use
digital consumer payment applications to alter its conduct, any
estimate of the amount of increased compliance would require both an
estimate of current compliance levels and a prediction of market
participants' behavior in response to a final rule. The data that the
CFPB currently has do not support a specific quantitative estimate or
prediction. But, to the extent that nonbank entities allocate resources
to increasing their compliance in response to the Proposed Rule, that
response would result in both benefits and costs.\101\
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\101\ Another approach to considering the benefits, costs, and
impacts of the Proposed Rule would be to focus almost entirely on
the supervision-related costs for larger participants and omit a
broader consideration of the benefits and costs of increased
compliance. As noted above, the CFPB has, as a matter of discretion,
chosen to describe a broader range of potential effects to inform
the rulemaking more fully.
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Benefits From Increased Compliance
Increased compliance with Federal consumer financial laws by larger
participants in the market for general-use digital consumer payment
applications would be beneficial to consumers who use general-use
digital payment applications. Increasing the rate of compliance with
Federal consumer financial laws would benefit consumers and the
consumer financial market by providing more of the protections mandated
by those laws.
The CFPB would be examining for compliance with applicable
provisions of Federal consumer financial laws, including the Electronic
Fund Transfer Act and its implementing Regulation E, as well as the
privacy provisions of the Gramm-Leach-Bliley Act. In addition, the CFPB
would be examining for whether larger participants of the market for
general-use digital consumer payment applications engage in unfair,
deceptive, or abusive acts or practices.\102\ Conduct that does not
violate an express prohibition of another Federal consumer financial
law may nonetheless constitute an unfair, deceptive, or abusive act or
practice. To the extent that any provider of general-use digital
consumer payment applications is currently engaged in any unfair,
deceptive, or abusive acts or practices, the cessation of the unlawful
act or practice would benefit consumers. Providers of general-use
digital consumer payment applications might improve policies and
procedures in response to possible supervision in order to avoid
engaging in unfair, deceptive, or abusive acts or practices.
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\102\ 12 U.S.C. 5531.
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The possibility of CFPB supervision also may help make incentives
to comply with Federal consumer financial laws more consistent between
the likely larger participants and banks and credit unions, which are
subject to Federal supervision with respect to Federal consumer
financial laws. Although some nonbanks are already subject to State
supervision, introducing the possibility of Federal supervision could
encourage nonbanks that are likely larger participants to devote
additional resources to compliance. It could also help ensure that the
benefits of Federal oversight reach consumers who do not have ready
access to bank-provided general-use digital consumer payment
applications.
Costs of Increased Compliance
To the extent that nonbank larger participants would decide to
increase resources dedicated to compliance in response to the
possibility of increased supervision, the entities would bear any cost
of any changes to their systems, protocols, or personnel. Whether and
to what extent entities would increase resources dedicated to
compliance and/or pass those costs to consumers would depend not only
on the entities' current practices and the changes they decide to make,
but also on market conditions. The CFPB lacks detailed information with
which to predict the extent to which increased costs would be borne by
providers or passed on to consumers, to predict how providers might
respond to higher costs, or to predict how consumers might respond to
increased prices.
2. Benefits and Costs of Individual Supervisory Activities
In addition to the responses of market participants anticipating
supervision, the possible consequences of the Proposed Rule would
include the responses to and effects of individual examinations or
other supervisory activity that the CFPB might conduct in the market
for general-use digital consumer payment applications.
Benefits of Supervisory Activities
Supervisory activity could provide several types of benefits. For
example, as a result of supervisory activity, the CFPB and an entity
might uncover compliance deficiencies indicating harm or risks of harm
to consumers. In its supervision and examination program, the CFPB
generally prepares a report of each examination. The CFPB would share
examination findings with the entity because one purpose of supervision
is to inform the entity of problems detected by examiners. Thus, for
example, an examination might find evidence of widespread noncompliance
with Federal consumer financial law, or it might identify specific
areas where an entity has inadvertently failed to comply, or it may
identify weaknesses in compliance management systems including policies
and procedures. These examples are only illustrative of the kinds of
information an examination might identify.
Detecting and informing entities about such problems should be
beneficial to consumers. When the CFPB notifies an entity about risks
associated with an aspect of its activities, the entity is expected to
adjust its practices to reduce those risks. That response may result in
increased compliance with Federal consumer financial law, with benefits
like those described above. Or it may avert a violation that would have
occurred if CFPB supervision did not detect the risk promptly. The CFPB
may also inform entities about risks posed to consumers that fall short
of violating the law. Action to reduce those risks would also be a
benefit to consumers.
Given the obligations providers of general-use digital consumer
payment applications have under Federal consumer financial law and the
existence of efforts to enforce such law, the results of CFPB
supervision also may benefit providers under supervision by detecting
compliance problems early. When an entity's noncompliance results in
litigation or an enforcement action, the entity must face both the
costs of defending its action and the penalties for noncompliance,
including potential
[[Page 80213]]
liability for damages to private plaintiffs. The entity must also
adjust its systems to ensure future compliance. Changing practices that
have been in place for long periods of time can be expected to be
relatively difficult because they may be severe enough to represent a
serious failing of an entity's systems. Supervision may detect flaws at
a point when correcting them would be relatively inexpensive. Catching
problems early can, in some situations, forestall costly litigation. To
the extent early correction limits the amount of consumer harm caused
by a violation, it can help limit the cost of redress. In short,
supervision might benefit providers of general-use digital consumer
payment applications under supervision by, in the aggregate, reducing
the need for other more expensive activities to achieve
compliance.\103\
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\103\ Further potential benefits to consumers, covered persons,
or both might arise from the CFPB's gathering of information during
supervisory activities. The goals of supervision include informing
the CFPB about activities of market participants and assessing risks
to consumers and to markets for consumer financial products and
services. The CFPB may use this information to improve regulation of
consumer financial products and services and to improve enforcement
of Federal consumer financial law, in order to better serve its
mission of ensuring consumers' access to fair, transparent, and
competitive markets for such products and services. Benefits of this
type would depend on what the CFPB learns during supervision and how
it uses that knowledge. For example, because the CFPB would examine
a number of covered persons in the market for general-use digital
consumer payment applications, the CFPB would build an understanding
of how effective compliance systems and processes function in that
market.
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Costs of Supervisory Activities
The potential costs of actual supervisory activities would arise in
two categories. The first would involve any costs to individual
providers of general-use digital consumer payment applications of
increasing compliance in response to the CFPB's findings during
supervisory activity and to supervisory actions. These costs would be
similar in nature to the possible compliance costs, described above,
the larger participants in general might incur in anticipation of
possible supervisory actions. This analysis will not repeat that
discussion. The second category would be the cost of supporting
supervisory activity.
Supervisory activity may involve requests for information or
records, on-site or off-site examinations, or some combination of these
activities. For example, in an on-site examination, CFPB examiners
generally contact the entity for an initial conference with management.
That initial contact is often accompanied by a request for information
or records. Based on the discussion with management and an initial
review of the information received, examiners determine the scope of
the on-site exam. While on-site, examiners spend some time in further
conversation with management about the entity's policies, procedures,
and processes. The examiners also review documents, records, and
accounts to assess the entity's compliance and evaluate the entity's
compliance management system. As with the CFPB's other examinations,
examinations of nonbank larger participants in the market for general-
use digital consumer payment applications could involve issuing
confidential examination reports and compliance ratings. The CFPB's
examination manual describes the supervision process and indicates what
materials and information an entity could expect examiners to request
and review, both before they arrive and during their time on-site.
The primary costs an entity would face in connection with an
examination would be the cost of employees' time to collect and provide
the necessary information. If the Proposed Rule is adopted, the
frequency and duration of examinations of any particular entity would
depend on a number of factors, including the size of the entity, the
compliance or other risks identified, whether the entity has been
examined previously, and the demands on the CFPB's supervisory
resources imposed by other entities and markets. Nevertheless, some
rough estimates may provide a sense of the magnitude of potential staff
costs that entities might incur.
The cost of supporting supervisory activity may be calibrated using
prior CFPB experience in supervision. Examinations of larger
participants in the market for general-use digital consumer payment
applications are anticipated to be approximately 8 weeks on average,
with an additional two weeks of preparation.\104\ This estimate assumes
that each exam requires two weeks of preparation time by staff of
providers of general-use digital consumer payment applications prior to
the exam as well as on-site assistance by staff throughout the duration
of the exam. The CFPB has not suggested that counsel or any particular
staffing level is required during an examination. However, for the
purposes of this analysis, the CFPB assumes, conservatively, that an
entity might dedicate the equivalent of one full-time compliance
officer and one-tenth of the time of a full-time attorney to assist
with an exam. The national average hourly wage of a compliance officer
is $37; the national average hourly wage for an attorney is $71.\105\
Assuming that wages and salaries account for 70.6 percent of total
compensation for private industry workers, the total employer cost of
labor to comply with an exam amounts to approximately $25,001.\106\
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\104\ For an estimate of the length of examination, see Board of
Gov. of Fed. Res. System Office of Inspector General, ``The Bureau
Can Improve Its Risk Assessment Framework for Prioritizing and
Scheduling Examination Activities'' (Mar. 25, 2019) at 13, available
at https://oig.federalreserve.gov/reports/bureau-risk-assessment-framework-mar2019.pdf (last visited Oct. 31, 2023).
\105\ For current U.S. Bureau of Labor Statistics (BLS)
estimates of mean hourly wages of these occupations, see BLS,
``Occupational Employment and Wages, May 2022, 13-10141 Compliance
Officers'', available at https://www.bls.gov/oes/current/oes131041.htm#(1) (last visited Oct. 26, 2023); BLS, ``Occupational
employment and Wages, May 2021, 23-1011 Lawyers,'' available at
https://www.bls.gov/oes/2021/may/oes231011.htm (last visited Oct.
26, 2023).
\106\ See BLS, ``Employer Costs for Employee Compensation--June
2023'' (Sept. 12, 2023) (Table 1 for 2023 Q2 estimates of the share
of wages and salaries in total compensation of private sector
workers), available at https://www.bls.gov/news.release/pdf/ecec.pdf
(last visited Oct. 26, 2023). This cost is calculated as follows:
((((0.1 x $71.17) + $37.01)/0.706)) x 40 hours x 10 weeks.
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The overall costs of supervision in the market for general-use
digital consumer payment applications would depend on the frequency and
extent of CFPB examinations. Neither the CFPA nor the Proposed Rule
specifies a particular level or frequency of examinations.\107\ The
frequency of examinations would depend on a number of factors,
including the CFPB's understanding of the conduct of market
participants and the specific risks they pose to consumers; the
responses of larger participants to prior examinations; and the demands
that other markets' make on the CFPB's supervisory resources. These
factors can be expected to change over time, and the CFPB's
understanding of these factors may change as it gathers more
information about the market through its supervision and by other
means. The CFPB therefore declines to predict, at this point, precisely
how many examinations in the market for general-use digital consumer
payment applications it would undertake in a given year.
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\107\ The CFPB declines to predict at this time precisely how
many examinations it would undertake at each provider of general-use
digital consumer payment applications if the Proposed Rule is
adopted. However, if the CFPB were to examine each entity that would
be a larger participant of the market under the Proposed Rule once
every two years, the expected annual labor cost of supervision per
larger participant would be approximately $12,500.50 (the cost of
one examination, divided by two).
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[[Page 80214]]
3. Costs of Assessing Larger-Participant Status
A larger-participant rule does not require nonbanks to assess
whether they are larger participants. However, the CFPB acknowledges
that in some cases providers of general-use digital consumer payment
applications might decide to incur costs to assess whether they qualify
as larger participants or potentially dispute their status.
Larger-participant status would depend on both a nonbank's
aggregate annual transaction volume and whether the entity is a small
business concern based on the applicable SBA size standard. The CFPB
expects that many market participants already assemble general data
related to the number of transactions that they provide for general-use
digital consumer payment applications. Moreover, many providers are
required to report transaction data to State regulators.\108\
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\108\ The States have been active in regulation of money
transmission by money services businesses, with 49 States and the
District of Columbia requiring entities to obtain a license to
engage in money transmission, as defined by applicable law. Further,
many States also actively examine money transmitters, including the
number of products and services they provide through general-use
digital consumer payment applications. See, e.g., CSBS,
Reengineering Nonbank Supervision, Ch. 4: Overview of Money Services
Businesses (Oct. 2019) at 4 (discussing how providers of digital
wallets hold and transmit monetary value), available at https://www.csbs.org/sites/default/files/other-files/Chapter%204%20-%20MSB%20Final%20FINAL_updated_0.pdf (last visited Oct. 27, 2023).
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To the extent that some providers of general-use digital consumer
payment applications do not already know whether their transactions
exceed the threshold, such nonbanks might, in response to the Proposed
Rule, develop new systems to count their transactions in accordance
with the proposed market-related definitions of ``consumer payment
transactions,'' ``covered payment functionality,'' ``general use,'' and
``digital application'' discussed above. The data that the CFPB
currently has do not support a detailed estimate of how many providers
of general-use digital consumer payment applications would engage in
such development or how much they would spend. Regardless, providers of
general-use digital consumer payment applications would be unlikely to
spend significantly more on specialized systems to count transactions
than it would cost to be supervised by the CFPB as larger participants.
The CFPB notes that larger-participant status also depends on
whether an entity is subject to the proposed small business exclusion.
In certain circumstances, larger-participant status may depend on
determinations of which SBA size standard applies, and by extension,
which NAICS code is most applicable. Therefore, providers of general-
use digital consumer payment applications may incur some administrative
costs to evaluate whether the small business exclusion applies.
However, providers would not need to engage in this evaluation if they
could establish that their annual covered consumer payment transaction
volume was below five million. In any event, the data that the CFPB
currently has do not support a detailed estimate of how many providers
of general-use digital consumer payment applications would engage in
such efforts or how much they would spend.
It bears emphasizing that even if a nonbank market participant's
expenditures on an accounting system enabled it to successfully prove
that it was not a larger participant (which, again, it would not need
to do if it was a small business concern according to SBA standards),
it would not necessarily follow that this entity could not be
supervised under other supervisory authorities the CFPB has that this
rulemaking does not establish. For example, the CFPB can supervise a
nonbank entity whose conduct the CFPB determines, pursuant to CFPA
section 1024(a)(1)(C) and regulations implementing that provision,
poses risks to consumers. Thus, a nonbank entity choosing to spend
significant amounts on an accounting system directed toward the larger-
participant transaction volume test could not be sure it would not be
subject to CFPB supervision notwithstanding those expenses. The CFPB
therefore believes very few if any nonbank entities would be likely to
undertake such expenditures.
4. Considerations of Alternatives
The CFPB is considering one major alternative: choosing a different
transaction volume threshold to define larger participants. One
alternative would be to set the threshold substantially higher--for
example at 10 million aggregate annual consumer-to-consumer or
consumer-to-business transactions. Under such an alternative, the
benefits of supervision to both consumers and covered persons would
likely be reduced because entities impacting a substantial number of
consumers and/or consumers in important market segments might be
omitted. On the other hand, the potential costs to covered persons
would of course be reduced if fewer entities were defined as larger
participants and thus fewer were subject to the CFPB's supervisory
authority on that basis. Conversely, lowering the threshold would
subject more entities to the CFPB's supervisory authority, but the
total direct costs for actual examination activity might not change
substantially because the CFPB conducts exams on a risk basis and would
not necessarily examine more entities even if the rule's coverage were
broader.
C. Potential Specific Impacts of the Proposed Rule
1. Depository Institutions and Credit Unions With $10 Billion or Less
in Total Assets, as Described in Dodd-Frank Act Section 1026
The Proposed Rule would not apply to depository institutions or
credit unions of any size. However, as discussed in the section-by-
section analysis of ``digital application'' above, it may apply to
nonbank covered persons that provide covered payment functionalities
through a digital application of a bank or credit union. In addition,
it might have some competition-related impact on depository
institutions or credit unions that provide general-use digital consumer
payment applications. For example, if the relative price of nonbanks'
general-use digital consumer payment applications were to increase due
to increased costs related to supervision, then depository institutions
or credit unions of any size might benefit by the relative change in
costs. These effects, if any, would likely be small.
2. Impact of the Provisions on Consumers in Rural Areas
Because the Proposed Rule would apply uniformly to consumer payment
transactions that both rural and non-rural consumers make through
general-use digital consumer payment applications, the rule should not
have a unique impact on rural consumers. The CFPB is not aware of any
evidence suggesting that rural consumers have been disproportionately
harmed by the failure of providers of general-use digital consumer
payment applications to comply with Federal consumer financial law. The
CFPB seeks information from commenters related to how digital consumer
payments affect rural consumers.
VI. Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act (RFA), as amended by the Small
Business Regulatory Enforcement Fairness Act of 1996, requires each
agency to consider the potential impact of its regulations on
[[Page 80215]]
small entities, including small businesses, small governmental units,
and small not-for-profit organizations.\109\ The RFA defines a ``small
business'' as a business that meets the size standard developed by the
SBA pursuant to the Small Business Act.\110\
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\109\ 5 U.S.C. 601 et seq. The term `` `small organization'
means any not-for-profit enterprise which is independently owned and
operated and is not dominant in its field, unless an agency
establishes [an alternative definition after notice and comment].''
5 U.S.C. 601(4). The term `` `small governmental jurisdiction' means
governments of cities, counties, towns, townships, villages, school
districts, or special districts, with a population of less than
fifty thousand, unless an agency establishes [an alternative
definition after notice and comment].'' 5 U.S.C. 601(5). The CFPB is
not aware of any small governmental units or small not-for-profit
organizations to which the Proposed Rule would apply.
\110\ 5 U.S.C. 601(3). The CFPB may establish an alternative
definition after consultation with SBA and an opportunity for public
comment. As mentioned above, the SBA defines size standards using
NAICS codes that align with an entity's primary line of business.
The CFPB believes that many--but not all--entities in the proposed
market for general-use digital consumer payment applications are
primarily engaged in financial services industries. See, e.g., SBA,
Table of Small Business Size Standards Matched to North American
Industry Classification System Codes, effective March 17, 2023,
Sector 52 (Finance and Insurance), available at https://www.sba.gov/document/support--table-size-standards (last visited Oct. 26, 2023).
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The RFA generally requires an agency to conduct an initial
regulatory flexibility analysis (IRFA) of any proposed rule subject to
notice-and-comment rulemaking requirements, unless the agency certifies
that the proposed rule would not have a significant economic impact on
a substantial number of small entities.\111\ The CFPB also is subject
to certain additional procedures under the RFA involving the convening
of a panel to consult with small entity representatives prior to
proposing a rule for which an IRFA is required.\112\
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\111\ 5 U.S.C. 605(b).
\112\ 5 U.S.C. 609.
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The Director of the CFPB certifies that the Proposed Rule, if
adopted, would not have a significant economic impact on a substantial
number of small entities and that an IRFA therefore is not required.
The Proposed Rule would define a class of providers of general-use
digital consumer payment applications as larger participants of a
market for general-use digital consumer payment applications and
thereby authorize the CFPB to undertake supervisory activities with
respect to those nonbank covered persons. The Proposed Rule would use a
two-pronged test for determining larger-participant status. First, the
proposed threshold for larger-participant status would be five million
in annual covered consumer payment transaction volume. Second, the
proposed larger-participant test would incorporate a small entity
exclusion. As a result, larger-participant status would only apply to a
nonbank covered person that, together with its affiliated companies,
both meets the proposed five-million transaction threshold and is not a
small business concern based on the applicable SBA size standard.
Because of that exclusion, the number of small entities participating
in the market that would experience a significant economic impact due
to the Proposed Rule is, by definition, zero.
Finally, CFPA section 1024(e) authorizes the CFPB to supervise
service providers to nonbank covered persons encompassed by CFPA
section 1024(a)(1), which includes larger participants.\113\ Because
the Proposed Rule would not address service providers, effects on
service providers need not be discussed for purposes of this RFA
analysis. Even were such effects relevant, the CFPB believes that it
would be very unlikely that any supervisory activities with respect to
the service providers to the approximately 17 larger participants of
the proposed nonbank market for general-use digital consumer payment
applications would result in a significant economic impact on a
substantial number of small entities.\114\
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\113\ 12 U.S.C. 5514(e); 12 U.S.C. 5514(a)(1).
\114\ The CFPB is aware that there are likely hundreds of
service providers to potential larger participants of the proposed
market, particularly in light of the market complexity.
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VII. Paperwork Reduction Act
The CFPB has determined that the Proposed Rule would not impose any
new recordkeeping, reporting, or disclosure requirements on covered
entities or members of the public that would constitute collections of
information requirement approval under the Paperwork Reduction Act, 44
U.S.C. 3501, et seq.
VIII. Signing Authority
The Director of the CFPB, having reviewed and approved this
document, is delegating the authority to electronically sign this
document to Emily Ross, Executive Secretary, for purposes of
publication in the Federal Register.
List of Subjects
Consumer protection, Electronic funds transfers, Electronic
products.
Authority and Issuance
For the reasons set forth above, the CFPB proposes to amend 12 CFR
part 1090 as follows:
PART 1090--DEFINING LARGER PARTICIPANTS OF CERTAIN CONSUMER
FINANCIAL PRODUCT AND SERVICE MARKETS
0
1. The authority citation for part 1090 continues to read as follows:
Authority: 12 U.S.C. 5514(a)(1)(B); 12 U.S.C. 5514(a)(2); 12
U.S.C. 5514(b)(7)(A); and 12 U.S.C. 5512(b)(1).
0
2. Add Sec. 1090.109 to read as follows:
Sec. 1090.109 General-use digital consumer payment applications
market.
(a)(1) Market definition. Providing a general-use digital consumer
payment application means providing a covered payment functionality
through a digital application for consumers' general use in making
consumer payment transaction(s) as defined in this subpart.
(2) Market-related definitions. As used in this section:
Consumer payment transaction(s) means, except for transactions
excluded under paragraphs (A) through (D) of this definition, the
transfer of funds by or on behalf of a consumer physically located in a
State to another person primarily for personal, family, or household
purposes. The term applies to transfers of consumer funds and transfers
made by extending consumer credit, except for the following
transactions:
(A) An international money transfer as defined in Sec.
1090.107(a);
(B) A transfer of funds by a consumer:
(1) That is linked to the consumer's receipt of a different form of
funds, such as a transaction for foreign exchange as defined in 12
U.S.C. 5481(16); or
(2) That is excluded from the definition of ``electronic fund
transfer'' under Sec. 1005.3(c)(4) of this chapter;
(C) A payment transaction conducted by a person for the sale or
lease of goods or services that a consumer selected from an online or
physical store or marketplace operated prominently in the name of such
person or its affiliated company; and
(D) An extension of consumer credit that is made using a digital
application provided by the person who is extending the credit or that
person's affiliated company.
Covered payment functionality means a funds transfer functionality
as defined in paragraph (A) of this definition, a wallet functionality
as defined in paragraph (B) of this definition, or both.
(A) Funds transfer functionality means, in connection with a
consumer payment transaction:
[[Page 80216]]
(1) Receiving funds for the purpose of transmitting them; or
(2) Accepting and transmitting payment instructions.
(B) Wallet functionality means a product or service that:
(1) Stores account or payment credentials, including in encrypted
or tokenized form; and
(2) Transmits, routes, or otherwise processes such stored account
or payment credentials to facilitate a consumer payment transaction.
Digital application, for purposes of this subpart, means a software
program a consumer may access through a personal computing device,
including but not limited to a mobile phone, smart watch, tablet,
laptop computer, desktop computer. Examples of digital applications
covered by this definition include an application a consumer downloads
to a personal computing device, a website a consumer accesses by using
an internet browser on a personal computing device, or a program the
consumer activates from a personal computing device using a consumer's
biometric identifier, such as a fingerprint, palmprint, face, eyes, or
voice.
General use, for purposes of this subpart, refers to the absence of
significant limitations on the purpose of consumer payment transactions
facilitated by the covered payment functionality provided through the
digital consumer payment application. Restricting use of the covered
payment functionality to person-to-person transfers is not an example
of a significant limitation; such a covered payment functionality would
have general use for purposes of this subpart. A payment functionality
provided through a digital consumer payment application solely for the
following consumer payment transactions would not have general use for
purposes of this subpart:
(A) For purchase or lease of a specific type of services, goods, or
other property, such as one of the following:
(1) Transportation;
(2) Lodging;
(3) Food;
(4) An automobile as defined in Sec. 1090.108 of this subpart;
(5) A dwelling or real property;
(6) A consumer financial product or service as defined in 12 U.S.C.
5481(5);
(B) Using accounts described in Sec. 1005.2(b)(3)(ii)(A), (C), or
(D) of this chapter;
(C) To pay a specific debt or type of debt including repayment of
an extension of consumer credit; or
(D) To split a charge for a specific type of goods or services
(e.g., restaurant or other similar bill splitting).
State means any State, territory, or possession of the United
States; the District of Columbia; the Commonwealth of Puerto Rico; or
any political subdivision thereof.
(b) Test to define larger participants. A nonbank covered person is
a larger participant of the general-use digital consumer payment
application market if the nonbank covered person meets both of the
following criteria:
(1) It provides annual covered consumer payment transaction volume
as defined in paragraph (b)(3) of this section of at least five million
transactions; and
(2) During the preceding calendar year it was not a ``small
business concern'' as that term is defined by section 3(a) of the Small
Business Act, 15 U.S.C. 632(a) and implemented by the Small Business
Administration under 13 CFR part 121, or any successor provisions.
(3) Annual covered consumer payment transaction volume means the
sum of the number of consumer payment transactions that the nonbank
covered person and its affiliated companies facilitated in the
preceding calendar year by providing general-use digital consumer
payment applications.
(i) Aggregating the annual covered consumer payment transaction
volume of affiliated companies. The annual covered consumer payment
transaction volume of each affiliated company of a nonbank covered
person is first calculated separately, treating the affiliated company
as if it were an independent nonbank covered person for purposes of the
calculation. The annual covered consumer payment transaction volume of
a nonbank covered person then must be aggregated with the separately-
calculated annual covered consumer payment transaction volume of any
person that was an affiliated company of the nonbank covered person at
any time in the preceding calendar year. However, if more than one
affiliated company facilitates a single consumer payment transaction,
that consumer payment transaction shall only be counted one time in the
annual covered consumer payment volume calculation. The annual covered
consumer payment transaction volumes of the nonbank covered person and
its affiliated companies are aggregated for the entire preceding
calendar year, even if the affiliation did not exist for the entire
calendar year.
Emily Ross,
Executive Secretary, Consumer Financial Protection Bureau.
[FR Doc. 2023-24978 Filed 11-16-23; 8:45 am]
BILLING CODE 4810-AM-P