A customer uses a phone to pay for a subway ride in New York, on May 31, 2019.Brendan McDermid/Reuters
Silicon Valley tech giants and others who together process more than 13 billion financial transactions annually through digital wallets and payment apps will be subject to government supervision, the U.S. Consumer Financial Protection Bureau said.
The new rule finalized on Thursday will bring a burgeoning consumer service under the same scrutiny faced by banks while helping protect the privacy of vast amounts of consumer data and preventing fraud and the illegal closure of their accounts, the agency said.
The regulations, first proposed a year ago to govern digital services such as Apple Wallet, Google Pay and Venmo, come as President-elect Donald Trump prepares to make far-reaching changes to federal regulators’ conduct when he takes office next year, which could cast doubt on the rule’s future.
“Digital payments have gone from novelty to necessity and our oversight must reflect this reality,” CFPB Director Rohit Chopra said in a statement.
Regulators’ supervision entails detailed internal scrutiny to ensure companies’ legal compliance with federal law, something banks routinely face.
While some bank industry representatives had welcomed the move, saying providers of bank-like services should be regulated like banks, Big Tech and some financial tech companies were not happy, claiming the regulations would stifle innovation and squeeze startups out of the business.
The CFPB said the final rule contained significant changes from the initial proposal. A company will now need to process at least 50 million transactions a year to be covered by the rule, not 5 million as originally proposed.
The rule will now apply only to transactions in U.S. dollars, whereas the agency had initially said it could apply to digital assets that have monetary value and can be used to make purchases.
The rule will take effect 30 days after publication in the Federal Register, the official journal for government regulations.