US Watchdog, CFPB to Regulate Google Pay and Other Digital Wallets

US tech payments and digital wallets will now be subject to federal supervision, the Consumer Financial Protection Bureau has said. The USNews reported that the US watchdog has finalized rules for regulating tech companies that collectively process over 13 billion financial transactions through payment apps and digital wallets annually.

CFPB officials expect to regulate about 17 companies that transact close to 13 billion payments in the US annually under the new rules.

Need for Oversight

The new rules were first proposed about a year ago with the aim of regulating digital financial services such as Venmo, Apple Wallet, and Google Pay. Under the new rules, the growing digital financial service sector will be subjected to scrutiny, similar to what banks experience.

The new rules will also aid in protecting the privacy of huge volumes of consumer data and safeguard against fraud. The US watchdog said subjecting US digital wallets and payment apps to regulation will prevent illegal closure of customer accounts.

“Digital payments have gone from novelty to necessity and our oversight must reflect this reality,” CFPB Director Rohit Chopra said.

Finalization of the rules comes just weeks before President elect Donald Trump takes office. Upon taking office in 2025, Trump is expected to make significant changes to the conduct of federal regulators. These changes could affect the administration of these rules in future.

Mixed Reactions

Supervision by the CFPB will entail indepth internal scrutiny of digital payment platforms and wallets to ensure tech companies comply with the federal law. Banks are routinely subjected to this kind of scrutiny.

Some bank representatives have welcomed this decision, claiming that digital platforms that provide services that are similar to those that banks provide should be subjected to similar regulation.

But tech giants and some fintech companies have not received the new rules positively. They argue that such regulation could stifle innovation and push startups in the digital payments industry out of business.

The Computer & Communications Industry Association (CCIA) opposed the idea of regulating digital payments early this year. In a letter submitted to the CFPB, the association argued that the agency had not identified the specific consumer risks that the rules would address. The association also claimed that CFPB’s view that non-bank digital providers are direct competitors of banks was inaccurate.

“Even if there are some instances where banks and nonbank entities compete, the reality of the market shows that there are more instances where their synergies help consumers, providing complementary services,” the CCIA said in the letter.

In September 2024, the US Federal Deposit Insurance Corporation (FDIC) announced plans to introduce strict rules and regulations for banks that work with fintech companies. The bank rules will strengthen fintechs by requiring banks to reinforce recordkeeping for accounts that fintech companies hold on behalf of customers.

Requirements in the New Rules

The CFPB says the final rules come with significant adjustments compared to the initial proposals. To be regulated by the consumer watchdog, tech payment companies will have to process a minimum of 50 million financial transactions annually. The original draft had capped annual transactions at 5 million.

The rules will only apply to US dollar transactions. Initially, the watchdog had said the rule will apply to all digital assets that have a monetary value attached to them and are capable of making purchases. The new regulations are set to take effect 30 days following their publication in the government’s official regulations journal, the Federal Register.