Big Tech ‘banks’ like Venmo now subject to fed oversight; for now, anyway

If it acts like a bank, works like a bank, makes money like a bank — and when things go wrong, it can wreck lives like a bank — it should have to follow the same rules as a bank.  That’s the logic behind a new rule established Thursday by the Consumer Financial Protection Bureau that would allow the federal agency to conduct ongoing, proactive examinations of Big Tech payment apps like Venmo, Apple Pay and Google Wallet. It’s been years in the making, designed to protect account holders living in a Wild West landscape of bank-like apps that don’t necessarily come with the same levels of consumer protection account holders are used to – like FDIC insurance or fraud protection.

Payment apps have taken the financial industry by storm in the past decade. The CFPB estimates that well more than half of American consumers use them — “Even among consumers with annual incomes lower than $30,000 who have more limited access to digital technology, 61% reported using P2P payment apps,” the CFPB wrote in its ruling.

The CFPB has been engaged in a years-long battle with payment apps after an avalanche of complaints from consumers, who report that the apps are frequently used by criminals committing scams. A formal inquiry into Big Tech’s emerging role in the banking system began in 2022.

The CFPB said it is “particularly concerned about how digital payment apps can be used to defraud older adults and active duty servicemembers,” in its statement.

The rule grants the CFPB authority to examine the way payment app firms handle transaction disputes when fraud occurs. The bureau says it will also examine privacy and consumer surveillance issues at payment apps, and examine what the CFPB calls “debunking.”  Many consumers have complained their accounts are frozen by payment apps with no clear way to recover balances or conduct final transactions.

“Consumers have encountered frustrating, sometimes financially debilitating, problems with payment apps for years. In part, that’s because of a lack of supervision over large nonbank players in the payments space,” said Mike Litt, spokesman for consumer advocacy organization the Public Interest Research Group. “We commend the CFPB for its rule to protect payment app users and urge the bureau to implement it to catch problems early and ensure that big tech companies play by the same rules as banks and credit unions.”

Apps that only work at a single retailer, such as Starbucks’ wildly popular app, would not be covered by the rule.

Traditional financial institutions are already subject to these rules; Thursday’s action represents a leveling of the playing field between banks and tech companies behaving like banks, consumer advocates have argued. In the past, some in the financial industry have agreed.  But Big Tech balked at the new rules when they were proposed last year, arguing the CFPB is extending its authority beyond what Congress intended — an overreach that is ill-timed as Washington D.C. is poised for a change in party control.