Federal Rule Will Give Consumers More Legal, Regulatory Protections for Digital Wallets

Letter

TRENTON –  Attorney General Matthew J. Platkin yesterday led a coalition of Attorneys General to support a proposed federal rule that would expand supervisory authority over certain nonbank companies that offer digital consumer payment and wallet services, such as Venmo, CashApp, Paypal, and Zelle, to ensure that such companies are subject to the same regulatory oversight as banks, credit unions, and other traditional financial institutions.

New Jersey led the multistate comment letter to support the Consumer Financial Protection Bureau’s (CFPB) Notice of Proposed Rulemaking for these peer-to-peer digital payment services. The proposed rule, announced on November 7, 2023, has three main aims:

• To include larger nonbank financial companies in CFPB supervisory examinations;
• To ensure that these firms are held to the same level of accountability as banks and credit unions regarding data privacy, funds transfer, and other relevant consumer protection laws;
• To ensure the consistent enforcement of federal consumer financial protection laws and promote fair competition.

“This rule will close regulatory loopholes and ensure that all of New Jersey’s consumers will be protected when they use these stand-alone digital payment apps to send or receive money,” said Attorney General Platkin. “Most people probably don’t know that if they keep a few thousand dollars in one of these services, the firms are able to hold and invest those funds any way they want, with less oversight and no FDIC insurance against loss like traditional banking institutions. This exposes the people who can least afford that level of risk to the possibility of never seeing their money again.”

Expanding the CFPB’s supervisory authority over these nonbank payment services would also reduce the risk of potential misuse of consumer data.

“Despite knowing how much you spend and what you spend it on, digital payment apps are not currently subject to the same level of scrutiny as banks for purposes of compliance with federal data privacy laws,” said Cari Fais, Acting Director of the Division of Consumer Affairs. “This rule would require digital payment apps to tell consumers about how they share and use their data and provide them with ways to opt out of that information sharing.”

Customer funds in traditional banks and credit unions are secured by the Federal Deposit Insurance Corporation, but money held by these stand-alone person-to-person digital payment services are not. The lack of this federal oversight exposes millions of digital payment platform users to scams and other risks. Moreover, when payment problems with these digital apps do occur, reports show that significant numbers of consumers experience difficulty obtaining responses from digital payment applications’ customer service providers.

Greater supervision by the CFPB would also enhance New Jersey’s consumer protection regulations. Currently, the Department of Banking and Insurance licenses nonbank digital platforms as money transmitters and oversees their activities in a limited way. When these digital wallets become accountable to CFPB examinations, New Jersey regulators will gain more information and tools to prevent and abate unfair, deceptive, or abusive practices in the market. 

This is not the first time New Jersey has taken action regarding digital payments. In 2021, New Jersey signed on to a related comment letter, led by Oregon and Idaho, in response to CFPB’s inquiry into big tech payment platforms to assess their business practices and ensure consumer protection.

Other states signing onto the letter include California, Colorado, Connecticut, Delaware, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Mexico, North Carolina, New York, Oregon, Pennsylvania, Rhode Island, Vermont, Wisconsin, and the District of Columbia.

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