New Jersey Attorney General Matthew Platkin this week spearheaded a multistate coalition of attorneys general in support of a proposed federal rule that would increase oversight of digital payment services, such as Venmo, CashApp, Paypal and Zelle, to ensure they face the same regulatory oversight as traditional financial institutions.

In November, the Consumer Financial Protection Bureau (CFPB) announced a Notice of Proposed Rulemaking with three main objectives:

• 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; and
• To ensure the consistent enforcement of federal consumer financial protection laws and promote fair competition.

Platkin led a Jan. 8 multistate comment letter supporting that proposed rule. Other states signing include: California, Colorado, Connecticut, Delaware, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Mexico, North Carolina, New York, Oregon, Pennsylvania, Rhode Island, Vermont and Wisconsin, as well as the District of Columbia.

“As described further below, the states have a strong interest in ensuring that traditional banks and providers of consumer financial products and services delivered through digital applications are equally subject to consumer financial protection oversight. This is particularly so because many of our consumers, including low-income individuals, do not always have ready access to traditional bank-provided digital consumer payment applications,” the letter says. “The states therefore commend the CFPB for exercising its statutory authority and taking important steps to improve regulation of consumer financial products and services to address potential risks posed by this emerging financial market and market participants. In so doing, the CFPB will allow states to better target enforcement and outreach efforts, which will further ensure that all consumers have access to fair and transparent markets.”

The letter notes the proposed rule would protect consumers from fraud and unregulated investment risks while strengthening data privacy protections and helping to protect consumers’ personally identifiable information.

“This rule will close regulatory loopholes and ensure that all of New Jersey’s consumers will be protected when they use these standalone digital payment apps to send or receive money,” said Platkin in a press release. “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 [Federal Deposit Insurance Corp.] 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.”

Officials also note that greater supervision by the CFPB would enhance New Jersey consumer protection regulations because the Department of Banking and Insurance currently oversees these types of services in a limited way. However, if these services had to adhere to CFPB examinations, officials say state regulators would gain more information and tools to prevent and abate bad practices in the market.

“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, 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.”