The U.S. consumer financial watchdog on Tuesday said it plans to regulate Big Tech payment and digital wallet services to protect consumers from privacy violations and curb anti-competitive practices.
“Today’s rule would crack down on one avenue for regulatory arbitrage by ensuring large technology firms and other nonbank payments companies are subjected to appropriate oversight,” Rohit Chopra, the director of the Consumer Financial Protection Bureau (CFPB), said.
This announcement follows a study that revealed several finance apps are voraciously collecting user data, with Robinhood (Investment & Trading), Klarna (Buy Now, Pay Later), and Chime (Online Banking) leading the pack.
“Unfortunately, however, personal finances aren’t the only thing that many of these apps account for. They also collect all kinds of personal information — some in order to function properly, but much of it for profiling and marketing purposes,” the study by Merchant Machine said.
Regulatory Oversight to Protect Consumers
The CFPB plans to subject Big Tech companies with digital payment and wallet services to bank-like scrutiny. Reuters said the proposed rules will affect companies that handle over 13 billion payments annually, like Alphabet, Apple, and PayPal, among others.
According to the CFPB, these platforms compete with traditional payment systems but lack the same regulatory oversight and consumer protections.
Privacy advocates have accused digital platforms of harvesting and trading massive amounts of user data. Merchant Machine’s study revealed that many finance apps collect various types of personal data, often for purposes beyond the app’s functionality.
“Consumer behaviour data is incredibly valuable to businesses. It can be used to manipulate and influence consumers through direct marketing, behavioural advertising and even personalised pricing,” according to CHOICE consumer data advocate Kate Bower.
“This means businesses may be using your data to convince you to buy things you don’t need or even to charge you higher prices for certain items,” she added.
Protecting Your Data
Financial information is one of the most sensitive types of data, and incidents like the Robinhood data breach in 2021 highlight the importance of safeguarding this information. Disturbingly, in October, the Identity Theft Resource Center (ITRC) said organizations in the financial sector have reported the most data breaches so far in 2023.
“For a healthy, innovative, and competitive financial services ecosystem to function, consumers need to know that they are protected equally,” Lindsey Johnson of the Consumer Bankers Association said.
The next steps for the CFPB’s proposal involve a notice-and-comment period that will conclude in early 2024.
We recommend looking through the user agreements and privacy policies of the apps you use to see how companies collect, use, and share your data. Read our guide to the privacy risks of user agreements to learn how to read through privacy policies quickly and what to look out for.
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