On May 9, CFPB General Counsel and Senior Advisor to the Director, Seth Frotman, discussed the evolution of the payments system and its significant impact on consumer financial protection. Speaking before the Innovative Payments Association, Frotman commented that over the past few years, growth in the use of noncash payments (i.e. ACG, cards, and checks) accelerated faster from 2018 to 2021 than in any previous period, with the value of noncash payments since 2018 increasing nearly 10 percent per year, approaching almost $130 trillion in 2021. The value of ACH transfers and the number of card payments also increased tremendously, Frotman noted, pointing to a rapid decline in ATM cash withdrawals and the use of checks. He observed that the use of peer-to-peer (P2P) payment platforms and digital wallets is also growing quickly, with more traditional financial institutions redoubling their efforts to expand product offerings to capture market shares in this space. Additionally, several large tech firms, drawing on their significant customer bases and brand recognition, are looking to integrate payment services into their operating systems, with some offering payment products used by consumers daily, Frotman said.

Addressing concerns relating to data harvesting and privacy, Frotman said the Bureau is concerned that companies, including big tech companies, are using payment data to engage in behavioral targeting or individualized marketing, while some companies are sharing detailed payments information with data brokers or third parties as a way to monetize data. These behaviors, which he said only increase as payment systems continue to grow, raise the potential for harm, including limiting competition and consumer choice and stifling innovation. Frotman added that these issues are not limited to big tech. Banks, Frotman said, are also rolling out digital wallets as a way to access payment information, and Buy Now Pay later lenders are collecting consumer data “to increase the likelihood of incremental sales and maximize the lifetime value extracted from each current, past, or potential borrower.” Frotman reminded attendees that the Bureau has several critical tools at its disposal to address concerns about how data is bought, sold, used, and protected, and warned the payments industry to comply with applicable legal requirements.

Frotman also discussed challenges facing “gig” and other non-standard workers when trying to navigate consumer financial markets, particularly with respect to the intersection between how workers are being paid and the EFTA. According to Frotman, the Bureau is concerned about whether gig workers are being improperly required to receive payments through a particular financial institution or via a particular payment product or app. Frotman instructed employers to provide payment options that do not require workers to establish an account with a particular institution to ensure they do not run afoul of the EFTA’s “compulsory use” provision. Consumers who use a personal P2P app for work transactions are also entitled to EFTA protections with respect to fraud and error resolution, Frotman added. Frotman closed his remarks by touching briefly on liquidity and stability in the P2P payment system. He warned that consumers who use P2P payment products to store funds do not have the same level of protection as consumers who use traditional banking products.