Last year, on June 5, 2023, we reported on the Consumer Financial Protection Bureau’s (“CFPB”) then-nascent interest in the burgeoning sector of FinTechs and nonbank financial entities, underscoring the CFPB’s expanding focus on the payments industry, in addition to the consumer lending and debt collection spaces (click here to read our previous article). As prophesied, the CFPB has lived up to these anticipations, steering its regulatory compass to chart new payment industry territories through its crusade on “junk fees.”

The CFPB’s Steadfast Trajectory into Nonbank Payments Platforms

Echoes of concern, trailing back to comments made by former CFPB Director Richard Cordray, resonated louder today as the agency issued a report today focused on payment systems utilized by schools for services like lunch programs, highlighting their use of “junk fees” (click here to read the CFPB’s announcement and report). This report adds to the agency’s resolute intention to delve further into the nonbank payments space—an area ripe with high transactional frequency, hidden fees, and replete with underserved consumer protection measures.

The consistent thread from the CFPB’s admonitory publications involving “junk fees” in various other sectors, including banking and the credit card industries, to today’s reports signify a clear narrative: the CFPB is implementing a strategy to enforce stringent oversight over companies that have traditionally operated on the fringes of financial regulation. The payments space is considered by many as the holy grail of “fees,” in particular, what the CFPB would deem “junk fees.” We do not expect the Bureau to stop here, especially considering it is now emboldened by its recent Supreme Court win in Consumer Financial Protection Bureau v. Community Financial Services Assn. of America, Ltd. Payment processors, apps, and platforms that handle millions of daily financial interactions should be prepared to be examined under the CFPB’s microscope.

Implications for the Payment Platforms Industry

The repercussions payment platforms may face through this paradigm shift as regulatory frameworks tighten around “junk fees” could be manifold—demanding better user protections, complete transparency and disclosures, and perhaps some reworking of revenue models, particularly those based on fees perceived as prejudicial to consumers. It is conceivable to foresee the CFPB making a decisive entry into new domains, and the industry should be prepared to adapt to a more rigid regulatory environment with compliance at the forefront.

The takeaway is unequivocal for those within the payments sector: the CFPB is resolute about expanding its reach and reshaping the nonbank payments environment. The message to the industry is clear – brace for impact and realignment under the vigilant watch of an emboldened CFPB looking to redefine the standards of consumer financial protection.