In another move highlighting the Consumer Financial Protection Bureau's (the “Bureau” or “CFPB”) continued focus on the payments space, the CFPB has issued a new report finding consumers are encountering numerous problems with credit card rewards programs. This comes just a month after the Bureau issued a report on banking in video games and virtual worlds, underscoring the Bureau's views on the industry’s operations as increasingly bank-like since gaming now facilitates billions in transactions, including the exchange of virtual currencies.
Credit card rewards programs, similar to gaming tokens, can be viewed as stored value products that may operate within a closed-loop payment ecosystem or, alternatively, can be open-loop if they are convertible and, as such, can be subject to state and federal money transmission laws. There are some federal laws like Regulation E that provide some oversight; however, the CFPB has not traditionally been a regulatory agency in this space, nor was it established to regulate this type of product, which has typically been regulated on the state level. However, this is not the first time we have seen the CFPB attempt to make an argument for greater oversight in this space.
The CFPB attempted to provide oversight in the payments space in November 2023, when it proposed a new rule that would call for federal regulatory oversight of large nonbank companies that offer digital wallets and payment apps to consumers. We also saw the CFPB continue its crackdown on nonbank payment systems remittance providers through the Chime Consent Order this past October, which came only months after the CFPB proposed a rule to establish a public registry of supervised nonbanks’ terms and conditions in “take it or leave it” form contracts that claim to waive or limit consumer rights and protections.
Are these reports simply additional notches on the CFPB’s belt to make a case for becoming the federal payments regulatory agency? It is easy to make this argument, as it seems odd that the CFPB is focusing on credit card reward complaints when credit card debt is at an all-time high, and these complaints constitute less than one percent of all complaints received by the Bureau in 2023. Even more curious is this comes only weeks before the impending Supreme Court decision on whether the CFPB’s funding is even constitutional. Perhaps this is merely an intermission between the CFPB’s regulatory acts, and should the Supreme Court uphold its funding, we should expect the CFPB to continue to make strides in its efforts for federal payments regulations.
