House Republicans took aim at the Consumer Financial Protection Bureau (CFPB) at a Wednesday hearing over its proposed rule regulating financial services like digital wallets and payment apps.
The agency announced its proposal to supervise the nonbank financial technology in November, with CFPB Director Rohit Chopra saying the 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.”
But Republicans say it’s the latest example of the CFPB overstepping its mandate and unnecessarily imposing regulation on private companies.
“So for the people watching at home, the CFPB is looking for something to do because they are busy bodies,” Rep. Byron Donalds (R-Fla.) said at the hearing of the House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion.
“There is no need for them to regulate in the space. Mr. Chopra once again is way beyond his bounds,” he added
Donalds argued the rule would limit Americans’ ability to buy and sell goods and services and overly involve CFPB in digital transactions.
Subcommittee Chair Rep. French Hill (R-Ark.) said the proposal was “overly broad and ambiguous” and assumes applications like digital wallets are interchangeable with payment applications like PayPal, Venmo and Cash App.
“The CFPB is trying to cast as wide a net as possible and become a technology regulator,” Hill said. “In many more ways than one, this proposal marks a sharp departure from the CFPB’s previous large participation rules.”
Jack Solowey, a financial technology policy analyst at the Cato Institute, drew a distinction between payment apps, which require a service provider to facilitate transactions, and digital wallets, which allow users to access their holdings, generally by securely storing information on smartphones.
He said the new rule would make it unclear what tools are regulated and “muddies the waters” for many tech companies. And he warned the regulation of digital wallets would “raise serious concerns under the Administrative Procedure Act and the Consumer Financial Protection Act itself.”
Subcommittee Ranking Member Rep. Stephen F. Lynch (D-Mass.) referenced a statement from the CFPB saying the lines between banking and commerce have blurred and that regulation is crucial to protecting consumers.
“CFPB is not becoming a tech regulator as much as tech companies are becoming banks,” Lynch said.
Christopher Odinet, professor of law at the University of Iowa, said nonbank platforms are more often playing similar roles to banks in the payments ecosystem and acting as “powerful intermediaries,” which requires more supervision to reduce risk.
“They add additional parties in the payment process that has the effect of increasing the chances of losses related to fraud, data breaches and the insolvency of these powerful intermediaries,” Odinet said.
CFPB oversight also allows for more consistent regulation across state lines and helps prevent possible discrimination that could result from technology companies collecting data, he added.