CFPB’s Digital Payment Oversight Proposal Criticized

Despite ongoing debates, the CFPB has not finalized its approach to regulating digital asset payment systems.

On Wednesday morning, French Hill (R-AR), chairman of the House Financial Services Subcommittee on Digital Assets, Financial Technology, and Inclusion, criticized the recent federal oversight proposal of digital asset payment systems by the Consumer Financial Protection Bureau (CFPB).

Hill advised the independent government agency to “return to the drawing board” regarding this proposal.

Hill stated, “Without a doubt, this proposition will reduce the motivation for innovation in the payments sector and restrict the number of companies from which consumers can select a payment method, thereby diminishing competition.”

The prevailing viewpoint among Republican subcommittee members was that the Consumer Financial Protection Bureau’s new rule constituted, at best, an excessive intrusion and, at worst, potential surveillance.

“The CFPB must return to its original purpose of safeguarding consumers without impeding innovation or expanding its ceaseless pursuit of authority and jurisdiction,” the chairman further stated.

The new rule, initially introduced in November 2023 by the Consumer Financial Protection Bureau, would grant the agency the authority to oversee “larger nonbank companies that provide payment applications and digital wallets,” such as peer-to-peer and electronic fund transfer payment services.

“Infrastructure-critical payment systems underpin our economy.” “Previously, these activities were almost exclusively carried out by supervised institutions,” said Rohit Chopra, director of the Consumer Financial Protection Bureau, in a statement released in November 2023 to announce the proposal.

“The rule implemented today would effectively regulate regulatory arbitrage by imposing adequate supervision on major technology companies and nonbank payment organizations.”

The digital payment sector is anticipated to attain a valuation of $505 billion by 2032, expanding at a compound annual growth rate of 19.7%, as reported by Data Horizon Research.

Debate Surrounding CFPB’s Regulatory Scope

In opposition during the hearing on Wednesday, Democrats contended that payment applications like Venmo and PayPal would be obligated to adhere to consumer protection laws, thereby enhancing the overall security of the sector.

American Representative Stephen Lynch (D-Massachusetts) stated, “The CFPB is not transforming into a tech regulator to the same extent that tech corporations are transforming into banks.”

In contrast, Representative Maxine Waters (D-CA) argued that the rule would not “impose limitations on competition and payments” but rather “enhance competition by demonstrating that the largest corporations cannot exploit their scale and data to displace smaller firms unjustly.”

The hearing on Wednesday takes place amid broader discussions concerning the distinction between conventional finance and digital assets, especially in the aftermath of the banking crisis of 2023, which witnessed the abrupt failure of several crypto-friendly banks.

Notwithstanding the discourse within Congress concerning the CFPB’s proposed regulation of cryptocurrencies, the governing body has yet to furnish explicit details concerning its future approach to overseeing digital asset payment systems.

The committee memorandum states, “It is uncertain when the CFPB intends to finalize the proposal or whether the numerous concerns raised will be addressed.”