Recently, three Republican members of the U.S. House of Representatives’ Financial Services Committee, Patrick McHenry, Mike Flood, and French Hill, sent a joint letter to the Consumer Financial Protection Bureau (CFPB or Bureau) urging the agency to reopen the comment period and reconsider its November 2023 proposed rule regarding digital consumer payment applications. 

As discussed here, the Bureau is seeking to amend existing regulations by adding a new section to define larger participants that offer digital wallets, payment applications, and other services to fall within the CFPB’s supervisory scope. The Congressmen urge the CFPB to open the comment period on the proposed rule for an additional 60 days arguing that “[a]s it currently stands, this rule would introduce more regulatory uncertainty into the payment industry, particularly with respect to third-party service providers and digital asset companies.”

Specifically, under the proposed rule the CFPB seeks to supervise large nonbanks that provide peer-to-peer (P2P) payments, funds transfers, or wallet functionalities through a digital payment application. The proposed rule would subject companies that offer one or more of the covered activities to the CFPB’s supervisory authority, which would allow the CFPB to conduct examinations and assess compliance with all federal consumer financial protection laws and regulations enforced by the CFPB, not merely the ones relating to digital payments.

The comment period on the proposed rule closed on January 8, but the Congressmen argue it should be reopened for various reasons:

  • The proposed rule does not adequately justify the need to expand the Bureau’s regulatory scope into the payments industry. For example, the proposed rule fails to provide any evidence of non-compliance with federal consumer financial laws or explain how it would be addressed by this new regulation. As such, the Congressmembers urge the CFPB to provide sufficient justification demonstrating the need for the proposed rule, including a more detailed analysis of the scope of the proposed rule and its impact. “Absent such justification, the CFPB should forgo finalizing the rule.”

  • As written, it is unclear whether the proposed rule covers third party service providers and, if so, to what extent. “Service provider” is broadly defined under the Dodd-Frank Act and so relying on the statutory definition leaves many unanswered questions regarding how the CFPB intends to conduct oversight of third-party service providers to covered entities offering consumer payment applications.

  • It is unclear when the rule would apply to specific entities. On one hand, the proposed rule explicitly states that fiat-to-crypto and crypto-to-crypto transactions conducted on an exchange would not be covered. However, it remains unclear if this exclusion would exempt digital asset exchanges entirely, or only in instances where they offer services limited to the conversion of fiat-to-crypto and crypto-to-crypto transactions. Likewise, the proposed rule’s language pertaining to digital asset wallet providers raises questions as to which entities would be included under CFPB’s purview.
Notably, the day after the Republican Congressmen submitted their letter to the Bureau, three Democratic U.S. Senators issued a letter supporting the proposed rule.

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