Big Tech Payment Apps May Get a Break from CFPB Rule

Lawmakers are challenging a CFPB rule that extends oversight to Big Tech payment apps, arguing that the agency is overreaching its authority, while industry groups push back against increased regulation.

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I’m your host, Patti Murphy, here with your daily dose of payments notes.

Legislative Action Against CFPB Oversight

The shifting power paradigm in Washington is leaving its mark on the payments space. A resolution authored by Senator Pete Ricketts, a Nebraska Republican, has been put before the Senate. That resolution would overturn a Consumer Financial Protection Bureau (CFPB) ruling that grants the agency oversight authority over nonbanks offering peer-to-peer (P2P) digital payment apps. Large financial institutions offering such apps are already regulated by the consumer watchdog agency.
An identical resolution was introduced in the House of Representatives by Congressman Mike Flood, also a Republican from Nebraska.

Scope of the CFPB Rule

The rule in question would apply to big tech companies processing at least 50 million P2P digital payment transactions annually. These firms would be subject to CFPB oversight, meaning that if they were accused of violating consumer protection laws, they would have to answer to the agency. When announcing the rule, the CFPB estimated that the most widely used apps covered by the regulation collectively process over 13 billion consumer payment transactions annually.

Background on the CFPB’s Role

Here’s the reasoning behind the rule. Back in 2010, lawmakers drafting the Dodd-Frank Act believed it would be beneficial to centralize the oversight of large organizations involved in consumer financial services. As a result, they created the CFPB to handle this responsibility. The rationale seemed sound, given that at the time, about a half dozen different regulators had jurisdiction over these financial services companies, leading to a lack of coordination.

Many policymakers believed that the lack of focus on the oversight of large consumer financial services providers was a contributing factor to the 2008 financial crisis. Inconsistent or inadequate enforcement of consumer protection laws was seen as a major cause of the crisis.

The Rise of Big Tech in Payments

Since then, Big Tech has entered the scene with payment apps like Venmo and Cash App, which compete against bank-owned apps like Zelle. More recently, X, the social media platform previously known as Twitter, announced its entry into the payments business. In January, X revealed a deal with Visa that would allow its users to move funds between their traditional bank accounts and X digital wallets to make P2P payments in real time. However, a start date for X Payments has not yet been announced.

Industry Pushback Against CFPB Oversight

The CFPB rule has been hotly contested. A pair of associations representing Big Tech – TechNet and the Financial Technology Association – filed a lawsuit against the bureau in January, arguing that it had overstepped its authority by adopting the rule. Around the same time, President Trump fired Rohit Chopra, the CFPB’s director, leaving much of the bureau’s work in limbo.

In a press release issued by Senator Ricketts’ office, Penny Lee, President of the Financial Technology Association, described the rule as “deeply flawed” and asserted that it “failed to identify specific risks to consumers.” Carl Holshouser, Executive Vice President of TechNet, made similar assertions.

Status of the Resolution

The resolution is currently on the Senate’s calendar for a full vote and is under consideration in the House of Representatives. It should be noted that congressional resolutions are not the same as legislation. They simply express the sentiments of lawmakers. However, a resolution can become law if it passes both the House and Senate and is then sent to the President with a request for approval.

Conclusion

Well, that’s the big news Today in Payments. Keep coming back as I’ll be keeping tabs on and reporting about what’s going on in the payments space.