Bureaucratic Overreach or Consumer Protection? Examining the CFPB's Latest... (EventID=116956)

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Connect with the House Financial Services Committee Get the latest news: https://democrats-financialservices.house.gov/ Follow us on Facebook: https://www.facebook.com/HouseFinanci... Follow us on Twitter: https://twitter.com/FSCDems ___________________________________ On Thursday, February 15, 2024, at 2:00 p.m. (ET) Subcommittee on Digital Assets, Financial Technology and Inclusion Chair Congressman Hill and Ranking Member Congressman Lynch will hold a hearing entitled, “Bureaucratic Overreach or Consumer Protection? Examining the CFPB's Latest Action to Restrict Competition in Payments." ___________________________________ Witnesses for this one-panel hearing will be: • Carl Holshouser, Executive Vice President and Corporate Secretary, TechNet • Brian Johnson, Managing Director, Patomak Global Partners, LLC • James Kim, Partner and Head of Fintech Industry Group, Troutman Pepper Hamilton Sanders, LLP • Jack Solowey, Financial Technology Policy Analyst, CATO Institute ___________________________________ Background In November 2023, the Consumer Financial Protection Bureau (CFPB) issued its first “Larger Participant Rulemaking” proposal in eight years. The last larger participant rule was finalized in 2015. The November 2023 proposal is the sixth CFPB rulemaking to define larger participants of markets for consumer financial products and services. This proposal would expand the CFPB’s supervisory authority over large companies in the “general-use digital consumer payment application” space. However, the CFPB fails to adequately justify the need for this proposal, raising concerns about its necessity. The proposed rule's broad scope could potentially impact companies beyond the purported target, raising concerns about the proposal’s unintended consequences. The flawed cost-benefit analysis supporting the proposal raises additional concerns about the proposal’s economic impact. Further, the CFPB interprets the term “funds” in a novel way to grant the CFPB authorities over digital assets. The proposal represents another unwarranted expansion of CFPB's authority. Without addressing these issues, the proposal in its current form would have negative consequences for businesses, consumers, and competition. Background on the CFPB’s Authorities Title X of the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd Frank) provides the CFPB with supervisory authority over “larger participant[s] of a market for other consumer financial products or services.’’ Dodd Frank directs the CFPB to consult with not only the Federal Trade Commission (FTC) but also the appropriate federal financial regulators on larger participant rulemakings. In their most recent proposal, the CFPB appears to have only, “consulted with or provided an opportunity for consultation and input to the FTC.” Under Dodd Frank, the CFPB does not need to conclude that a market has higher rates of noncompliance, poses a greater risk to consumers, or is more important to supervise than other markets, as it relates to the large participant rule. Rather, Dodd Frank provides the CFPB with broad plenary authority to define the market and to supervise market participants, once an entity meets a preestablished threshold. Once an entity falls under the larger participant rule, the scope of the CFPB’s supervisory authority goes beyond the products and services that initially qualified the entity for supervision. For example, the CFPB is obligated to report a supervised entity’s potential tax noncompliance to the IRS. In addition, the CFPB’s supervisory authority extends to the covered entity’s third-party service providers. Overview of Recent Growth in Digital Payments Digital payments have played an increasingly important role since the late 2000s. Technological advances with mobile wallets and contactless payments using individuals’ smartphones, have integrated digital payments into Americans’ everyday lives. While the COVID-19 pandemic further catalyzed consumers’ use of digital, peer-to-peer payments (P2P), the adoption of digital, P2P payments in the post-pandemic era has skyrocketed. A 2022 study by the PEW Research Center found that 76 percent of Americans have used at least one of four well-known P2P payment apps (PayPal, Venmo, Zelle, or Cash App) and that 61 percent of low-income households (households with an annual income lower than $30,000) reported using P2P payment apps. A survey by McKinsey & Company published just a year later showed a continued increase, with more than nine out of ten consumers indicating they have used some form of digital payment during 2023. CFPB analysts expect this mass adoption to continue, estimating the value of digital wallet tap-to-pay transactions will grow by over 150 percent by 2028. In response to the explosive growth in digital P2P payments, the CFPB... ___________________________________ Hearing page: https://democrats-financialservices.house.gov/events/eventsingle.aspx?EventID=411261