For an agency meant to protect Americans from financial harm, the Consumer Financial Protection Bureau (CFPB) sure has caused a lot of it. Its onerous regulations have stifled the American public and its economic liberty for the last fifteen years.
Since its installation in 2010, the CFPB has dramatically increased mortgage costs, limited community banking, and restricted access to credit cards, among other lousy policies.
Now, the CFPB wants to reach even further into the wallets of everyday Americans by policing popular payment platforms.
In December, the agency finalized a proposed rule to give itself more oversight over Venmo, Apple Wallet, and other digital wallets and payment apps. The move is unprecedented and allows the government — with no clear standard — to dictate which financial products are acceptable for users.
As more people use Venmo and Apple Wallet like checking accounts, these services don’t have the same consumer protections — like FDIC insurance, clear dispute protections, and strict fraud prevention processes. In response, the CFPB wants to hold these entities to the same federal law requirements as large banks, credit unions, and other financial institutions. The problem is that peer-to-peer payment apps aren’t banks. For the CFPB to treat them like banks relies on factors that Congress didn't intend the bureau to consider.
Two tech groups, NetChoice and TechNet, called out this “arbitrary and capricious” rule and have filed suit against the CFPB in federal court.
Consumers interested in retaining their financial choices and companies that hope to continue innovating in the virtual payment space should root for TechNet and NetChoice to triumph over the CFPB.
The CFPB’s new rule will weaken and scare the emerging markets that sustain today’s payment landscape.
According to the Federal Reserve, 62% of Americans used digital wallets in 2023 — a sizable jump from 47% in 2022. Consumer satisfaction with peer-to-peer payment apps has steadily increased with frequency of use, partly due to their flexibility and convenience. These platforms are ripe for promotion and competition, providing new alternatives for merchants and customers engaging with commerce.
What happens if the CFPB disrupts this finely-tuned ecosystem? The payment app market and its users would fragment. The rule doesn’t cover all digital asset transactions, so it limits what people can do with different digital currencies on one platform. In turn, Bitcoin and other crypto-assets would face stricter regulations, and digital wallet providers may charge higher fees or offer fewer services to users. As 54% of patrons still prefer traditional payment mechanisms, Zelle and PayPal's adoption rates and momentum may crumble under unnecessary control.
If upheld, the CFPB’s new rule would divert personnel and financial resources toward compliance and away from improvement. As Steptoe notes, the rule’s broad definitions and finalized threshold criteria suggest potential overreach that could bring additional entities into its ambit, including fintech firms and newer market participants.
Although the CFPB claimed only seven non-bank entities meet the transaction criteria, that can’t be verified because its data on non-bank market participants is limited. Instead, the remedy is to punish small and big players, forcing them to produce voluminous records while inhibiting the development and roll-out of new products and features. With the fear of regulatory repercussions slowing operations by months, many businesses will be wary of contributing to the digital wallet market, making the environment less dynamic for all.
TechNet and NetChoice’s stand against the CFPB is necessary to establish a clear, legal enforcement standard. The two companies argue that Congress did not give the CFPB free range to aggressively pursue non-banks and their consumer financial services. Thus, claiming such power is unconstitutional, and the ambiguity must be corrected the rein in the bureau.
Orrick, Herrington & Sutcliffe LLP find that the CFPB previously didn't issue warnings about potential consumer risks until a relevant company pushed back against being monitored or overseen by the agency. Unless a business rebelled, there was no legal incentive for the CFPB to do its job. No great economy or legal system can thrive with such mind-boggling politics — TechNet and NetChoice realize that.
Ultimately, TechNet & NetChoice v. CFPB & Chopra is a two-pronged litmus test: The lawsuit will show whether digital wallet apps can prove their worth and if the CFPB’s ever-expanding scope can be stopped. With the global potential for payment apps to store everything, its ability to expand past the financial sector hinges on the courts’ judgments of TechNet and NetChoice’s arguments. Digital wallets are not just other ways to buy but modern and necessary methods to stay competitive, offer convenience, and attract a broader customer base. Regulation is not the answer the American public deserves. We should trust the free market to reform, protect, and provide the necessary solutions.
