The Consumer Financial Protection Bureau (CFPB) is under fire from seemingly all corners, and various legal challenges have alleged that the agency’s recent ramping of its rule-making through the past few months is illustrative of a regulator that’s overstepped its bounds.
In the case of the most recent legal action (as of this writing), critics/plaintiffs have argued that when it comes to Big Tech’s digital wallets and payment ambitions, the CFPB’s recent moves will have a “chilling” effect on innovation — and by extension, on the broadening of those wallets to be a central location for a wealth of activities, with payments at the center.
The legal challenges come at a time when, as PYMNTS Intelligence has found, there’s worldwide potential for digital wallets to be used to store everything, from keys to ID documents and other credentials. In the U.S., 48% of consumers use their digital wallets for online shopping, while 39% use them in-store. But only 4.1% use digital wallets for travel-related services, such as boarding passes or hotel keys, while roughly 3% utilize the rewards programs stored in their wallets.
As reported last week, TechNet and NetChoice, which operate as tech industry trade groups, filed a suit in federal court in Washington D.C., naming both the CFPB and its director, Rohit Chopra. The suit focused on the rule which was finalized last November and took effect last month, through which the CFPB has sought to regulate companies tied to payments of more than 50 million transactions on an annual basis. These non-bank providers, in effect, would be treated like banks.
The suit alleged that the CFPB has managed “dream up a problem in search of a solution” and asserted that the agency had failed to meet mandates that it show sufficient cost-benefit analysis of the new rule-making and consider how the rule might wind up “chilling innovation in the market.” The burdens that would need to be met, said TechNet and NetChoice, include additional supervision; the production of “voluminous records, documents, and other information” to be handed over to the Bureau; employee interviews and the burden of new audits for compliance purposes.
Delving Into Digital Wallets
In reference to digital wallets, the plaintiffs stated in the suit that the final rule “shoehorns” markets together, namely “funds transfer functionalities:” first, “funds transfer functionalities,” that encompass peer-to-peer (P2P) payment applications; and second, “wallet functionalities.” The suit added that “there are fundamental differences between the regulatory standards implicated by funds transfer functionalities and wallet functionalities.”
The parties maintained that “the CFPB has not only set its sights on the covered companies’ funds transfer and wallet application products, but it also asserts that its broad supervisory oversight authority applies to any and all consumer financial products and services offered company-wide.”
“CFPB supervision thus places enormous burdens on a supervised company, diverts financial and personnel resources, and inhibits innovation and the roll-out of new products and features. Congress accordingly left regulation of nonbanks to state agencies except where necessary and as clearly and expressly authorized,” the suit said.
