US consumer finance watchdog is being charged for treating digital wallets as if they were banks
TechNet and NetChoice are opposing the US Consumer Financial Protection Bureau’s initiative to regulate payment apps and digital wallets, including Apple Pay, Google Wallet, PayPal, Venmo, and Cash App.
In an effort to challenge the US Consumer Financial Protection Bureau’s efforts to regard payment applications and digital wallets as banks, two technology trade organizations have filed a lawsuit.
The Consumer Financial Protection Bureau issued a rule in December that TechNet, a bipartisan network of technology CEOs and senior executives, and the internet freedom activist group NetChoice lodged a complaint against on Jan. 16.
The rule broadens the CFPB’s supervisory authority over “general-use digital consumer payment applications,” with a focus on larger participants, including payment apps, digital wallets, and other nonbank financial service providers.
Large non-bank corporations are the primary focus of the 259-page rule, which excludes crypto wallet providers and decentralized wallets.
Chris Marchese, NetChoice’s director of litigation, stated in a statement that the CFPB’s illicit power grab “undermines the rule of law, further bloats the administrative state, and places American consumers and innovation at risk.”
“The CFPB’s actions erect unnecessarily complex obstacles for businesses that are endeavoring to satisfy consumer demands and establish the groundwork for escalating prices and diminished choices,” he concluded.
NetChoice stated in a statement on X that this flagrant transgression is less about protecting consumers and more about overzealous administrators consolidating government control over one of the most innovative sectors of the economy.
The rule, which is applicable to payment applications with digital wallet capabilities, including Apple Pay, Google Wallet, PayPal, Venmo, and Cash App, enables the bureau to supervise adherence to federal privacy and fraud regulations by conducting “proactive examinations.”
The CFPB stated that the rule would safeguard personal data, reduce fraud, and prevent “illegal debanking” at the time of its finalization.
Plaintiffs contend that the CFPB neglected to identify regulatory voids that would have justified its intervention, and that numerous of these companies are already subject to extensive state regulation.
Plaintiffs contend that the rule is illegitimate due to the CFPB’s failure to comply with statutory requirements, which they have characterized as “arbitrary and capricious.” They are requesting that the court declare the rule unlawful and beyond the bureau’s authority.
The lawsuit was filed on the same day that the Consumer Financial Protection Bureau (CFPB) imposed a sanction on Block Inc., the parent company of Cash App, for inadequate fraud protection.
Block denied allegations that it directed Cash App users who suffered fraud-related losses to contact their institutions for transaction reversals.
Reuters reported on January 17 that the bureau’s order includes a $55 million penalty and up to $120 million in compensation to be deposited into the regulator’s victim relief fund.
The Consumer Financial Protection Bureau (CFPB) proposed a rule on January 10 that could mandate that crypto asset service providers reimburse users for funds fraudulently obtained through breaches and schemes.
