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Friday, February 2, 2024

Controversy over P2P payment oversight

Battle lines are being drawn on Capitol Hill over the role of the Consumer Financial Protection Bureau in regulating the payments activities of big tech companies.

On the one side, ranking Democrats in the Senate are pressing the consumer watchdog agency to move ahead with a plan to regulate big tech companies' digital person-to-person payment services. On the other side, ranking members of the House Financial Services Committee want the bureau to scrap the proposal or, at a bare minimum, put it out for a second round of public comments.

"As written, the proposed rule does not adequately justify the need to substantially expand the Bureau's regulatory scope into the payments industry," Representative Patrick McHenry, R-N.C., chairman of the House Financial Services Committee, wrote in a January 30, 2024, letter to CFPB chief Rohit Chopra. "Rather the Bureau relies on its regulatory prerogative under the Dodd-Frank [Act] as the basis for implementing a burdensome and overreaching supervisory authority."

Representatives French Hill, R-Ariz., chairman of the digital assets, financial technology and inclusion subcommittee, and Mike Flood, R-Neb., also signed the letter.

Last fall, the CFPB put forth a plan to oversee big tech companies that offer digital wallets and other payment applications, with an eye to ensuring those companies play by the same consumer protection rules that apply to banks and credit unions. The move is directed solely at the biggest of big tech—those handling more than 5 million consumer digital payments yearly. That includes Amazon, Apple, Google, Meta, PayPal and Block.

The deadline for submitting comments on the plan was this January. McHenry and his colleagues want the CRPB to reopen the comment period for at least another 60 days and "reconsider" any plans it might have to implement the regulatory scheme as proposed.

Senators press for action; EU has different take

Ranking members of the Senate Banking Committee disagree. They want the CFPB to move ahead with its supervisory scheme for big tech payments activities. Committee Chairman Senator Sherrod Brown, D-Ohio, wants consumers to benefit from the same protections against losses to fraud and errors they get from banks and credit unions.

"Where consumers see convenience and accessibility, scammers see an opportunity," Sen. Brown said in kicking off a Feb. 1 hearing on payment scams. "In 2022, one major payment app had more than $100 million in 'unauthorized transactions.' Another had $60 million."

Brown noted that Block's Cash App refunded just 16 percent of unauthorized transactions in 2022. "These companies need to step up, and they apparently need rules to make them do it," he said.

The hearing came just two days after Brown, along with committee members Elizabeth Warren, D-Mass., and Jack Reed, D-R.I., sent a letter urging Chopra to proceed with the CFPB's plan to regulate big tech payment schemes.

"The authority to bring nonbanks into the regulatory perimeter is among the most important tools in the Dodd-Frank Act," the senators wrote. "Doing so will curb fraud and scams that are rampant on these apps and will ensure that these companies properly reimburse consumers when criminals abuse new forms of financial technology to separate them [consumers] from their money."

McHenry and company, however, countered that there's too much "uncertainty" around how the CFPB plans to oversee P2P payment services providers. This, in turn "could undermine the digital asset industry's functionality," the congressmen wrote in their letter.

The difference of opinion isn't just within the U.S. market. The CFPB approach stands in stark contrast with opinions expressed by EU policymakers.

In a January report, the European Banking Authority and other financial services regulators expressed few concerns about consumer protections and financial stability when it comes to big tech firms' subsidiaries providing digital payment services.

Some risks "may warrant policy actions in the event big tech direct provision of financial services in the European market were to continue to grow," the report stated. "However, big tech financial service provision does not currently pose a threat to financial stability."

In response to the CFPB's request for comment on the large participant rule for fintech payment companies, Jeff Patchen, director of government affairs at the Electronic Transactions Association, requested further clarification of the ruling's definitions, scope and potential impact on Jan. 8, 2024, in a detailed letter.

Scott Talbott, executive vice president, ETA, commenting on the letter's request that the CFPB engage in rulemaking regarding what counts as an authorized or unauthorized transfer under Regulation E, said, “We share the goal of fighting fraud and have deployed tools to help consumers do just that.”

A copy of the letter is available at electran.org/wp-content/uploads/ETA-Letter_LP-Rule-Consumer-Payments_1.8.24.pdf

end of article

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