Lawmakers debate CFPB oversight of payment apps and crypto

Lawmakers discussed the Consumer Financial Protection Bureau’s proposal to potentially bring payment applications, including those involving crypto, under its oversight.

The proposal, “Defining Larger Participants of a Market for General-Use Digital Consumer Payment Applications,” aims to regulate nonbank financial companies processing over five million transactions annually, similar to the regulatory requirements for banks and credit unions.

During the hearing, some House Financial Services subcommittee members expressed concerns about the CFPB overstepping its bounds. Rep. Mike Flood, R-Neb, questioned the legality of the CFPB claiming jurisdiction over cryptocurrencies with minimal legal basis.

Conversely, Democrats like Rep. Stephen Lynch, D-Mass, argued for the necessity of CFPB oversight due to the volatile nature of cryptocurrencies, which has led to significant investment losses.

“There’s a huge amount of risk and volatility in that, and yet there are some who say there’s no risk-based reason for the CFPB to venture into this,” Lynch said. 

The rule explicitly mentions cryptocurrencies several times and has been criticized for allegedly extending the CFPB’s reach into areas like crypto transactions and self-hosted wallets without clear jurisdiction.

Witnesses and lawmakers, including House Financial Services Committee Chair Patrick McHenry, R-N.C., and Rep. French Hill, R-Ark., have voiced concerns over the rule’s vague implications for digital assets.

Amid discussions on regulatory clarity for cryptocurrency firms, Rep. Warren Davidson, R-Ohio, highlighted the challenges in seeking definitive guidance from regulatory bodies.

Christopher Odinet, a law professor, advocated for including cryptocurrencies under CFPB supervision.

“Take, for instance, the high-profile collapse of the crypto exchange giant FTX,” Odinet said. “It has exposed how little was previously known about the true nature of these transactions and the handling of consumer assets.”