January 8, 2024

Independent Women’s Forum (IWF) appreciates the opportunity to comment on the Consumer Financial Protection Bureau’s (CFPB) proposed regulations to expand oversight authority concerning general-use digital consumer payment applications. 

IWF is the leading national women’s organization dedicated to developing and advancing policies that are more than just well-intended but enhance people’s freedom, opportunities, and well-being. IWF is committed to advancing common-sense policy solutions that protect the free-enterprise system and support women’s unique needs in the economy.

IWF’s comments focus on identifying the consequences of the proposed regulation that would benefit from additional scrutiny. We urge that CFPB delay implementing this rule.   

Background

The CFPB currently has statutory authority over banks and nonbank entities of all sizes in the residential mortgage, private education, and payday lending markets. In addition, it claims authority over nonbank “larger participants” of markets for other consumer financial products or services.

Online platforms have increasingly added to their services the ability for users to send payments to each other and store financial information for payment processing through applications.  

The CFPB has proposed expanding its supervisory and examination authority over certain nonbank companies that provide so-called “general-use digital consumer payment applications” that handle more than 5 million transactions per year. The apps that would be affected include digital wallets, funds transfer services, and payments to other persons for personal, family, or household purposes.

Based on data it has collected from previous efforts to gain insights into Big Tech companies, the CFPB estimates this rule would cover 17 companies including Amazon, Apple, Facebook, Google, PayPal, and Square.

Under the proposed rule, the CFPB could conduct a host of supervisory activities over the entities’ hosting of the digital payment apps including requests for information or records, on-site or off-site examinations, and requests for information or records on the entity’s policies, procedures, processes, accounts, and ad compliance evaluations.

Concerns

2. Lacks evidence of consumer harm warranting new regulation.

The CFPB appears to use payment apps as an entry point to increase its regulatory powers over Big Tech companies without demonstrating evidence of consumer harm. The agency does not point to specific consumer financial service market failure, but of a system that is working.

The growth in digital funds transfers and wallets is a story of the market system innovating new and more convenient means for consumers to send payments to each other. Platforms may view providing these apps as another offering that their users find helpful and that does not require leaving the platform. Such offerings can enhance the consumer experience. 

Market signals are clear: consumers want, enjoy, and increasingly depend on general-use digital consumer payment applications to send payments. The agency even acknowledged in its proposal that “this market has large and increasing significance to the everyday financial lives of consumers.” 

Market research highlighted by the CFPB underscores this point: Three out of four (76%) Americans have used one of four major payment apps, a significant expansion over the past 25 years; and over 60% of low-income consumers (earning less than $30,000 annually) report using payment apps despite having less access to digital technology. The rapid adoption of payment apps by merchants has contributed to their wide adoption by consumers. Younger users are projected to drive growth even further in the future.

Additionally, in Morning Consult polling from several years ago, significant proportions of women expressed high or some satisfaction with various transfer and payment apps for sending or receiving money from a friend and paying merchants including Apple Pay (83%), PayPal (92%), Facebook Messenger payments (71%), Google Wallet (67%), and Venmo (70%).

Despite the positive economic benefits, the agency did not explain the demonstrated harm it seeks to remedy. The only rationale posited is to bring Big Tech companies under the same scrutiny as other nonbank entities. However, the need for added supervision is questionable if the agency already possesses regulatory authority. Jack Solowey, policy analyst at the Cato Institute’s Center for Monetary and Financial Alternatives (CMFA), explained:

“Consumer financial products and services—which include consumer payment services via any technology—already are subject to the CFPB’s authority to enforce prohibitions against unfair, deceptive, or abusive acts or practices. Moreover, the CFPB already has the power to supervise relevant financial service providers where it issues orders determining, with reasonable cause, that the providers pose risks to consumers, something that the agency fails to do in any convincing manner in the proposal.”

The CFPB also suggested that this rule will increase compliance with federal consumer financial laws, but failed to demonstrate evidence of noncompliance. Prior to this rule being proposed, CFPB director Rohit Chopra noted in remarks his concern that platforms are operating outside of the CFPB’s regulatory purview:

“The traditional lines we drew within the financial sector have become fuzzy over the past several decades. Big Tech companies are now taking advantage of that blurring as they move into finance, threatening the fundamental separation between banking, money, and payments on one side, and our real economy on the other.”

consumer’s transactions” for financial and other worrisome ends. He also expressed concerns that there is increasingly the ability for private financial censorship. Ironically, through this rule, CFPB seeks to gain additional oversight power that could result in government financial censorship, as we saw recently against truckers in Canada adopting a disfavored stance on COVID vaccine mandates. Even if valid, the CFPB should provide evidence of consumer harm and to support the need for aggressive new regulations.

2. The CFPB fails to consider the impact of compliance costs on consumers and small businesses.

The proposed rule touts benefits to consumers of increasing the rate of compliance with federal consumer financial laws, but fails to provide an economic analysis of the impact of increased compliance costs on businesses and whether those would be borne by smaller businesses and consumers. The agency admitted that it lacks detailed information “to predict the extent to which increased costs would be borne by providers or passed on to consumers, to predict how providers might respond to higher costs, or to predict how consumers might respond to increased prices.” 

This is an admission that prices are likely to rise as a result of this increased regulation. At a time when prices remain elevated from the early 2021 levels, now is not the time to straddle small businesses and consumers with price increases in the goods and services they depend upon.

In addition, according to the proposed rule “The Director of the CFPB certifies that the Proposed Rule, if adopted, would not have a significant economic impact on a substantial number of small entities and that an IRFA therefore is not required.” Economic analysis on the impact of small businesses is still warranted because the agency has not demonstrated it fully appreciates how compliance costs may be passed on to small businesses. 

The agency should provide evidence that supports its claim that this rule will not significantly impact small businesses as well as consumers.

Additionally, it is questionable whether the agency is overreaching its constitutional authority and, as the Supreme Court is hearing a challenge to the funding structure of the CFPB (CFPB v. Community Financial Services Association), whether the agency should promulgate such sweeping regulations with wide-reaching implications.   

IWF appreciates the opportunity to comment on this proposed rule. The CFPB should delay the finalization of this rule to consider these and other pertinent issues.

Respectfully,

Patrice Onwuka

Director Center for Economic Opportunity