Disapproving the Rule Submitted By the Bureau of Consumer Financial Protection Relating to ``Defining Larger Participants of A Market for General-Use Digital Consumer Payment Applications''

Floor Speech

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Mr. FLOOD. Mr. Speaker, I thank Chairman Hill for his attentiveness to this issue, and I thank my colleague in the Senate, my co-lead, Senator Pete Ricketts from Nebraska, for championing this effort and getting the resolution through the U.S. Senate in record time, in less than a week. He beat us to it.

There are a lot of reasons to support this resolution eliminating the larger participant rulemaking from the CFPB.

Number one--think about this--the CFPB finalized this rule in the eleventh hour in January days before the transfer of power, well after other agencies stopped their rulemaking.

Number two, the rule itself is effectively a regulatory power grab by the CFPB's outgoing Biden nominee, Mr. Chopra. By designating companies engaged in payments activities as larger participants, the Bureau will get to expand their examination authority over an amorphous and ill- defined group of firms with payment tools. Given their track record, I think it is fair to say that we should not be supporting greater exam reach of the CFPB.

I don't want our concerns to remain abstract. Let's take a look at some of the practical effects that CFPB examination would have over these payment firms.

First, let's take a look at some of the problems with how the rule actually distinguishes who is and is not a larger participant in payments. The rule does not only apply to tools where consumers are using wallets to exchange funds on a peer-to-peer basis. It also applies to any number of payment intermediaries that assist small businesses and merchants.

For example, express checkout tools would be affected by this rulemaking. Let's say you want to buy an item on the website of a small retailer in Lincoln, Nebraska. If that website allows interfacing with express checkout tools, as many do, then you are going to see the effects from this rulemaking on their ability to easily accept payments from their customers.

Congress aside, everybody in this room should fear what happens at my house when my wife does not have access to express checkout.

According to a survey from the Small Business and Entrepreneurship Council, 53 percent of small business owners use express checkout tools. When asked whether express checkout services help their business succeed, 94 percent of small businesses agreed that the online payment tool is boosting their businesses' growth.

Yet, despite the obvious potential for Main Street and small business effects from this rulemaking, the CFPB failed to conduct any substantive analysis of the effects this rulemaking would have on small businesses or even conduct a sufficient cost-benefit analysis of the rulemaking more broadly.

The reason was the Bureau was less interested in the cost of the rule than in expanding their own regulatory reach. This rule is a perfect example of regulate first, ask questions later. That was the approach of Director Chopra.

Ultimately, this style of regulation is going to chill innovation and hurt the smallest players that depend on these technologies to compete with the big guys.

Mr. Speaker, I include in the Record a letter signed by myself and 19 Financial Services Committee Republicans to Director Chopra in 2023. Congress of the United States, Washington DC, December 18, 2023. Hon. Rohit Chopra, Director, Bureau of Consumer Financial Protection, Washington, DC.

Dear Director Chopra: We write today to express our concern with the Consumer Financial Protection Bureau's (CFPB) proposed rule subjecting large participants within the general-use digital consumer payment application industry to CFPB supervision. Innovation is the driving engine of the American economy and the proposed rulemaking's broad scope will have significant consequences on the ability for nonbank firms to offer innovative products and services and for consumers to benefit from competition in the market. scope of the proposal

Under the proposed definition and criteria, the CFPB estimates that 17 market participants would be affected by this rule. However, the Bureau fails to identify which firms comprise that number, or to provide specific criteria that would enable market participants to determine the firms captured by the rule. It is essential that businesses and consumers understand the implications of this proposal to enable them to provide comprehensive feedback on its impact.

Further, it is important to clearly delineate the extent of the rulemaking's scope. In its current form, the proposal leaves open the possibility that entities far outside the market for general-use digital consumer payment applications will be captured. For example, the proposal specifies that the CFPB's supervisory authority ``is not limited to the products or services that qualified the person for supervision.'' This suggests the rule will have no boundaries, which is unacceptable and will create significant uncertainty.

While the proposed rule contains certain exclusions, these exclusions further confuse the intended scope of the proposal. For example, the definition of a covered consumer payment transaction excludes ``[a] payment transaction conducted by a person for the sale or lease of goods or services that a consumer selected from an online or physical store or marketplace operated prominently in the name or such person or its affiliated company.'' While this exclusion seems to cover transactions between consumers and merchants using a merchant's own payment software, the proposal later states the exemption for merchants would not apply, ``if a merchant or online marketplace's digital consumer application stores, transmits, or otherwise processes payments or financial data for any purpose other than initiating a payments transaction by the consumer.'' When combined, these two provisions within the rule create further ambiguity regarding the scope of the proposal for merchants. Without a meaningful exclusion for merchants, the Bureau's authority could extend from players in consumer payments directly to merchants across the country.

As you know, third party point of sale technology is used largely by small businesses, and the frequency with which small businesses are accepting digital payments is increasing. With this in mind, the CFPB should consider the impact this rule will have on the merchants that rely on electronic payment services to process payments. The rulemaking could have serious implications for small businesses and sole proprietors across the country, and we believe the CFPB should carefully assess the rule in this context.

Furthermore, we are concerned the CFPB neglected to fully consider the impact of increased compliance costs. The proposed rule states, ``the CFPB lacks detailed information with which 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.'' However, with no analysis conducted on the compliance costs of the proposal, the rule later certifies that the proposal ``would not have a significant economic impact on a substantial number of small entities.'' The inability to track the costs of compliance of this proposal, and how it would be passed down to small entities, paired with an assurance that the rule will not have a significant effect on those same entities is alarming. If the Bureau believes small entities will not be significantly affected by the rule, it should provide the evidence it uses to support that claim. digital assets

Lastly, we also have concerns regarding the rule's applicability to digital assets and digital asset wallet providers. The proposed rule indicates that the purchase of a crypto asset using fiat currency would be exempted by the rule. However, the rule includes digital assets in its definition of ``funds.'' Taken together, these two provisions raise many questions, including what crypto asset transactions would be included in the rule and whether the rule extends to certain wallet providers.

The CFPB's proposed rule also comes as other jurisdictions are pushing to promote both competition and innovation in payments. Given the CFPB's track record of overreach, we strongly urge the Bureau to refrain from exceeding its authority and instead, commit to clarifying and narrowing the scope of this rule. Given the breadth of the proposal and ambiguity regarding its applicability, we urge the Bureau to extend the comment period for an additional 30 days. This additional time will give market participants the opportunity to provide comprehensive feedback. Sincerely, Patrick McHenry, Chairman, House Committee on Financial Services; Mike Flood, Andy Barr, Tom Emmer, Dan Meuser, Byron Donalds, Young Kim, Scott Fitzgerald, French Hill, Ann Wagner, Bryan Steil, William R. Timmons, IV, Erin Houchin, Michael V. Lawler, Alex X. Mooney, Andy Ogles, Andrew R. Garbarino, Zach Nunn, Barry Loudermilk, Ralph Norman, Members of Congress.

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Mr. FLOOD. Mr. Speaker, in addition, the Bureau has consistently tried to imply their authority would not only apply to tech companies, but there is a chance they could bring merchants into their regulatory purview as well. The general counsel of the CFPB said in a speech during Director Chopra's tenure that merchants might be implicated as large payment players in the future if they aren't mom-and-pops.

Last year, in response to a question on the record from me on this topic, the Director made the case that a merchant that incorporates payment capabilities directly into a website could potentially blur the lines between banking and commerce and, therefore, be subject to the CFPB oversight in the future.

However, Dodd-Frank explicitly calls for an exclusion for the merchants from the CFPB's regulatory purview. That idea that a merchant engaging in a commercial financial activity due to payment activities in a merchant's own store or website is outright ridiculous, and it represents yet another expansion of the CFPB's rapidly growing authority.

Finally, I would like to highlight another major concern with CFPB examination authority of these firms and what it would bring. The firms within the scope of this rulemaking are payments firms, but some of these firms also have a social media element to their businesses.

If we fail to act here in Congress, there will be career bureaucrats from the CFPB with the authority to examine some of the most influential social media companies in the country behind the scenes.

Do any of us really think that a liberal CFPB examiner would restrict their comments to only a social media company's payment activities?

Are we sure that they wouldn't provide some ``feedback'' on the free speech policies of Meta or X?

Leaving this rulemaking in place could provide the next Democratic administration with the tools that they need to more directly influence even social media.

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