Tech Groups Challenge CFPB's New Rule On Payment Apps

According to Cointelegraph, two technology trade groups have initiated legal action against the US Consumer Financial Protection Bureau (CFPB) over its recent decision to regulate payment apps and digital wallets similarly to banks. The lawsuit, filed on January 16 by TechNet and NetChoice, contests a rule introduced by the CFPB in December, which extends its supervisory reach over "general-use digital consumer payment applications." This rule targets major players in the nonbank financial services sector, including payment apps and digital wallets, but notably excludes crypto wallet providers and decentralized wallets. NetChoice's director of litigation, Chris Marchese, criticized the CFPB's move, describing it as an "unlawful power grab" that threatens the rule of law and innovation while posing risks to American consumers. He argued that the Bureau's actions create unnecessary obstacles for businesses, potentially leading to higher costs and fewer choices for consumers. NetChoice further stated that the rule represents an overreach by bureaucrats seeking to consolidate control over a dynamic economic sector. The rule affects payment apps with digital wallet capabilities, such as Apple Pay, Google Wallet, PayPal, Venmo, and Cash App, allowing the CFPB to enforce compliance with federal privacy and fraud regulations through proactive examinations. When the rule was finalized, the CFPB claimed it would enhance personal data protection, reduce fraud, and prevent illegal debanking. However, the plaintiffs argue that many of these companies are already subject to stringent state-level regulations and that the CFPB has not demonstrated any regulatory gaps that would justify its intervention. The plaintiffs contend that the CFPB's failure to comply with statutory requirements renders the rule "arbitrary and capricious," and they are seeking a court declaration that the rule is unlawful and beyond the Bureau's authority. The lawsuit coincided with the CFPB's decision to fine Cash App's parent company, Block Inc., for inadequate fraud protection measures. The regulator accused Block of directing users who suffered fraud-related losses to seek recourse from their banks, a claim the company denied. The CFPB's order mandates up to $120 million in compensation and a $55 million penalty to be paid into the regulator's victim relief fund, as reported by Reuters on January 17. Additionally, on January 10, the CFPB proposed a rule that could require crypto asset service providers to reimburse users for funds lost to illicit activities, including hacks and scams.