The Consumer Financial Protection Bureau (CFPB) Director
Rohit Chopra received a letter from members of the House Financial Services
Committee (FSC) pushing back against the bureau’s proposal to expand its
supervisory authority over “Big Tech” companies in the financial space. The
representatives argued the bureau should reopen the comment period and
reconsider finalizing the rule as proposed.
The letter was endorsed by FSC Chair Patrick McHenry (R-N.C.),
Rep. Mike Flood (R-Neb.) and Rep. French Hill (R-Ark.), who also chairs the
House Subcommittee on Digital Assets, Financial Technology and Inclusion.
The lawmakers asserted the rule does not adequately
establish the bureau’s jurisdiction over “larger participant” entities referred
to by the rule and it is unclear what impact it would have on digital assets. They
also argued the rule would be “burdensome” and that the bureau is “overreaching”
its supervisory authority.
They asserted the rule relies too heavily on its regulatory
prerogative under the Dodd-Frank Act and fails to analyze costs, the impact on competition
and potential consumer harm. They also assert flaws in the bureau’s stated
precedent for the rule, noting, for example, the broad definition of “service
provider” under Dodd-Frank may raise questions about what third-party entities the
rule would cover.
“Citing flawed bureau precedent, the proposed rule
reiterates that ‘[t]he bureau need not conclude before issuing a [larger
participant rule] that the market identified in the rule has a higher rate of
non-compliance, poses a greater risk to consumers, or is in some other sense
more important to supervise than other markets,’” the letter states. “In fact,
the proposed rule fails to provide any evidence of non-compliance with federal
consumer financial laws or explain how it would be addressed by this new regulation.
Disregarding such considerations allows the bureau to wield a concerning degree
of power when issuing a larger participant rule.”
Additionally, the legislators argued the bureau failed to
establish the rule’s necessity and the agency should forgo finalizing it before
providing “a more detailed analysis of the scope of the proposed rule and its
impact.”
Another piece of regulatory uncertainty within the rule, the
legislators cited, pertains to digital asset payments. Specifically, they took
issue with the rule’s inclusion of digital assets as “funds,” as well as other
ambiguities.
“As written, it is unclear when the rule would apply to
specific entities within the digital asset ecosystem,” the letter states. “On
one hand, the proposed rule explicitly states that fiat-to-crypto and crypto-to-crypto
transactions conducted on an exchange would not be covered. However, it remains
unclear if this exclusion would exempt digital asset exchanges entirely, or
only in instances where they offer services limited to the conversion of
fiat-to-crypto and crypto-to-crypto transactions. If the latter is true, then
digital asset exchanges may be dissuaded from expanding their services to allow
for peer-to-peer transactions through wallets hosted on the platform.”
To address the concerns cited in the letter, the lawmakers argued
that a 60-day comment period extension is warranted, noting the importance of stakeholder
input to address regulatory uncertainty.
Financial industry advocates have largely expressed
support for the proposed rule along with some recommended updates to ensure
it appropriately applies to nonbanks in need of the most supervision.