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US consumer protection groups are spearheading the defence of Consumer Finance Protection Bureau's (CFPB's) Digital Payment Regulation, which seeks to govern large fintech companies under the same rules as banks and other financial companies.
With the CFPB under attack amid attempts to roll back most (if not all) of its most recent rules, the final rule defining larger participants for general-use digital consumer payments applications is now under threat.
The rule brings non-bank companies, such as PayPal, Venmo and Cash App, that process at least 50m transactions annually under the CFPB’s auspices, meaning they would face stricter regulatory scrutiny.
The rule does not impose new regulatory oversight – instead, it seeks to ensure that these large payment providers are treated in the same manner as financial services companies.
The regulation was finalised on November 21, 2024, during the final days of the Biden administration, but after the election of Donald Trump.
It is therefore subject to review under the terms of the Congressional Review Act (CRA), which enables Congress to examine and even overturn new federal regulations issued by government agencies.
Like the CFPB’s overdraft rule and others passed during this period, congressional review will likely be the first method used to remove the rule, but failing that it will face court challenges or unravelling from within the Bureau itself.
Accusations of regulatory overreach
Despite the apparent need for consumer protection and regulatory oversight of large fintechs that process hundreds of millions of transactions per year, the push against the digital payment regulation has gathered steam.
The efforts are part of a wider agenda to undermine and even unravel the CFPB itself.
The latest attempt has been brought to Congress by Senator Pete Ricketts (R-NE) and Representative Mike Flood (R-NE-01), who are looking to utilise the CRA to overturn the “burdensome” rule, which they describe as “the CFPB’s latest overreach in the digital consumer payment market”.
The filing suggests that the rule was rushed through in the final days of the Biden administration as an attack on non-bank digital consumer payments applications, using a one-size-fits-all approach that gave the CFPB unnecessary authority.
This will, the legislators suggest, prevent fintech innovation, increase red tape and eliminate jobs.
Critics of the rule, which became effective on January 9, 2025, say the CFPB failed to identify any specific consumer harm caused by the larger fintech companies in question, but instead cast itself as a technology regulator.
One of the supporters of the CRA motion, Penny Lee, president and CEO of the Financial Technology Association, urged the CFPB to withdraw the “flawed” rule at the time.
“It’s not clear what problem this rule is solving,” she said. “Payment companies are well-regulated at the state and federal levels, and consumers are having positive experiences with them.”
The political agenda
There have also been suggestions that the attempts to rescind the digital payment rule are purely political.
One source close to the White House said he was surprised to see this particular rule attract so much interest, given that it applies to only a handful of companies, whereas the overdraft rule applies to several hundred, potentially thousands.
Despite it being narrowly applicable, majority leader Steve Scalise (R-La.) has made it a priority in Congress and it is facing a vote in the Senate as soon as Wednesday (March 5).
“My suspicion is that they think they have the votes for it and they're looking to overturn any Biden rule that they can, just to demonstrate criticism of his leadership,” said the source.
“The President and this administration have been broadly critical of the CFPB, and so in some ways this is just a way to pass a CRA resolution and say ‘we are undoing a totally disastrous regulatory agenda’. It's almost less about actual policy in this role, and more of a sense to have the votes to undo something done by Rohit Chopra.”
Pushback against removing the rule
Consumer protection and lobbyists focusing on social justice within the US regulatory process are leading the pushback against the criticism of the digital payment rule.
Stephan Hall, legal director at one such lobbyist, Better Markets, said CFPB supervision is crucial to ensure that fintechs maintain safe practice, and fulfil the supervisory mandates outlined by the Dodd Frank Act.
Examinations, record supervision and assessing compliance are key functions of the rule that allow the CFPB to monitor and supervise risk.
“The CFPB will be better equipped to examine these firms for compliance with financial consumer protection laws and, where appropriate, investigate and respond to violations,” he said.
“The Bureau’s supervision of these platforms will also provide insight into emerging business practices in this rapidly evolving industry, allowing risks and abuses to be identified and addressed as early as possible. And this rule will even help level the playing field between non-banks and depository institutions, which the CFPB already supervises.”
Bell added that the rule is simply asking fintech companies making large volumes of financial transactions to adhere to the same standards that American consumers expect of banks and other financial institutions performing the same actions.
“It's really more about having a common set of rules and not allowing a bunch of large companies to escape because there's a loophole in our laws,” he said.
He also rejected the premise that the rule is too much of a “one-size-fits-all” approach to function appropriately.
“The CFPB has shown that it is able to engage in dialogue with the payments platforms and fintech companies and to customise the approach where that is needed,” he said.
“I don't really think that is the issue here. We are talking about platforms that want to escape any oversight or accountability. They don't want to pay fines or experience penalties when they harm consumers, and we must have a watchdog that has some authority and the ability to levy penalties against companies that break the rules.”
Chuck Bell, programs director of advocacy at Consumer Reports, told Vixio that it is crucially important that this major area of emerging payments – in the US, but also elsewhere – be subject to close supervision by the financial regulators.
“We found a number of issues relating to the security and privacy of these apps. The largest concern is the proliferation of fraud and scams that are costing consumers several hundred million dollars a year and is likely to grow as the adoption of the apps grows,” he said.
“So unless the CFPB is empowered to provide supervision and monitoring of these payment technologies, consumers are really going to be left on their own without any protection.”
Perhaps surprisingly, banking lobbyists have also come out in favour of the regulation, despite having challenged the CFPB over a number of other rules in recent months and years.
The American Bankers Association’s senior vice president of payments Steve Kenneally said, “It is essential that the same consumer protections that are provided by banks to their customers be provided by non-banks to their own customers when those non-banks offer the same services.
Therefore, supervision of consumer protections should be consistent across the industry regardless of whether the provider is a bank or non-bank. CFPB supervision in conjunction with examinations will help to improve consumer protection in what is now an under-regulated area.”
The fintech government
As covered by Vixio, the Trump administration features former and existing fintech professionals in key agency positions.
Frank Bisignano, the CEO of Fiserv, has been nominated to lead the Social Security Administration, Kelly Loeffler, CEO of crypto company Bakkt, has been confirmed as leader of the Small Business Administration and Shift4 Payments CEO Jared Isaacman has been nominated to run NASA.
Of course, PayPal co-founder Elon Musk has also found himself playing a central role in the administration, and his social media site X has announced plans to launch a peer-to-peer payments service in conjunction with Visa later this year.
If the push against the CFPB’s digital payments rule is successful, the so-called “everything app” will avoid the additional regulatory scrutiny that it provides consumers.
Given the challenging political moment, a rule change such as this is unlikely to attract much attention beyond lobbyists or consumer groups, with legal advisors suggesting it is particularly difficult to advise clients on how to stay ahead of the game.
As US states step in to support the CFPB in the short term, it is unclear if established rules will be enforced or survive much longer. State regulators lack the federal authority of the CFPB and will struggle to enforce protection laws against larger companies, according to sources.
“There's so much uncertainty right now, we can’t, and we don't know what's going to happen to these rules,” said Chris Willis, partner at Troutman Pepper Locke. “There's not enough information for us to draw a conclusion right now, so we can't give definitive advice.”
He added that the industry remains divided depending on which rule is up for debate, adding to the confusion.
“The industry is not unified. It depends on which part of the industry you're in as to whether some parties are opposed to the rule and are trying to get it set aside or modified, and others are saying that they like it.”
