In January 2024, the American Consumer Institute (ACI) submitted comments to the Consumer Financial Protection Bureau (CFPB) urging the agency to stick to its mission and abandon its proposed rule regulating digital wallet providers and other payment apps. Then in December 2024, the CFPB published its final rule with only modest improvements.
The new rule unnecessarily expands the CFPB’s authority over an industry it was not designed to regulate. Now, the CFPB must defend its overreach in court against a lawsuit filed by the industry associations NetChoice and TechNet. This may be tough for the CFPB as their only consumer-focused justification is based on risk—a decision that should ultimately be left up to consumers.
But the incoming Congress should not wait on the courts. It should curtail the CFPB’s unconstitutional expansion of power now and require it to refocus on its original and primary mission of “protect[ing] consumers from unfair, deceptive, or abusive practices” within the banking and finance sector.
The largest problem with both iterations of the rule was they would drastically expand the CFPB’s authority using weak justification. The rule lacked evidence that unregulated digital apps harmed consumers, citing “regulatory arbitrage” instead. They claimed nonbank firms’ ability to skirt regulations gave them an unfair advantage when competing with banks. The only consumer-focused claim the bureau made was that it is risky for consumers to keep their money in unregulated apps—a decision that should ultimately be left up to consumers.
In public comments last January, ACI argued that the Bureau must focus on real harm to the consumer.
To the CFPB’s credit, the final rule improved upon the original, most notably by limiting its scope to only regulating fintech companies that handle more than 50 million transactions annually. This change aimed to solve regulatory arbitrage without stifling smaller firms but it also subjected fintech firms engaging in the same market to different rules, which threatens market competition. Additionally, the new rule better emphasized its goal of protecting at-risk consumer privacy and money. This emphasis better aligns with the CFPB’s mission, but it still falls short.
The CFPB should not be trying to regulate competition between traditional banking and fintech markets and its focus lacks concrete evidence of consumer harm. Yes, an increasing number of consumers prefer to use digital wallets over physical ones. A recent report from McKinsey found that digital payments accounted for 28 percent of in-store purchases in 2024 (up from 19 percent in 2019) and almost all online purchases (70 percent) in the U.S. However, the General Powers of the Bureau—as defined by Congress—do not grant the CFPB the authority to insulate traditional banks from competition. The text of the law states the Bureau ensures “all consumers have access to fair, transparent, and competitive markets for consumer financial products and services.” The only mention of competition is to ensure equal access to competitive markets, not to regulate competition across markets. Attempts to do so exceed the Bureau’s authority.
Furthermore, the CFPB published risk reports instead of demonstrating how unregulated fintech firms have actually harmed consumers. In their first report, the CFPB explored how integrating commerce into nonbanking apps can expose consumers to privacy issues. They argue, “a consumer’s information might be used for purposes the consumer did not intend or understand.” However, the Bureau neglects to mention that privacy issues are already regulated by the FTC, and that its rules would make compliance more difficult with little promise of improved privacy.
In another report, the Bureau investigated the risk of holding money in uninsured accounts. They explained, “funds stored on these apps may not be safe in the event of financial distress.” Even here, though, their rule is redundant because the FDIC published its own final rule in April 2024 requiring clear language from fintechs on whether a consumer’s deposits are insured.
Since the Bureau’s only consumer-focused concerns are already being handled by other government agencies, it should rescind its rule. Otherwise, Congress should use its authority under the Congressional Review Act to roll it back. The overreach is already apparent, Congress should not wait for the courts to decide on the merits of NetChoice lawsuit. As far as the Bureau looking for a policy solution, ACI believes it already has the tools it needs.
In his 2024 comments, then-policy analyst Isaac Schick wrote that instead of imposing new regulation this “could be an excellent opportunity for the CFPB to provide information to consumers on best practices when using digital wallets.” Educating consumers would be an appropriate solution and fall neatly within the CFPB’s existing authority. Indeed, it already offers a suite of resources to consumers covering everything from buying a house to retirement planning. Such a solution would not require an expansion of power into new markets the Bureau was not meant to oversee.
As consumers enjoy innovative new ways to transfer cash, the CFPB should not lose sight of its mission. It can and should regulate traditional financial institutions while offering resources and best practices to consumers to make their own decisions. It should not overstep its Congressionally defined mission and attempt to regulate competition between industries.
Nate Karren is a policy analyst with the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit us at www.TheAmericanConsumer.Org or follow us on X @ConsumerPal