HFS Subcommittees Consider CFPB's Latest Actions
Two House Financial Services Subcommittees considered the CFPB's latest actions on the proposed "Larger Participant Rulemaking" proposal and its proposal to limit "junk fees."
In a hearing titled "Bureaucratic Overreach or Consumer Protection? Examining the CFPB's Latest Action to Restrict Competition in Payments," the Subcommittee on Digital Assets, Financial Technology and Inclusion considered the CFPB proposal to expand its supervisory authority over large companies in the "general-use digital consumer payment application" space. In opening remarks, Chairman French Hill criticized the proposal as an unjustified expansion of the CFPB's regulatory reach and a threat to innovation and competition in the payments industry. He further criticized the CFPB's broad definition of the market, which could include companies facilitating peer-to-peer money transfers or storing credit card information on phones. Mr. Hill accused the CFPB of attempting to become a "technology regulator."
The following witnesses, among others, testified:
- TechNet Executive Vice President and Corporate Secretary, Carl Holshouser argued that the CFPB (i) failed to perform adequate cost-benefit analysis, (ii) failed to identify specific harms to consumers that it seeks to address, (iii) failed to provide any analysis to explain why vastly different payments markets have been grouped together and (iv) failed to explain why transaction volume is the best method for identifying the larger participants for any particular market.
- Troutman Pepper Hamilton Sanders Partner and Head of Fintech Industry Group, James Kim argued that the proposal rule (i) relies on an overbroad market definition or "one-size-fits-all approach" which deviates from history and the CFPB’s earlier larger-participant rules, (ii) duplicates existing supervision by federal prudential regulators and state agencies and (iii) "does not explain why transaction volume alone, without considering other variables such as dollar amounts, payment type, etc., should define the scope of CFPB’s supervisory authority relating to payments."
- Cato Institute Financial Technology Policy Analyst, Jack Solowey argued that the proposal improperly targets market success, taking the popularity and utility of digital payment apps as a reason to subject these tools to new regulatory supervision. He noted that the CFPB did not identify specific risks from popular digital payment apps to justify a new regulatory intervention.
In a hearing titled "Politicized Financial Regulation and its Impact on Consumer Credit and Community Development," the Subcommittee on Financial Institutions and Monetary Policy considered testimony from:
- Cato Institute Policy Analyst, Nicholas Anthony, who criticized the CFPB's proposed price controls for credit card late fees, overdraft fees, and nonsufficient fund (NSF) fees. He recommended that Congress (i) reform the Bank Secrecy Act to lower costs for consumers and barriers for competition, (ii) investigate and remove broader barriers to competition in financial services and (iii) have the CFPB explain how its proposals will help consumers who are priced-out of the market.
- Consumer Bankers Association President and CEO, Lindsey Johnson said that CFPB policy is "increasingly a direct reflection of the political party that holds the White House, and not an impartial regulator that listens to the viewpoints of all stakeholders to ensure the best regulatory solutions for consumers are considered."
Congresswoman Maxine Waters commended the CFPB for taking action to oversee Big Tech’s expansion into financial services.
Commentary
These hearings reflect the nature of the politicized times we are in. Further, they are a reminder of how the CFPB has been controversial from its inception.
In Seila Law v. Consumer Financial Protection Bureau, the U.S. Supreme Court ruled that the CFPB’s structure unconstitutionally insulates the agency from presidential oversight and must be altered. Following the decision, the president may remove the agency’s director “at will,” which should, to a large degree, serve to align the CFPB director’s policy aims with those of the then-current presidential administration. Recognizing that their tenure is now tied to the electoral success of a given president, incumbent CFPB directors may be further incentivized to leave behind a lasting legacy, whether through rulemakings or formal or informal guidance, some of which may be more controversial than others. Presidential elections now have significant new consequences for the direction of the CFPB. Now, a new president could replace the director—and dramatically alter the agency’s course—as soon as he or she is sworn in. As a result, even though the drafters of the Dodd-Frank Act intentionally designed the CFPB to be an “independent bureau” within the Federal Reserve System, the CFPB’s independence has been dramatically reduced and has led to a Bureau with priorities more closely aligned to those of the administration in power. Accordingly, expect more Capitol Hill hearings and regular criticism and scrutiny of the CFPB, however substantive or partisan, in the coming weeks, months, and years.
Of course, Congress could always pursue a legislative repeal of the CFPB’s rules through the Congressional Review Act (CRA) process, but that effort could take months and would have to contend with President Biden's likely veto (as was seen in President Biden’s December 2023 veto of the CRA resolution to override the CFPB’s final Section 1071 small business lending rule, even though it was passed by both the U.S. Senate and U.S. House of Representatives).
Apart from that, litigation and the upcoming November elections are widely perceived as the more likely options for halting the CFPB in its tracks.