Blockchain Association Rebuffs CFPB’s Proposal on Payment Apps and Digital Assets

In a detailed critique, the Blockchain Association counters the CFPB’s latest proposal to oversee digital consumer payment applications, citing legal and jurisdictional overreaches in the bureau’s approach to cryptocurrencies and digital assets.

CFPB Faces Criticism from Blockchain Association Over New Proposal

In November 2023, the Consumer Financial Protection Bureau (CFPB) proposed a new rule aimed at bringing non-bank payment providers and certain crypto transactions under its oversight. The proposal was ostensibly seen as a step towards modernizing financial regulation, and has sparked backlash in the crypto community.

The proposed rule by the CFPB seeks to define a market for general-use digital consumer payment applications. This would bring apps like Venmo and other digital asset platforms under the same regulatory scrutiny traditionally reserved for banks. The implication for the crypto industry is profound, as this could subject various crypto transactions to increased regulation and oversight. The rule is part of the CFPB’s effort to extend its examination authority over larger participants operating in the digital payment space.

CFPB requested feedback to the proposal, which the Blockchain Association, a prominent group in the crypto sector, delivered in a detailed 14 page response today. In a press release with the response, the Association summarized their position:

The Proposal, which would give the CFPB supervisory authority over certain “general use digital consumer payment applications,” is overly broad and lacks the requisite analysis to justify such broad application.

The Association raised several concerns, primarily questioning the CFPB’s jurisdiction over digital assets. The Blockchain Association argues that the CFPB can’t assume authority over digital assets without additional rulemaking, noting that the CFPA, passed in 2009, does not clearly define “funds” to include digital assets, which emerged shortly after the Act’s inception.

The Association further contends that the proposal lacks legislative history or case law to support extending the definition of “funds” to include digital assets. They emphasize that such a significant extension of regulatory scope necessitates a separate rulemaking process under the Administrative Procedure Act (APA) to allow public engagement on this critical issue.

Beyond the jurisdictional challenge, the Association criticizes several aspects of the proposal, recommending that its scope be confined to transactions involving fiat currency only, citing the absence of a thorough impact analysis on digital assets, especially those used for non-financial purposes like NFTs. They also question the proposed threshold of 5 million transactions for platforms to fall under the regulation, labeling it as arbitrary and lacking justification.

Concerns are also raised about the proposal’s vague terms regarding non-custodial wallets and the challenges digital asset wallet developers face in tracking the nature of transactions. The group calls for a more detailed cost-benefit analysis, concluding that the current proposal fails to meet APA standards and risks being “arbitrary and capricious.”

In the end of a thread on X, the Blockchain Association’s Head of Legal, Marisa Coppel, recommends, “the CFPB to consider the implications of the Proposal’s application to digital assets and recognize the Proposal’s deficiencies in light of APA requirements.”

Do you think the CFPB is attempting to expand its power through this proposal? Share your thoughts and opinions about this subject in the comments section below.