The US consumer finance watchdog is facing a lawsuit for classifying digital wallets as banks
The Consumer Financial Protection Bureau (CFPB) is being sued in the US for regulating digital wallets and bank-like payment apps.
Technology trade groups TechNet and NetChoice foot filed a lawsuit on Jan. 16 challenging the CFPB’s regulatory approach.
The complaint is based on a rule published by the CFPB in December 2024. This rule expands the agency’s regulatory jurisdiction to include “general use digital payment applications,” targeting major companies including Apple Pay, Google Wallet, and PayPal as well as digital wallet providers. and non-banking financial service providers.
Both TechNet, a partnership of technology professionals, and NetChoice, an organization that fights for internet freedom, say the CFPB’s action is excessive. They claim the office aims to centralize power over the innovation sector without showing evidence of regulatory shortcomings that would justify federal intervention.
Industry expert challenges CFPB rule
The CFPB rule allows the agency to proactively investigate payment requests to ensure they comply with federal privacy and fraud laws. The agency also claims that increased oversight will protect personal information, reduce fraud, and combat illegal banking, where individuals are illegally denied access to financial services.
Chris Marchese, head of litigation at NetChoice, criticized the rule, saying it undermines the rule of law, expands the administrative state, and threatens American consumers and creativity.
“The CFPB’s illegal seizure of power undermines the rule of law, further bloats the administrative state, and puts American consumers and innovation at risk,” said Marchese, director of litigation at NetChoice.
NetChoice joins TechNet to challenge Biden CFPB’s control over digital payments
Contact: PR***@NE*******.ORG
Washington – NetChoice joined today @TechNetUpdate In a new consumer, business and innovation protection lawsuit from the Consumer Financial Protection Bureau… pic.twitter.com/3OJMmXHbzA
— NetChoice (@NetChoice) January 16, 2025
Plaintiffs also contend that payment requests are already subject to strict state rules and that federal oversight creates additional barriers for businesses. They argue that this could lead to increased consumer costs and fewer choices in the digital payments ecosystem.
The CFPB lawsuit was filed on the same day the bureau sanctioned Block Inc.
The lawsuit was filed on the same day the bureau imposed sanctions on Cash App’s parent company, Block Inc Allegedly Failure to provide necessary precautions against fraud. According to the CFPB, Block sent fraud victims to their banks to reverse transactions rather than resolve concerns internally. The settlement provides for compensation of up to $120 million and a fee of $55 million to the CFPB’s Victim Relief Fund.
The CFPB’s regulatory efforts extend beyond payment applications. On January 10, the government proposed a rule requiring crypto asset service providers to compensate users for losses caused by cyberattacks or fraud. This rule has not yet been implemented.
The outcome of this case could have serious consequences for the digital payments industry. If the court approves the CFPB, payment requests may face more complex compliance rules that would increase operational expenses. If the complainants succeed, it could limit the agency’s authority to oversee development of technologies and leave control to state governments.
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