Comments to the CFPB on the Larger Participant Rule

On behalf of the Center for Data Innovation (datainnovation.org), I am pleased to submit this response to the Consumer Financial Protection Bureau’s (CFPB) proposed rule on subjecting large non-bank participants in the general-use digital consumer payment application industry to CFPB supervision. The CFPB has the authority to supervise non-bank financial services to protect consumers from financial harm. Historically, the CFPB has used this authority to oversee industries with evidence of consumer harms, like the student loan lending industry, the auto lending industry, and the debt collection industry.

The Center for Data Innovation studies the intersection of data, technology, and public policy. The Center formulates and promotes pragmatic public policies designed to maximize the benefits of data-driven innovation in the public and private sectors. It educates policymakers and the public about the opportunities and challenges associated with data, as well as technology trends such as open data, artificial intelligence, and the Internet of Things. The Center is part of the Information Technology and Innovation Foundation (ITIF), a nonprofit, nonpartisan think tank.

The Center commends the CFPB for recognizing innovation and technology's role in advancing digital consumer financial products. However, the proposed regulation’s broad scope will limit the ability of non-bank firms to continue offering innovative products and services. The rule covers several different types of consumer products, including peer-to-peer payment applications, stored-value wallets, pass-through wallets, neo-banks, cryptocurrency exchanges, and money transfer providers. The proposed rule puts these products into a single regulatory process, despite their different uses, different customers, and different potential consumer harms. To prevent limiting consumer access to consumer payment applications and stymying innovation in the digital payments industry, the CFPB should alter the rulemaking to treat each listed product as an individual market. Specifically, the CFPB should:

• Conduct a consumer harm risk assessment for each product type and publicize findings. The Bureau should investigate and enumerate the potential risk to consumers in collaboration with the Federal Trade Commission to understand the need for oversight of each consumer financial product.
• Redefine “large participant.” The CFPB's definition of “large participants” in the proposed rule is based on a $5 million transaction threshold, potentially encompassing nearly every firm in the market. the CFPB should provide a more detailed justification for this threshold and consider a tailored approach for different products and providers.
• Tailor rulemaking to each product type, instead of creating a single rule for all consumer products within the payment application industry. Currently, the draft rule encompasses products with different consumer uses. Historically, the CFPB has adopted tailored rules for different markets and product providers. The CFPB should continue this approach to effectively supervise each distinct product by undertaking individual rulemakings for each type of product included in the current proposed rule.
• Remove language that nullifies the retailer carve-out for financial service data storage and usage in the Consumer Financial Protection Act. The proposed rule may nullify a statutory carve-out for retailers offering financial services during checkout. This could lead to retailers avoiding data usage to escape CFPB supervision, potentially harming consumer benefits like anti-fraud technologies and targeted advertising.

Read the comments.