[inaudible conversations] [inaudible conversations] come to order. Without objection the chair is authorized to declare a re cess for the committee atanytime. Entitled bureaucratic overreach for Consumer Protection. Examining the cfpbs latest action to restrict composition in the payments. Without objection all members have five legislative days to bmit extraneous materials for inclusion in the record. I want to recognize myself for five minutes to give an opening statement. Todays hearing, bureaucratic overreach or Consumer Protection, examining the cfpbs latest action to restrict competition in payments in my view is critical because its going to talk about this large participants in the general use of Digital Consumer payment applications market. This is the sixth lpr that the cfpb has initiated. And putting aside the egregiously short Comment Period which frustrates both members of this committee, the deep analysis which are both have become hallmarks of this administration, i find the substance of the cfpbs proposal deeply asserts that companies that let you send moneys to friend, peertopeer, are companies that keep your ca your phone somehow are in the exact same market. Why . Well, just because the cfpb says so. This breadth of the market, the cfpbs trying to define, has perplexed many on this committee from potentially covered to both sides of aisle here. Many companies are utterly confused, whether the rule will be implemented and whether theyre covered by it. I would say this is no accident. Cfpb is trying to cast a wide a net as possible and become a re in many more ways than one, this proposal marks is sharp departure from the cfpbs previous large participation rule. Director chopra decided on a whim, in my view without justification that Technology Companies pose a thrt to consumers and this rule should be viewed as a thinly veiled work around to get cfpb Supervision TeamTech Companies. And thats because once an entity is designated as a large participant, the cfpb cannot only supervise the■ activities, which is what i think the intent of doddfrank was, that originally qualify, but they can actually supervise the entities, business itself. The proposal attempts to establish limits by only capturgho transactions within a year. So wed love to hear from the panel on, is that a good number or a bad number . But dont be fooled this modest threshold is so low the agency will effective hav Carte Blanche to knock down the doors with their fleet of in the payment space and leave consumers encumbered with fewer firms from which to choose a payment method. That decreases competition. This lpr doesnt benefit consumers or provide market clarity, in fact, the people this proposal potentially will benefit besides witnesses like you, are compliance lawyers. To furtherxp authority to see if pb decided to capture Digital Assets as well. To see if the includes digital this is a novel position and the cfpb justifies interpretation only in small unassuming footnote. Concerns around that is not0q particularly partisan. There were questions about the scope and implementation. The cfpb needs to go back board protect consumers and not hinder innovation and not expand the cfpbs insatiable power and scope. We appreciate your willingness to work i now yield to the Ranking Member, mr. Lynch of massachusetts, five minutes for his opening comment. Thank you, mr. Chairman. And good morning. All of our Witnesses Today for your willingness to help the committee with its work. It is the fundamental mission of the conme Financial Protection Bureau to safeguard American Consumers against unfair, deceptive and abusive financial practices and discrimination. The cfpb ensures that our markets are for Consumer Products and service operate fairly and efficiently in the interest of consumer access and responsible innovation. In furtherance of theritical mandate cfpb recently proposed a rule as the chairman noted that will allow the agency to exercise authority over companies that offer digital wallets and payment services, peertopeer payment apps and electronic funds payment apps. Unfortunately, this will place, apple, google, meta, other companies that moved into the Financial Services space on par with Financial Institutions that are already there and already subject to cfpb supervision. And credit unions, such of these companies do not currently undergo cfpb superry exams,nitoring or compl checks. They may not be required to ensure Company Funds or deposits. Cfpb action in this area is timely, considering the escalation of shadow banking. That is the migration of core banking activities, which traditionally fall outside of the banking regulations. And this is growing, given the employment of owepaque technology. And theyve reached 300 billion dollars and estimated to over 150 by 2028. Moreover, an estimated twothirds of all americans, including the majority of low to moderate now relying on peertopeer Digital Payments, such as paypal and venmo, many have options. And its not surprising that the consumer advocates strongly support the rules. According to the Consumer Federation of america, quote, we would be concerned whenever the line between congress and banking is committed to blur. Loophole theyre moving forward to hold big Check Companies accountable to play by the rules as everyone else. I agree with tt is not becoming check regulator as much as Check Companies are becoming banks or are becoming involved in the conduct of banking. By subjecting large Check Companies to the same Consumer Privacy standards that apply to Financial Institutions under the federal graham act, protecting consumers against massive Data Collection and the monetization of the personal information. Cfpb estimates that the proposed rule would only apply to 17 entities. The agency has also made clear that its supervision of nonbank institution is based on risk, size, and financial transaction volume, as well as the extent of state that is why the rule includes a threshold of five million Payment Transactions annually. I look forward to heari from this morning and stake holders as this rule making process. Thank you, mr. Chairman, and i yield back the balance of my time. The gentleman yields back. We want to thank our witnesses for being here today and making the time. The time. You be recognized for five minutes to give an oral testimony and without objection your written statements will be we recognize the testimony of mr. Holtshowser, and james kim, Industry Group at troutman. And a Financial Technology policy analyst at the cato institute. And christopher, Joe Josephine witt professor s. Thank you, mr. Chairman. Chairman hill, Ranking Member lynch and members of the subcommittee and Digital Assets. Financial technology and innovation, thank you for the opportunity to discuss the consumer Financial Protection Bureau as rule on defining larger participants in the market. Im executive of net tech, the Technology Ceos and the growth of the economy at the 50state level. Our diverse membership, businesses ranging from startup to some of the most Iconic Companies on the planet. And we have employees in the field of technology, artificial intelligence, ecommerce, sharing the gig economies, advanced energy, transportation, cyber, Venture Capital a nance. As you know, technology plays an important roles in removing barriers to access and empowering americans of all backgrounds to better manage their Financial Life through safe, secure, inclusive and reliable financial tools, including digital wallets and payment members support efforts by policy makers to adapt and update outdated laws and regulation to meet the growing demand from consumers and06 businesses for these innovative fintec products. Its highly diversified. Companies across the eco system play a wide array of unique roles serving differentifferent functionality. And regulations focused on fintecs must make sure allowing this economy to flourish. Fails to accomplish those doles. Under doddfrank and the procedures act the bureau must conduct thorough Due Diligence before issuing a proposed the cfpb falls well short of this requirement. Frankly the lack of empirical analysis, underlying the proposed rule is stark and troubling. Because they failed to follow rule making b proposed rule creates an arbitrary market thats not based on data driven analysis or the reality of the ecoem. And fails to identify consumer harms that would necessitate supervision and fails to adequately address the cost. The diversity of companies that can be for the supervision. We strongly feel that these deficiencies render the proposed rule defective. Before moving forward, its critical that the cfpb more precisely and narrowlyefine the Consumer Payments market in which it seeks to supervise and conduct empirical analysis required in the rule making process. At a very basic level the bureau should complete a cost benefit analysis that adequately considers companies that may fall within the purview of the proposed rule. Analyze the cost to the Companies Rather than using conservative estimates, and determine the cost may be the the cost that may beconsumers. Until the cfpb conducts the analysis required of it by law, tech net looks at the policy altogether and the rule in its entirety. Otherwise this rule will omplexy and uncertainty into the Digital Payment markets to the detriment of consumers and businesses across our country. We appreciate the subcommittees look at this important rule. T thank you, youre recognized for five minutes. Thank you for holding this important hearing on the cfpbs proposed larger participant rule making. Im brian johnson, managing director of potomac level partners, previously served as dew poznintirector of the cfpb, prior to that i served on the Financial Services committees previously staff. I will address my comments to7o■ty first to the proposed rule and second to the broader context of recent cfpb action. As members are Congress Gave the cfpb authority to subject socalled larger participants of defined markets for Consumer Financial products and servi■nces the supervisory examination. The proposed rule would, if finalized, define a market for general use Digital Consumer larger participants of this market defined as providers of at least the annual Payment TransactionsSmall Business concerns, would be subject to cfpb exam. There are several reasons for members on a bipartisan b to encourage the cfpb to withdraw and repropose its rule so it may so that it may engage in a more thoughtful deliberatie process. The remarks are the impetus for the proposed rule concerns for Big Tech Companies to engage in various anticompetitive however, the cfpb is not the proper agency to address such concerns. Cfpb supervisory duty is for financial law not antitrust law. Proposed rule lacks adequate justification, because its not grounded in Consumer Financial risks arising from the offering or use of covered products and Services Within the defined market. Second, the doddfrank act provides the cfpb with no intelligible principle to guide its definition of markets or selection of larger rather, it gives the cfpb Carte Blanche to expand its own supervisory reach. This violates congress should define the cfpbs authority and not the cfpb itself. Third, the proposed market definition is really broad because it aggregates terms market for reasonably interchangeable Financial Products and services. Fourth, the cfpb intemperatures the term funds to cover Digital Assets. The effect of which would be to expand its Regulatory Authority over a large number of new products and participants. This would up end careful efforts by members of congress to craft a balanced legislative framework for Digital Asset regulation. This presents a major question of economic and political significance that must be left to congress to decide. Fifth, the cfpbs cost benefit analysis uses a decade old frame work to calculate the expected cost to the examination. In myview, the bureaus exam understates the true cost of an example by at least an order of magnitude. The cfpbs failure to update its assumptions and obtain Accurate Information is a significant weakness in the proposals 1022 analysis. Cau shown, the cfpb departed from its Standard Practice in order to limit the amount of time for the public to submit comments on the rule which is contrary to the spirit. Now the cfpb action. Regarding the consequences, i note that cfpb sometimes require institutions to waive attorneyclient privilege and turn over communication. The Supreme Court long they can information without authorization of congre cfpb do which is detrimental to consumers. Also cfpb, unlike occ or sec, does not publish an of exam priorities. As a result institutions have comparatively less insight into the cfpbs prioritization of Compliance Risks andtherefore, less opportunity to proactively address them. Regarding rule making, recently proposed or finalizes several rules on socalled junk fees as part of a campaign to scapegoat companies for rising prices caused by from the traditional federal approach to Consumer Finance regulation the politicized unwa market, a danger to free markets and consumer autonomy. This is not Consumer Protection. I urge congress to use all available means to prevent bureaucratic Central Planning and overreach. Thank you, and i welcome the opportunity to answer your question. Thank you very much. Mr. Kim, youre recognized for five minutes. Chairman hill, Ranking Member lynch and members of the subcommittee. Thank you for inviting me to testify today. My name is james kim. Im a partner at the law firm Pepper Hamilton sanders. Im presenting my views and not those of the firm or any client. Firm. My testimony and the views i express today are informeded by my tenure at the cfpb and subsequent practice focusing on payments and technology. My clients at trout and pepper range from banks and established institution to medium size and Early Stage Companies seeking to introduce Innovative Products and expand choices for consumers in the marketplace. From 2012 through 2014, i had the privilege of serving at the cfpb where i was the lead attorney in the bureaus first enforcement action by mobile devices and payments. I also work with colleagues in the office of supervision and supported examination. And i was a member of an Interdepartmental Working Group focusing on emerging payment products, and since leaving the bureau, my practice very much focuses on helping Companies Navigate examinations, investigations, and rule makings involving an agency. So why is the proposed rule for defining larger participants in the payment space important . Before i answer, its worth highlighting that there is no question that Consumer Payments are currently regulated by a enforced by al and state laws a combination of the cfpb, federal prudential regulators, the federal trade commission, sinfen and agencies. It does not change the mayor yad of theregulations, instead the proposed rule is important because it seeks the larger on y authority. The bureaus power to examine institutions is the agencys most powerful and least transparent tool. Companies supervised by the cfpb must devote personnel and significant resources to host examinersoffices, respond to information requests and followup questions and address findings. Examinations are nonpublic and often last months and sometimes longer than a year. The cfpb typically extends the scope of their exams to the aff entities and other business areas beyond the covered activity, in this case, general use payment■n application. Examinations lack a third party, such an a court or an Administrative Law judge to oversee the