Backers say it is necessary to protect consumers. Opponents say it is too broad and could limit competition. This portion of the subCommittee Hearing is about 90 minutes. [inaudible conversations] [inaudible conversations] come to order. Without objection the chair is authorized to declare a re cess for the committee at the committee on Digital AssetsFinancial Technology will come to order. The chair is authorized to declare a recess at any time. This hearing is entitled bureaucratic overreach or Consumer Protection. Examining the latest action to restrict competition in the payments. Without objection all members will have five legislative days to submit 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 cfpb latest action to restrict competition and payments in my view is critical. It will talk about this large participants in the general use of Digital Payment applications market. It is the sixth lpr that the cfpb has initiated. Putting aside the egregiously short comment time which frustrates members of this committee the deeply flawed costbenefit analysis which have both become hallmarks of this administration i find the substance deeply concerning. The proposal asserts that companies that let you send money to friends peertopeer or companies that keep your credit card information on your phone are somehow the exact same market. Why . Just because they say so. This breath of the market that they are trying to define has perplexed many on this committee from potentially covered entities to as i say both on both sides of the aisle here. Many companies are utterly confused wondering not only how the role would be implemented but whether they are even covered by it. I would argue that this confusion is by no means an accident. The cfpb is trying to cast as wide a net as possible and become a technology regulator. And many more ways than one, this marks a sharp departure from the previous large participation rules. The director has decided on a whim and in my view without justification that Technology Companies pose a threat to consumers and the role should be viewed as a thinly veiled workaround to get supervision teams into these Tech Companies. That is because once an entity is designated as a large participant, the cfpb cannot only supervise the activities which is what the intent was that originally qualify but they can actually supervise the business itself. The proposal intends to establish limits by only capturing those companies with 5 million transactions within a year. We would love to hear from a panel on is that a good number or a bad number. Do not be fooled. This modest threshold is so low the agency will effectively have cart launched to knock down the door of Companies Large and small with their fleet of examiners. Theres no doubt the proposal would decrease incentives to innovate in the payment space and leave consumers encumbered with fewer firms from which to choose a payment method. That decreases competition. This does not benefit consumers or provide market clarity. In fact, the only people that this will benefit besides witnesses like you are compliance lawyers. To further expand their authority they have decided to capture Digital Assets under this proposal as well. The cfpb has searched the definition of funds includes Digital Assets. This is a novel position and the cfpb justifies this only in a small and unassuming footnote. Concerns around the proposal are not strictly partisan. Comment letters were submitted by both sides of the aisle to express concern about the scope and implications. The cfpb needs to go back to the drawing board, work to protect consumers and not hinder innovation and expand the insatiable reach for more power and scope. We think our panel of witnesses for being here today. We appreciate your testimony and willingness to work with us. I now yield to the Ranking Member mr. Lynch of massachusetts, five minutes for opening comments. Thank you, mr. Chairman. Good morning and i would like to thank our Witnesses Today with your willingness to help with the work. It is the mission of the Consumer FinancialProtection Bureau to safeguard consumers against unfair, deceptive and abusive financial practices and discrimination. The cfpb also ensures that markets for Consumer Products and service operate fairly and efficiently. In the interest of consumer access and responsible innovation. Further the cfpb recently proposed a role as the chairman noted that will allow the agency to exercise Supervisory Authority over larger nonbank Technology Companies that offer digital wallets and Payment Services including peer to peer payment apps Electronic Fund transfer apps. Importantly this role will place apple, google, Big Tech Companies that have moved into the Financial Services space on par with Financial Institutions that are already there and already subject to cfpb supervision. Unlike large banks and Credit Unions these companies do not currently undergo supervisory exams, periodic monitoring or compliance checks. They may not even be required to ensure that Company Funds were deposits. The action in the area is timely considering the escalation of shadow banking. That is the migration of core banking activities to nonbank entities which currently fall outside the scope of regulation. The role is also necessary given the growing expansion of Big Tech Companies into the Financial Services sector and the deployment of opaque Artificial Intelligence technologies. Consumer usage of digital tap to pay in the u. S. Has already reached 3 billion and is estimated to grow by 150 by 2028. Moreover, an estimated two thirds of americans including a majority of low to moderate income users are relying on peertopeer Digital Payment such as paypal. Many of these providers have already launched crypto currency payments for options. It is not surprising that consumer advocates strongly support the role. According to the Consumer Federation of america, we would be concerned whenever the line between commerce and banking is permitted to blur. By closing this loophole the cfpb is moving forward old Big Tech Companies accountable to play by the rules as everyone else. I agree with that statement. The cf bp is not becoming a tech regulator as much as Tech Companies are becoming banks or are becoming involved in the conduct of banking. By sector the subjecting Large Companies to the same as Financial Institutions the role will also protect consumers against massive Data Collection and modernization of personal information. Cfpb estimates the proposed rule would only apply to 17 entities. The agency has also made clear that supervision is based on risk, size, and financial transaction volume as well as the extent of oversight. That is why the role includes a threshold of 5 million Payment Transactions annually. I look forward to hearing from our panelists and stakeholders as this process develops. Thank you 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. You will be recognized for five minutes to get the oral presentation. Without objection the written statements will be made part of the record. We welcome carl. Hes the executive Vice President of tech. The managing director of Global Partners llc. James, the partner and had a thin Tech Industry group. Jack, a Financial Technology policy analyst at Cato Institute. And christopher alternate a professor of law at the university of iowa. You are recognized for five minutes. Thank you. German , Ranking Member lynch and members of the subcommittee on Digital Assets. Technology and innovation, thank you for the opportunity to discuss the Consumer FinancialProtection Bureau proposed rule on defining larger participants in the market for general use Consumer Payment applications. Im the executive Vice President of technet the network of Technology Ceos 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 and finance. 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 application. Members support efforts by policy makers to adapt and update outdated laws and regulation to meet the growing demand from consumers and businesses for these innovative fintec products. Its highly diversified. Companies across the eco system play a wide array of unique roles serving different markets and offering different 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 rule. 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 by congress the proposed rule creates an arbitrary market thats not based on data driven analysis or the reality of the eco Payment System. 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 narrowly define 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 be passed on to consumers. 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 introduce tremendous complexity 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. 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 point director of the cfpb, prior to that i served on the Financial Services committees previously staff. I will address my comments today first to the proposed rule and second to the broader context of recent cfpb action. As members are aware, Congress Gave the cfpb authority to subject socalled larger participants of defined markets for Consumer Financial products and services the supervisory examination. The proposed rule would, if finalized, define a market for general use digital Consumer Payment applications. 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 basis 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 practices. 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 participants. Rather, it gives the cfpb Carte Blanche to expand its own supervisory reach. This violates nondelegation principles. Congress should define the cfpbs authority and not the cfpb itself. Third, the proposed market definition is really broad because it aggregates terms rather than describe a coherent 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 my view, 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. Finally, without good cause 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 held that they cannot compel this information without authorization of congress, which the cfpb does not have. Which is detrimental to consumers. Also cfpb, unlike occ or sec, does not publish an annual list of exam priorities. As a result institutions have comparatively less insight into the cfpbs prioritization of Compliance Risks and therefore, 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 inflation. The price controls depart from the traditional federal approach to Consumer Finance regulation the politicized credit and capital unwarranted 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