Lawmakers Divided on Regulating Payment Apps and Cryptocurrency

The proposal named “Defining Larger Participants of a Market for General-Use Digital Consumer Payment Applications” was made by the Consumer Financial Protection Bureau (CFPB) with the intention of imposing similar regulatory standards on nonbank financial entities that handle more than five million transactions per year as they relate to banks and credit unions.

Members of the House Financial Services subcommittee expressed concerns about the scope of the CFPB’s jurisdiction during a recent hearing. Using a weak legal foundation, Representative Mike Flood, a Republican from Nebraska, contested the legitimacy of the CFPB’s authority over cryptocurrencies.

Democrats, on the other hand, such as Massachusetts Representative Stephen Lynch (D) pushed for CFPB regulation, pointing out that cryptocurrencies have significant risks and volatility that have resulted in significant investment losses.

“There’s a huge amount of risk and volatility in that, and yet there are some who say there’s no risk-based reason for the CFPB to venture into this,” Lynch stated.

Criticism and Concerns Over Crypto Regulation

The proposed rule, which explicitly references cryptocurrencies, has drawn criticism for allegedly expanding the CFPB’s purview into areas such as crypto transactions and self-hosted wallets without clear jurisdiction.

The ambiguous consequences of the regulation for digital assets have been a source of concern for witnesses and legislators, such as Representative French Hill of Arkansas and House Financial Services Committee Chair Patrick McHenry of North Carolina.

Representative Warren Davidson, a Republican from Ohio, brought out the difficulties of getting clear direction from regulatory agencies during talks about regulatory clarity for bitcoin companies.

Professor of law Christopher Odinet said that cryptocurrencies should be governed by the CFPB, pointing to events like as the demise of the massive cryptocurrency exchange FTX as proof of how inadequate prior knowledge was about these kinds of transactions and the handling of customer funds.