Two technology trade groups, TechNet and NetChoice, have filed a lawsuit against the US Consumer Financial Protection Bureau (CFPB) over its efforts to regulate digital payment apps and wallets more like traditional banks. The legal action challenges a rule issued by the CFPB in December, which expands the bureau’s supervisory authority over “general-use digital consumer payment applications.”
The rule allows the CFPB to oversee compliance with federal privacy and fraud laws through “proactive examinations” of payment apps with digital wallet functionality, targeting larger participants such as Apple Pay, Google Wallet, PayPal, Venmo, and Cash App. The plaintiffs argue that the CFPB’s actions create unnecessary roadblocks for businesses and could lead to increased prices and reduced options for consumers.
Chris Marchese, NetChoice’s director of litigation, stated, “The CFPB’s unlawful power grab undermines the rule of law, further bloats the administrative state, and puts American consumers and innovation at risk.”
The lawsuit claims that the CFPB failed to identify regulatory gaps justifying its intervention and that many of these companies are already heavily regulated at the state level. The plaintiffs assert that the CFPB’s failure to adhere to statutory requirements renders the rule invalid and request the court to declare it unlawful and beyond the bureau’s authority.
Tech firms challenge CFPB app rule
The legal challenge coincides with the CFPB’s action against Cash App parent company Block Inc. over insufficient fraud protection. The bureau accused Block of directing Cash App users who experienced fraud-related losses to contact their banks for transaction reversals, which the firm denied.
The CFPB’s order includes up to $120 million in compensation and a $55 million penalty to be paid into the regulator’s victim relief fund. The outcome of this lawsuit could significantly impact the future regulatory landscape for digital wallets and payment apps in the United States, as it raises important questions about the balance between consumer protection and regulatory overreach in the rapidly evolving digital payments landscape.
