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House Panel Chairman Tells CFPB to “Go Back to the Drawing Board” Over Stringent Crypto Oversight Proposal

House Financial Services Subcommittee on Digital Assets, Financial Technology, and Inclusion Chairman French Hill (R-AR) strongly criticized the Consumer Financial Protection Bureau (CFPB) on Wednesday morning for its latest federal oversight proposal concerning digital asset payment systems, urging the independent government agency to reconsider and revise its approach.

Republicans Criticize Consumer Financial Protection Bureau’s Oversight Rule

“There’s no denying that this proposal will stifle incentives for innovation in the payments sector and limit consumer choice, ultimately reducing competition,” remarked Hill.

Republican members of the subcommittee largely contended that the Consumer Financial Protection Bureau’s latest rule represented overreach at its most benign and potentially surveillance at its worst.

“The CFPB must reevaluate its approach, prioritizing consumer protection without impeding innovation or extending the bureau’s voracious appetite for greater authority and jurisdiction,” the chairman emphasized.

CFPB to Crack Down on Regulatory Arbitrage

Initially introduced by the Consumer Financial Protection Bureau in November 2023, the proposed new rule aims to grant the agency authority to “oversee larger nonbank entities offering services such as digital wallets and payment applications,” encompassing peer-to-peer and electronic fund transfer payment services.

“Payment systems serve as vital infrastructure for our economy. Traditionally, these activities were predominantly overseen by regulated banks,” stated Consumer Financial Protection Bureau Director Rohit Chopra in a November 2023 announcement regarding the proposal. “This rule addresses a loophole in regulatory oversight by ensuring that major technology firms and other nonbank payment entities are subject to appropriate supervision.”

According to a report from Data Horizon Research, the digital payment sector is projected to attain a valuation of $505 billion by 2032, with an annual growth rate of 19.7%.

During Wednesday’s hearing, Democrats countered, asserting that payment platforms like Venmo and PayPal would be required to adhere to consumer protection regulations, ultimately enhancing safety within the sector.

“The CFPB isn’t transitioning into a technology regulator; rather, technology firms are morphing into financial institutions,” remarked Congressman Stephen Lynch (D-MA).

In parallel, Representative Maxine Waters (D-CA) contended that the proposed rule wouldn’t stifle competition in payments but rather promote it. She argued, “This regulation won’t hinder competition in payments; rather, it will foster competition by preventing large corporations from unfairly dominating smaller ones through their size and data advantage.”

CFPB Faces Pressure to Clarify Crypto Stance

Wednesday’s hearing occurs against the backdrop of ongoing discussions regarding the boundary between conventional finance and digital assets, especially following the banking crisis of 2023, which witnessed the abrupt collapse of several banks known for their embrace of cryptocurrencies.

Despite congressional deliberations concerning the Consumer Financial Protection Bureau’s proposed rule impacting cryptocurrencies, the regulatory agency has not offered clarity regarding future regulatory measures for digital asset payment systems.

“The timeline for finalizing the proposal and whether the raised concerns will be addressed remain uncertain,” stated the committee memorandum.

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I want to save money. Will cryptocurrency work?

Cryptocurrency is essentially virtual money that operates in a decentralized manner, not through a bank but directly on multiple independent computers.

Every cryptocurrency has two main components: the units of digital exchange called “coins” and the network within which the exchange takes place. These units can be transferred between wallets and exchanged on exchanges. The networks in which these coins exist are called blockchains, which translates to “chains of blocks.”

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