RALEIGH — North Carolina Democratic Attorney General Josh Stein, along with other Attorneys General, supports proposed federal protections for digital payment and wallet services such as Venmo, CashApp, PayPal, and Zelle.
“More and more North Carolinians are conducting business on Venmo and other digital payment platforms, and they need to be able to trust that their money is going where they want to spend it,” Stein said in a press release. “These digital payment platforms need to be playing by the same rules so that people’s hard-earned money is protected.”
The Consumer Financial Protection Bureau (CFPB) has proposed a rule to include nonbank financial companies in its supervisory examinations, holding them accountable for data privacy, funds transfer, and other consumer protection laws. The alleged aim is to ensure fair competition and reduce the risk of consumer data misuse.
Stein has joined a letter to the CFPB signed by attorneys general in California, Colorado, Connecticut, Delaware, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Mexico, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Vermont, Wisconsin, and the District of Columbia.
“In short, as more consumers continue to rely on the convenient use of digital payment applications offered by nonbank financial institutions, it is essential that the nonbank financial institutions operating these platforms are held to the same level of accountability as are traditional banks and credit unions,” the attorneys general letter states.
The proposed new regulations on third-party payment apps would be in addition to the IRS’ new rules and reporting requirements for average citizens who use such apps. The rules were delayed twice to allow payment apps to adapt.
The change involves the apps reporting income for an account bringing in over $600 to the IRS, replacing the previous threshold of $20,000 in commercial payments. This year, a phased rollout will begin, requiring reporting for freelancer and business owner earnings of over $5,000. A major issue that delayed previous rollouts was distinguishing between taxable and nontaxable transactions, such as the sale of merchandise versus loaning a family member money.
John Berlau, senior fellow and Director of Finance Policy at the Competitive Enterprise Institute, sees major problems with the move.
“This is a solution in search of a problem that will lead to many other problems including possible jawboning of an industry with a political agenda,” Berlau told North State Journal. “It’s not needed and could cause many, many problems including the problem of politicalization.”
Berlau said such rules are not needed because financial technology apps, sometimes referred to as Fintech, already have a regulatory framework in banking.
“The banks – that are more like Chime and Dave – the bank that they’re connected follow the laws for regulation and deposit and deposit Insurance like any other bank,” said Berlau. “And then there’s also money transmitting, which was around when the FDIC was created in the 1930s and [has] been around for more than 100 years.”
Berlau also says he’s not seeing complaints in the attorneys general letter to the CFPB.
“The attorney generals aren’t really citing any consumer complaints about fintech specifically and if there were specific consumer complaints, the CFPB would already have authority just to investigate and to discipline for those complaints,” Berlau said.
“We don’t want to give the CFPB that kind of power and it’s not clear from the from the law [that] they have that kind of power,” he added.
Berlau acknowledged the CFPB has been accused of overspending, failure to protects databases, and its lack of accountability.
“One of the things that needs to be asked is they’re talking about “we need to CFPB to protect people’s data,” but what are the restrictions on the CFPB if it can view everything – including customer transactions?” asked Berlau, who went on to question oversight of the CFPB to actually safeguard citizen data and not give it “willy-nilly data to agencies like the IRS.”
“That’s the thing – they get their funding from the Federal Reserve rather than through the Congressional Appropriations process, so they don’t answer our elected representatives,” Berlau said about the lack of oversight over the CFPB.
He added that the U.S. Supreme Court is hearing a case involving the CFPB’s authority this coming session.
The CFPB was created by the Dodd-Frank Act in 2010 as a response to the 2007-08 financial crisis. It operates independently within the Federal Reserve, and its status has faced continued legal challenges.
In 2018, the Community Financial Services Association of America sued the CFPB over a 2017 rule prohibiting lenders from making attempts to collect funds from borrowers’ accounts after two consecutive failures unless the borrower had given consent.
The lawsuit argued that the CFPB’s funding structure was unconstitutional and the Fifth Circuit agreed, holding that the CFPB’s operations were illegal because it was “no longer accountable to Congress” for its annual budget. The Fifth Circuit’s decision has been appealed to the U.S. Supreme Court and awaits a ruling.
Last June, the Eleventh Circuit upheld sanctions imposed by a U.S. District Court against the CFPB in a case involving alleged fraudulent debt collection. The CFPB faced consequences for obstructive behavior during discovery, where it opposed depositions and evaded questions using work product objections and filibuster-style tactics. That same month, the Supreme Court ruled its single-director structure unconstitutional but allowed the agency to continue operating.
