Digital Wallets Win in the Senate—Now What?

The U.S. Senate early last month voted 51-47 to scrub a regulation issued in November by the Consumer Financial Protection Bureau and aimed at mobile wallets and digital money transfers. The repeal legislation, which moved to the House of Representatives, comes as major payment-app developers like Apple Inc., Block Inc., Google LLC, and PayPal Holdings Inc. faced new rules that would give the CFPB enforcement capability in an area where it has had only examination authority.

The legislation also comes as the arrival of the Trump Administration has led to sweeping changes in regulatory enforcement across the federal government. Trump on Feb. 1 fired CFPB director Rohit Chopra, under whose aegis the payment-app rule had been developed. Conservative political analyst Russell Vought took over as acting director a week later.

The Senate action, at least, is likely to encourage major developers of payment apps, observers say. “For fintechs, it is a victory. The pendulum is swinging in the other direction,” says Scott Talbott, executive vice president at the Electronic Transactions Association, a Washington, D.C.-based trade group.

The 259-page payment-apps rule, which had been set to take effect 30 days after its publication in the Federal Register, applies to firms that process at least 50 million consumer transactions per year. Combined, the biggest firms covered by the regulation process more than 13 billion transactions annually, according to the CFPB’s estimates. The new regulation would also have added enforcement capability to the CFPB’s remit in this area, where before its actions were limited to examinations.

Areas of supervision under the rule include privacy and surveillance, errors and fraud, and so-called debanking, or the interruptions consumers may sustain when app service is temporarily lost without notice. “Consumers have reported concerns to the CFPB about disruptions to their lives due to closures or freezes,” the CFPB noted in a release issued in November.

Consumer advocates have deplored the Senate’s action, charging that consumers will be at higher risk of fraud and disclosure of sensitive financial data. “Repealing the CFPB’s rule is major win for big tech that leaves consumers vulnerable to losing money to payment app fraud and puts the privacy of their sensitive financial data at risk,” said Chuck Bell, advocacy program director at Consumer Reports, in a statement. “We need to preserve the CFPB’s authority to conduct regular examinations of digital payment-app providers to make sure they are following the law and to protect consumers from unfair practices before they become widespread.”

By mid-March, it was hard to tell how the legislation would fare in the House, though the Senate vote unfolded almost entirely along party lines, with Democrats against and Republicans for, with the exception of Josh Hawley, Republican from Missouri. “This says Big Tech has had some success in repairing relations with Republicans,” notes Eric Grover, proprietor of the consultancy Intrepid Ventures. “We’ll see what happens.”