U.S. GOVERNMENT PUBLISHING OFFICE

56–391 PDF WASHINGTON : 2024

BUREAUCRATIC OVERREACH OR 

CONSUMER PROTECTION? EXAMINING 

THE CFPB’S LATEST ACTION TO 

RESTRICT COMPETITION IN PAYMENTS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON DIGITAL ASSETS, 

FINANCIAL TECHNOLOGY, 

AND INCLUSION 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED EIGHTEENTH CONGRESS 

SECOND SESSION 

MARCH 13, 2024 

Printed for the use of the Committee on Financial Services 

Serial No. 118–81 

( 
(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

PATRICK MCHENRY, North Carolina, Chairman 

FRANK D. LUCAS, Oklahoma 

PETE SESSIONS, Texas 

BILL POSEY, Florida 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

ROGER WILLIAMS, Texas 

FRENCH HILL, Arkansas, Vice Chairman 

TOM EMMER, Minnesota 

BARRY LOUDERMILK, Georgia 

ALEXANDER X. MOONEY, West Virginia 

WARREN DAVIDSON, Ohio 

JOHN ROSE, Tennessee 

BRYAN STEIL, Wisconsin 

WILLIAM TIMMONS, South Carolina 

RALPH NORMAN, South Carolina 

DAN MEUSER, Pennsylvania 

SCOTT FITZGERALD, Wisconsin 

ANDREW GARBARINO, New York 

YOUNG KIM, California 

BYRON DONALDS, Florida 

MIKE FLOOD, Nebraska 

MIKE LAWLER, New York 

ZACH NUNN, Iowa 

MONICA DE LA CRUZ, Texas 

ERIN HOUCHIN, Indiana 

ANDY OGLES, Tennessee 

MAXINE WATERS, California, Ranking 

Member 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DAVID SCOTT, Georgia 

STEPHEN F. LYNCH, Massachusetts 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

JIM A. HIMES, Connecticut 

BILL FOSTER, Illinois 

JOYCE BEATTY, Ohio 

JUAN VARGAS, California 

JOSH GOTTHEIMER, New Jersey 

VICENTE GONZALEZ, Texas 

SEAN CASTEN, Illinois 

AYANNA PRESSLEY, Massachusetts 

STEVEN HORSFORD, Nevada 

RASHIDA TLAIB, Michigan 

RITCHIE TORRES, New York 

SYLVIA GARCIA, Texas 

NIKEMA WILLIAMS, Georgia 

WILEY NICKEL, North Carolina 

BRITTANY PETTERSEN, Colorado 

MATT HOFFMANN, Staff Director 
(III) 

SUBCOMMITTEE ON DIGITAL ASSETS, 

FINANCIAL TECHNOLOGY, AND INCLUSION 

FRENCH HILL, Arkansas, Chairman 

FRANK D. LUCAS, Oklahoma 

TOM EMMER, Minnesota 

WARREN DAVIDSON, Ohio, Vice Chairman 

JOHN ROSE, Tennessee 

BRYAN STEIL, Wisconsin 

WILLIAM TIMMONS, South Carolina 

BYRON DONALDS, Florida 

MIKE FLOOD, Nebraska 

ERIN HOUCHIN, Indiana 

STEPHEN F. LYNCH, Massachusetts, 

Ranking Member 

BILL FOSTER, Illinois 

JOSH GOTTHEIMER, New Jersey 

RITCHIE TORRES, New York 

BRAD SHERMAN, California 

AL GREEN, Texas 

SEAN CASTEN, Illinois 

WILEY NICKEL, North Carolina 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

March 13, 2024 ................................................................................................. 1 

Appendix: 

March 13, 2024 ................................................................................................. 37 

WITNESSES 

WEDNESDAY, MARCH 13, 2024 

Holshouser, Carl, Executive Vice President and Corporate Secretary, 

TechNet ................................................................................................................. 4 

Johnson, Brian, Managing Director, Patomak Global Partners LLC ................. 5 

Kim, James, Partner and Head of the Fintech Industry Group, Troutman 

Pepper Hamilton Sanders LLP ........................................................................... 7 

Odinet, Christopher K., Josephine R. Witte Professor of Law, University 

of Iowa ................................................................................................................... 10 

Solowey, Jack W., Policy Analyst, Center for Monetary and Financial Alternatives, Cato Institute ......................................................................................... 8 

APPENDIX 

Prepared statements: 

Holshouser, Carl ............................................................................................... 38 

Johnson, Brian .................................................................................................. 48 

Kim, James ....................................................................................................... 64 

Odinet, Christopher K. ..................................................................................... 70 

Solowey, Jack W. .............................................................................................. 85 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Hill, Hon. French: 

Letter to CFPB Director Rohit Chopra dated December 18, 2023 ............... 97 

Letter to CFPB Director Rohit Chopra dated January 5, 2024 .................... 101 

Letter to CFPB Director Rohit Chopra dated January 30, 2024 .................. 103 

Letter to CFPB Director Rohit Chopra from the American Bankers Association (ABA) and the Consumer Bankers Association (CBA), dated 

January 8, 2024 ............................................................................................ 109 

Waters, Hon. Maxine: 

Written statement of America’s Credit Unions .............................................. 107 

Letter to CFPB Director Rohit Chopra from the American Bankers Association (ABA) and the Consumer Bankers Association (CBA), dated 

January 8, 2024 ............................................................................................ 109 

Letter to CFPB Director Rohit Chopra from various consumer groups, 

dated January 8, 2024 .................................................................................. 112 

Holshouser, Carl: 

Written responses to questions for the record from Representative Hill .... 134 

Written responses to questions for the record from Representative 

Waters ............................................................................................................ 139 

Johnson, Brian: 

Written responses to questions for the record from Representative Hill .... 140 

Written responses to questions for the record from Representative 

Waters ............................................................................................................ 141 

Kim, James: 

Written responses to questions for the record from Representative Hill .... 143 
Page

VI 

Kim, James—Continued 

Written responses to questions for the record from Representative 

Waters ............................................................................................................ 143 

Odinet, Christopher K.: 

Written responses to questions for the record from Representative 

Waters ............................................................................................................ 144 

Solowey, Jack W.: 

Written responses to questions for the record from Representative 

Waters ............................................................................................................ 145 
(1) 

BUREAUCRATIC OVERREACH OR 

CONSUMER PROTECTION? EXAMINING 

THE CFPB’S LATEST ACTION TO 

RESTRICT COMPETITION IN PAYMENTS 

Wednesday, March 13, 2024 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON DIGITAL ASSETS, 

FINANCIAL TECHNOLOGY, 

AND INCLUSION, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 9:01 a.m., in room 

2128, Rayburn House Office Building, Hon. French Hill [chairman 

of the subcommittee] presiding. 

Members present: Representatives Hill, Lucas, Davidson, Rose, 

Steil, Timmons, Donalds, Flood; Lynch, Foster, Gottheimer, Sherman, Green, Casten, and Nickel. 

Ex officio present: Representative Waters. 

Chairman HILL. The Subcommittee on Digital Assets, Financial 

Technology, and Inclusion will come to order. 

Without objection, the Chair is authorized to declare a recess of 

the subcommittee at any time. 

Today’s hearing is entitled, ‘‘Bureaucratic Overreach or Consumer Protection? Examining the CFPB’s Latest Action to Restrict 

Competition in Payments.’’ 

I now recognize myself for 5 minutes for an opening statement. 

Today’s hearing is critical because it is going to talk about, ‘‘larger 

participants,’’ in the general-use digital consumer payment applications market. This is the sixth Larger Participant Rule (LPR) that 

the CFPB has initiated. 

And putting aside the egregiously short comment period—which 

frustrates members of this committee—and the deeply-flawed costbenefit analysis, both of which have become hallmarks of this Administration, I find the substance of the CFPB’s proposal deeply 

concerning. 

The proposal asserts that companies that let you send money to 

friends, peer to peer (P2P), or companies that keep your credit card 

information on your phone, somehow are in the exact same market. 

Why? Well, just because the CFPB says so. 

This breadth of the, ‘‘market,’’ the CFPB is trying to define has 

perplexed many on this committee, from potentially covered entities to, as I say, Members on both sides of the aisle here. 
2 

Many companies are utterly confused, wondering not only how 

the rule will be implemented, but whether they are even covered 

by it. I would argue that this confusion is by no means an accident. 

The CFPB is trying to cast as wide a net as possible and become 

a, ‘‘technology regulator.’’ 

And in more ways than one, this proposal marks a sharp departure from the CFPB’s previous Larger Participant Rules. 

Director Chopra has decided, on a whim, and in my view, without justification, that technology companies pose a threat to consumers, and this rule should be viewed as a thinly-veiled 

workaround to get CFPB’s supervision teams into these tech companies. 

And that is because once an entity is designated as a, ‘‘larger 

participant,’’ the CFPB can not only supervise the activities—which 

is what I think the intent of the Dodd-Frank Act was—that originally qualified, but they can actually supervise the entity’s business itself. 

Their proposal intends to establish limits by only capturing those 

companies with 5 million transactions within a year—and we 

would love to hear from the panel on whether that is a good number or a bad number. But don’t be fooled: This modest threshold 

is so low that the agency will effectively have carte blanche to 

knock down the door of companies, large and small, with their fleet 

of examiners. 

There is no doubt that this proposal will decrease incentives to 

innovate in the payments space and leave consumers with fewer 

firms from which to choose a payment method, and that decreases 

competition. 

This LPR doesn’t benefit consumers or provide market clarity. In 

fact, the only people this proposal potentially will benefit, besides 

witnesses like you, are compliance lawyers. 

To further expand their authority, the CFPB has decided to capture digital assets under this proposal as well. The CFPB asserts 

the definition of, ‘‘funds,’’ includes digital assets. This is a novel position, and the CFPB justifies the interpretation only in a very 

small and unassuming footnote. 

Concerns around this proposal are not strictly partisan. Comment letters were submitted by both sides of the aisle to express 

concern about the proposal’s scope and implications. 

The CFPB needs to go back to the drawing board, work to protect 

consumers, and not hinder innovation or expand the CFPB’s insatiable reach for more power and scope. 

We thank our panel of witnesses for being here today, and we 

greatly appreciate your testimony and your willingness to work 

with us. 

And I now yield to the ranking member of the subcommittee, Mr. 

Lynch of Massachusetts, for 5 minutes for his opening comments. 

Mr. LYNCH. Thank you, Mr. Chairman. Good morning. I would 

also like to thank all of our witnesses today for your willingness 

to help the committee with its work. It is the fundamental mission 

of the Consumer Financial Protection Bureau to safeguard American consumers against unfair, deceptive, and abusive financial 

practices and discrimination. The CFPB also ensures that our markets are for consumer products and services to operate fairly and 
3 

efficiently in the interest of consumer access and responsible innovation. 

In furtherance of its critical mandate, the CFPB recently proposed a rule, as the chairman noted, that will allow the agency to 

exercise supervisory authority over larger non-bank technology 

companies that offer digital wallets and payment services. This includes peer-to-peer payment apps and electronic funds transfer 

apps. Importantly, this rule will place Apple, Google, Meta, and 

other Big Tech companies that have moved into the financial services space on par with financial institutions that are already there, 

and are already subject to CFPB supervision. 

However, unlike large banks and credit unions, these companies 

do not currently undergo CFPB supervisory exams, periodic monitoring, or compliance checks. They may not even be required to insure company funds or deposits. CFPB action in this area is timely, 

considering the escalation of shadow banking, that is, the migration of core banking activities to non-bank entities, which currently 

fall outside the scope of traditional bank regulation. The rule is 

also necessary, given the growing expansion of Big Tech companies 

into the financial services sector and their deployment of opaque 

artificial intelligence (AI) technologies. 

As reported by the CFPB, consumer usage of digital wallet tapto-pay options in the U.S. has already reached $300 billion, and it 

is estimated to grow by over 150 percent by 2028. Moreover, an estimated two-thirds of all Americans, including a majority of low- to 

moderate-income users are now relying on peer-to-peer (P2P) digital payments such as PayPal and Venmo. Many of these providers 

have already launched cryptocurrency payment and transfer options. 

So, it is not surprising that consumer advocates strongly support 

the rule. According to the Consumer Federation of America, ‘‘We 

would be concerned whenever the line between commerce and 

banking is permitted to blur.’’ By closing this loophole, the CFPB 

is moving forward to hold Big Tech companies accountable to play 

by the same rules as everyone else. I agree with that statement. 

The CFPB is not becoming a tech regulator, as much as tech 

companies are becoming banks, or are becoming involved in the 

conduct of banking. By subjecting large tech companies to the same 

consumer privacy standards that apply to financial institutions 

under the Gramm-Leach-Bliley Act, the rule will also protect consumers against massive data breaches and the release of personal 

information. 

The CFPB estimates that the proposed rule would only apply to 

17 entities. The agency has also made clear that its supervision of 

non-bank institutions is based on risk, size, and financial transaction volume as well as the extent of State oversight. That is why 

the rule includes a threshold of 5 million payment transactions annually. 

I look forward to hearing from our panelists this morning and 

other stakeholders as this rulemaking process develops. Thank you, 

Mr. Chairman, and I yield back the balance of my time. 

Chairman HILL. The gentleman yields back. We want to thank 

our witnesses for being here today. 
4 

We now welcome the testimony of Carl Holshouser, executive 

vice president and corporate secretary at TechNet; Brian Johnson, 

managing director of Patomak Global Partners; James Kim, partner and head of the Fintech Industry Group at Troutman Pepper 

Hamilton Sanders LLP; Jack Solowey, policy analyst at the Cato 

Institute; and Christopher Odinet, the Josephine R. Witte Professor 

of Law at the University of Iowa. 

You will each be recognized for 5 minutes to give an oral presentation of your testimony. And without objection, your written statements will be made a part of the record. 

Mr. Holshouser, you are now recognized for 5 minutes to give 

your oral remarks. 

STATEMENT OF CARL HOLSHOUSER, EXECUTIVE VICE 

PRESIDENT AND CORPORATE SECRETARY, TECHNET 

Mr. HOLSHOUSER. Thank you, Mr. Chairman. Chairman Hill, 

Ranking Member Lynch, and members of the Subcommittee on 

Digital Assets, Financial Technology, and Innovation, thank you for 

the opportunity to discuss the Consumer Financial Protection Bureau’s proposed rule on Defining Larger Participants of a Market 

for General-Use Digital Consumer Payment Applications. I am Carl 

Holshouser, executive vice president of TechNet, the national bipartisan network of technology CEOs and senior executives that 

promotes the growth of the innovation economy at the Federal and 

50-State level. Our diverse membership includes dynamic American businesses, ranging from startups to the most iconic companies on the planet. We represent over 4.2 million employees and 

countless customers in the fields of information technology, artificial intelligence, e-commerce, the sharing and gig economies, advanced energy, transportation, cyber, venture capital, and finance. 

As you know, technology plays an important role in removing 

barriers to financial access, and empowering Americans of all backgrounds to better manage their financial lives through safe, secure, 

inclusive, and reliable financial tools, including digital wallets and 

payment applications. 

TechNet and our members support efforts by policymakers to 

adapt and update outdated laws and regulations to meet the growing demand from consumers and businesses for these innovative 

fintech products. 

In our view, the current consumer payment ecosystem is highly 

diversified. Companies across the ecosystem play a wide array of 

unique roles, each serving different markets, and offering different 

functionalities. 

Regulations focused on fintechs must always ensure that consumers are protected, while continuing to allow for innovation in 

this dynamic ecosystem to flourish. Unfortunately, the CFPB’s proposed rule fails to accomplish both of these goals. 

Under the Dodd-Frank Act and the Administrative Procedure Act 

(APA), the Bureau must conduct thorough due diligence before 

issuing a proposed rule. The CFPB falls well short of satisfying this 

requirement in this proposed rule. Frankly, the CFPB’s lack of empirical analysis underlying its proposed rule is stark and troubling. 

Because the CFPB failed to follow rulemaking requirements required by Congress, the proposed rule creates an arbitrary market 
5 

that is not based on data-driven analysis or the realities of the digital payment ecosystem; fails to identify specific consumer harms 

that would necessitate CFPB supervision; and fails to adequately 

address the costs to the diverse array of companies that could be 

subject to CFPB supervision. We strongly feel that these deficiencies render the proposed rule defective. 

Before moving forward, it is critical that the CFPB more precisely and narrowly define the consumer payments market in 

which it seeks to supervise, and to conduct the empirical analysis 

required in the rulemaking process. 

At a very basic level, the Bureau should complete a cost-benefit 

analysis that adequately considers companies that may fall within 

the purview of the proposed rule; analyze the costs to the companies rather than using conservative estimates; and determine the 

costs that may be passed on to consumers. 

Until the CFPB conducts the analysis required of it by law, 

TechNet has urged the CFPB to pause the rulemaking process altogether, and reconsider the proposed rule in its entirety. Otherwise, 

this rule will introduce tremendous complexity and uncertainty 

into the digital payments markets to the detriment of consumers 

and businesses across our country. 

We appreciate the subcommittee’s attention to this important 

rule, and I look forward to answering your questions. 

[The prepared statement of Mr. Holshouser can be found on page 

38 of the appendix.] 

Chairman HILL. We thank you. Mr. Johnson, you are recognized 

for 5 minutes. 

STATEMENT OF BRIAN JOHNSON, MANAGING DIRECTOR, 

PATOMAK GLOBAL PARTNERS LLC 

Mr. JOHNSON. Chairman Hill, Ranking Member Lynch, and 

members of the subcommittee, thank you for holding this important hearing on the CFPB’s proposed Larger Participant rulemaking. I am Brian Johnson, Managing Director of Patomak Global Partners. I previously served as Deputy Director of the CFPB. 

And prior to that, I served on the Financial Services Committee’s 

professional staff. I will address my comments today, first, to the 

proposed rule, and second, to the broader context of recent CFPB 

actions. 

As Members are aware, Congress gave the CFPB authority to 

subject so-called larger participants of defined markets for consumer financial products and services to supervisory examinations. 

The proposed rule would, if finalized, define a market for generaluse digital consumer payment applications. Larger participants of 

this market are defined as providers of at least 5 million annual 

consumer payment transactions, that are not small business concerns, that will become subject to CFPB exams. 

There are several reasons for Members on a bipartisan basis to 

encourage the CFPB to withdraw and repropose its rule so that it 

may engage in a more thoughtful and deliberative rulemaking 

process. 

First, Director Chopra’s recent public remarks, which are the impetus for the proposed rule, express concerns about the potential 

for Big Tech companies to engage in various anticompetitive prac-
6 

tices. However, the CFPB is not the proper agency to address such 

concerns. The CFPB’s supervisory duty is to assess institutions for 

compliance with Federal consumer financial law, not antitrust law. 

The proposed rule lacks adequate justification because it is not 

grounded in consumer financial risks arising from the offering or 

use of covered products and services within the defined market. 

Second, the Dodd-Frank Act provides the CFPB with no intelligible principle to guide its definition of markets or selection of 

larger participants. Rather, it gives the CFPB carte blanche to expand its own supervisory reach. This violates nondelegation principles. Congress should define the boundaries of the CFPB authority, not the CFPB itself. 

Third, the proposed market definition is impermissibly broad because it aggregates terms in order to cover a number of disparate 

functions rather than describing a coherent market for reasonably 

interchangeable financial products and services. 

Fourth, the CFPB interprets the term, ‘‘funds,’’ to cover digital 

assets, the effect of which would be to expand its regulatory authority over a large number of new products and participants. This 

would up-end careful efforts by Members of Congress to craft a balanced legislative framework for digital asset regulation. This presents a major question of economic and political significance that 

must be left to Congress to decide. 

Fifth, the CFPB cost-benefit analysis uses a decade-old framework to calculate the expected cost to the larger participant examination. In my view, the Bureau’s exam cost estimate of about 

$25,000 understates the true cost of an exam by at least an order 

of magnitude. The CFPB’s failure to update its assumptions and 

obtain accurate information is a significant weakness in the proposal’s 1022 analysis. 

Finally, without good cause shown, the CFPB departed from its 

standard practice in order to limit the amount of time available for 

the public to submit comments on the proposed rule, which is contrary to the spirit of the APA. 

Now, I will address the broader context of recent CFPB actions. 

Regarding the nonfinancial consequences of CFPB supervision, I 

note that CFPB examiners sometimes require institutions to waive 

attorney-client privilege, and turn over protected communications. 

The Supreme Court has long held that agencies cannot compel production of this information without an express authorization from 

Congress, which the CFPB does not have. This practice chills a 

company’s consultation with legal counsel, which is detrimental to 

consumers. 

Also, the CFPB, unlike the OCC or the SEC, does not publish an 

annual list of exam priorities. As a result, institutions have comparatively less insight into the CFPB’s prioritization of compliance 

risks, and therefore, less opportunity to proactively address them. 

Regarding rulemaking, the CFPB has recently proposed or finalized several rules on so-called junk fees as part of a coordinated 

campaign to scapegoat companies for rising prices caused by inflation. The CFPB’s price controls depart from the traditional Federal 

approach to consumer finance regulation. The politicized allocation 

of credit and capital through unwarranted market intervention con-
7 

stitutes a severe danger to free markets and consumer autonomy. 

This is not consumer protection. 

I urge Congress to use all available means to prevent bureaucratic central planning and overreach. Thank you. And I welcome 

the opportunity to answer your questions. 

[The prepared statement of Mr. Johnson can be found on page 

48 of the appendix.] 

Chairman HILL. Thank you very much. Mr. Kim, you are recognized for 5 minutes. 

STATEMENT OF JAMES KIM, PARTNER AND HEAD OF THE 

FINTECH INDUSTRY GROUP, TROUTMAN PEPPER HAMILTON 

SANDERS LLP 

Mr. KIM. Thank you, sir. Chairman Hill, Ranking Member 

Lynch, and members of the subcommittee, thank you for inviting 

me to testify today. My name is James Kim, and I am a partner 

at the law firm Troutman Pepper Hamilton Sanders. Today, I am 

presenting my own views and not those of the firm or any client 

of the firm. My testimony and the views I express today are informed by my tenure at the CFPB, and my subsequent practice focusing on payments and financial technology. My clients at Troutman Pepper range from banks and other established institutions, 

to medium-sized and early-stage companies seeking to introduce innovative products and expand choices for consumers in the marketplace. 

From 2012 through 2014, I had the privilege of serving at the 

CFPB, where I was the lead attorney in the Bureau’s first enforcement action involving mobile devices and payments. I also worked 

with colleagues in the office of supervision and supported examinations, and I was a member of an interdepartmental working group 

focusing on emerging payment products. And since leaving the Bureau, my practice very much focuses on helping companies navigate 

examinations, investigations, and rulemaking involving the agency. 

So, why is the proposed rule for defining larger participants in 

the payment space important? Before I answer, it is worth highlighting that there is no question that consumer payments are currently regulated by a host of Federal and State laws and rules, that 

are enforced by a combination of the CFPB, Federal prudential regulators, the Federal Trade Commission, FinCEN, and many State 

agencies. 

The proposed rule does not change the substance of these myriad 

statutes and regulations. Instead, the proposed rule is important 

because it seeks to define the larger participants who will be subject to the CFPB supervisory authority. 

The Bureau’s power to examine institutions is the agency’s most 

powerful and least transparent tool. Companies supervised by the 

CFPB must devote personnel and significant resources to host examiners at their offices, respond to information requests and follow-up questions, and address findings. 

Examinations are nonpublic, and often last months, and sometimes longer than a year. The CFPB typically extends the scope of 

their exams to the company’s parent, affiliated entities, and other 

business areas beyond the covered activity, in this case, generaluse payment applications. 
8 

Examinations lack a third party, such as a court or an administrative law judge to oversee the process and adjudicate disputes. 

Companies also forfeit their attorney-client privilege during exams. 

With these considerations in mind, Congress carefully defined 

the CFPB’s supervisory authority by generally limiting supervision 

to larger banks and larger nonbanks which can bear the significant 

costs of complying with exams. And Congress also mandated requirements before the Bureau can expand the scope of its own authority through the Larger Participant rulemaking. 

I am going to just highlight two issues in my opening statement. 

The first is the rulemaking requirements in Dodd-Frank and duplication with existing supervision by Federal prudential regulators 

and State agencies. Dodd-Frank lays out the requirements for 

issuing a Larger Participant rule. And before issuing such a rule, 

the Bureau must consult with the Federal Trade Commission. That 

requirement is critical because defining a market is the fundamental prerequisite to determining who is a larger participant 

within the market. The FTC analyzes market concentration and 

enforces Federal antitrust laws. And therefore, Dodd-Frank requires the CFPB to consult with the FTC. 

Now, the proposed rule states that the CFPB consulted or provided an opportunity for consultation and input with not only the 

FTC, but other Federal agencies. But it doesn’t discuss any input 

from the FTC or any factors determining which products or services should be included within the same market. It is, therefore, 

unclear whether the Bureau met its statutory obligation to consult 

with the FTC, which plainly provides that the Bureau shall consult 

with its sister agency. 

Turning to duplicative supervision by State and other Federal 

agencies, the proposed rule would create duplicative and overlapping supervision for many companies in the space. The proposed 

rule mentions that States have supervisory programs that ignore 

the fact that many companies potentially subject to the rule already partner with financial institutions which are already supervised and subject to examinations by the CFPB or the bank’s prudential regulators under the Bank Service Company Act. 

Chairman HILL. Mr. Kim, you have gone over your time. Your 

full statement will be in the record. 

Mr. KIM. Thank you, sir. 

[The prepared statement of Mr. Kim can be found on page 64 of 

the appendix.] 

Chairman HILL. Mr. Solowey, you are recognized for 5 minutes. 

STATEMENT OF JACK W. SOLOWEY, POLICY ANALYST, CENTER 

FOR MONETARY AND FINANCIAL ALTERNATIVES, CATO INSTITUTE 

Mr. SOLOWEY. Good morning, Chairman Hill, Ranking Member 

Lynch, and distinguished members of the House Subcommittee on 

Digital Assets, Financial Technology, and Inclusion. Thank you for 

the opportunity to take part in today’s hearing. My name is Jack 

Solowey, and I am a policy analyst at the Cato Institute Center for 

Monetary and Financial Alternatives. The views I express today in 

my testimony are my own. 
9 

The Consumer Financial Protection Bureau’s proposal for supervising digital consumer payment apps lacks a risk-based justification. For that reason and others laid out in my testimony, it should 

be withdrawn. 

Since the launch of the first digital payment app, these tools 

have become highly successful at satisfying demand. The CFPB explains this well. More than nine in 10 U.S. consumers report having used a digital payment method. And a majority of lower-income 

Americans report using digital payment apps. 

In recent years, cryptocurrencies and decentralized finance 

(DeFi) have helped to further promote competition to keep the 

United States at the technological frontier. Diverse payment tools 

benefit U.S. entrepreneurs and consumers. 

Unfortunately, the CFPB’s proposed Larger Participant rule 

takes the utility and popularity of digital payment tools as the reason to subject them to greater scrutiny. It would target market success, not market failure. The CFPB does not identify specific risks 

to consumers from digital payment apps. Rather, vague references 

to generic risks leave the proposed rule without a persuasive justification. They also create uncertainty, such as when the Bureau 

indicates that its supervision priorities will be tied to unpredictable 

factors. Unclear rationales and priorities provide little practical 

guidance. 

Given these shortcomings, the Bureau should withdraw the proposed rule. Even if the proposed rule were justified, it would still 

present multiple problems when attempting to assert jurisdiction 

over cryptocurrencies. The problem begins when the CFPB interprets the term, ‘‘funds,’’ to cover crypto. 

As the Bureau acknowledges, the word, ‘‘funds,’’ is not specifically defined in the Consumer Financial Protection Act. And it is 

not clear that the original public meaning of, ‘‘funds,’’ under that 

Act included cryptocurrency. The Act was part of legislation designed to address the 2007–2008 global financial crisis, an event 

predating the first bitcoin transfer. That transfer took place in 

2009, the year just prior to the Act’s passage. Ethereum, another 

major cryptocurrency, would not launch until 2015. 

As the CFPB acknowledges, the case law the Bureau cites to support its interpretation does not address the Consumer Financial 

Protection Act, but rather other Federal laws. Asserting jurisdiction over crypto creates further issues. 

The Bureau’s lack of clarity regarding key terms in the proposed 

rule risks mistakenly treating certain crypto tools like other fintech 

tools despite key differences. Specifically, treating what are known 

as self-hosted or noncustodial crypto wallets as if they were the 

same as digital payment apps would be inappropriate. Unlike payment apps where users rely on service providers, self-hosted crypto 

wallets are simply tools that let users protect the unique, cryptographic keys for accessing their own crypto holdings. Importantly, these holdings are not held or documented by self-hosted 

crypto wallet creators. Rather, they are recorded on public 

blockchain ledgers that operate independently. 

The proposed rule also faces procedural issues when it comes to 

these technologies. The Bureau does not analyze the specific costs, 

benefits, and impact of extending authority over cryptocurrencies, 
10 

or self-hosted crypto wallets. Applying the proposed rule to them 

would raise serious concerns under the Administrative Procedure 

Act and the Consumer Financial Protection Act itself. 

While there are good reasons that the proposed rule should not 

be read to cover self-hosted crypto wallets, if the proposal were to 

proceed, the Bureau must expressly clarify that the proposed rule 

does not apply to these tools. Notably, the Bureau’s attempt to assert authority over crypto conflicts with the work of Congress and 

this subcommittee in particular to define that jurisdiction. 

For the long-term health of both the fintech ecosystem and the 

constitutional order, Congress, not administrative agencies should 

define the limits of regulatory authority. 

Thank you for the opportunity to provide this information, and 

I welcome any questions that you may have. 

[The prepared statement of Mr. Solowey can be found on page 85 

of the appendix.] 

Chairman HILL. Thank you. Professor Odinet, you are recognized 

for 5 minutes for your oral remarks. 

STATEMENT OF CHRISTOPHER K. ODINET, JOSEPHINE R. 

WITTE PROFESSOR OF LAW, UNIVERSITY OF IOWA 

Mr. ODINET. Thank you. Good morning, Chairman Hill, Ranking 

Member Lynch, and members of the subcommittee, and thank you 

for inviting me to testify today. My name is Chris Odinet, and I 

am a law professor at the University of Iowa where I teach and 

write in the areas of commercial law, consumer finance, digital assets, and financial regulation. 

I would like to make three points today regarding the non-bank 

payments market, as well as the CFPB’s Larger Participant rule. 

First, and as an initial matter, the CFPB supervision of nonbank payment platforms would help level the regulatory playing 

field between those platforms and banks. And the need for leveling 

that regulatory playing field has to do with the fact that both 

banks and nonbanks are playing similar roles in the payments ecosystem. 

To be sure, we know that banks have long held a central role in 

the payment system, and as such they are highly-regulated institutions. And a critical aspect of their regulation is supervision. Nonbank payment platforms are acting as powerful intermediaries in 

helping consumers transfer funds, as well as transactions between 

consumers and merchants. But when they do, they add additional 

parties and additional legs in the payment process. And that has 

the effect of increasing the chances for losses related to fraud, data 

breaches, and the insolvency of these powerful intermediaries. 

Now, to be sure, in order to engage in the transmission of money, 

one must obtain a license from various State regulators. But the 

requirements relative to obtaining those licenses and the degree of 

oversight and supervision can vary significantly among the States. 

Against that backdrop, the CFPB’s proposal to establish a more 

coherent supervisory framework overseeing both banks and 

nonbanks makes a lot of sense. It can prevent the evasion of consumer finance laws and ensure compliance across entities that are 

offering similar services, in this case, payment services. 
11 

Second, another compelling reason favoring the CFPB’s supervision over non-bank payment platforms has to do with their collection use and maintenance of important and sensitive consumer financial data. As Big Tech companies increasingly penetrate the 

payments market, a major incentive appears to be gaining access 

to vast troves of important and valuable information about how 

consumers spend money. This notion aligns, I think very well, with 

the tech industry’s data-driven, advertising-centered business models that really thrive on harvesting consumer data. 

But, by these firms also operating payment transmission lines, 

that allows them to amass personalized financial data, which they 

can then integrate with their existing stockpiles of data to create 

very granular, multi-dimensional consumer profiles. And those very 

multi-dimensional profiles can be exploited by these platforms as 

well as sold to third persons. 

And I think to that end, and perhaps more alarming, these indepth consumer profiles can be used for discriminatory purposes, 

such as unlawful differential pricing and targeting marketing. And, 

of course, there is already a long history of discrimination against 

Black and Latino households and women in U.S. credit markets. 

To put it bluntly, I think a lack of the CFPB’s supervisory authority over nonbanks in the payment system is and has been a 

glaring blind spot for that agency. And establishing and extending 

the supervisory authority of the Bureau in this area helps remediate that blind spot and establish more consumer trust in the payment’s ecosystem. 

Third, and lastly, I think the inclusion of at least some forms and 

some types of crypto companies is much needed when it comes to 

CFPB supervision. These firms’ business models are often very 

intertwined with consumer finance, but very little is known about 

their very intricate and largely opaque operations. 

In fact, it is largely through these firms’ failures and unwinding 

in bankruptcy right now that we are finding out anything about 

how they actually operate. Take, for instance, the high-profile collapse of the crypto exchange giant, FTX, which has exposed, I 

think, how little was previously known about the true nature of 

these transactions and the handling of consumer assets. 

Lastly, I will note that extending CFPB supervision over at least 

some crypto firms is not just good for consumers, it is also good for 

other crypto firms. So while robust supervision can help detect and 

deter consumer fraud before it happens, it will also drive bad players from the market. 

In conclusion, we jumped generations in the payment system just 

over the few years of the pandemic. And the CFPB’s rulemaking 

in that regard is sorely needed. I think it is well-aligned with safeguarding American households as well maintaining a secure and 

competitive payments landscape. Indeed, given these platforms’ immense growth, this rule is actually quite long overdue. Thank you. 

[The prepared statement of Professor Odinet can be found on 

page 70 of the appendix.] 

Chairman HILL. I thank our panel for your excellent testimony. 

We have the privilege of having the ranking member of the full 

Financial Services Committee, Maxine Waters, here, and I will 

yield to the ranking member for one minute. 
12 

Ms. WATERS. Thank you very much, Mr. Chairman. I have long 

raised concerns about Big Tech’s expansion into financial services. 

And I am pleased that the CFPB is finally taking action to oversee 

these companies. Big Tech already dominates markets, and possesses massive amounts of consumer data. But it has not been subject to the CFPB supervision that banks and other financial institutions already follow. 

When I was Chair, this committee held Big Tech to account, including by convening a hearing with Facebook CEO Mark 

Zuckerberg over his plans to develop a cryptocurrency called Libra. 

Moreover, when Democrats led the passage of the Dodd-Frank Act, 

we empowered the CFPB to supervise any large nonbank, including 

Big Tech, when they facilitate payments or offer financial products 

to consumers, to ensure that consumers are always protected no 

matter whom they are dealing with. I am pleased they are using 

these tools as intended. I look forward to today’s discussion, and I 

yield back. 

Chairman HILL. The gentlewoman yields back. I now yield myself 5 minutes for questions. In my view, it is an understatement 

to say the CFPB has been controversial since it was created 13 

years ago. It has been talked about, as the ranking member said, 

for that past 13 years in this committee about its legal authorities 

under Dodd-Frank, and its constitutional funding structure. Because the CFPB often asserts its authorities broadly, it is important for Congress to be a check. 

For the Larger Participant rulemakings like this one, defining a 

market is a prerequisite to determining what companies are, in 

fact, larger participants. 

It is really important for an LPR to set a narrow and clearly-defined market because it allows the CFPB to subject non-bank consumer finance companies to its full supervision, as I said in my 

opening statement. It is not just about the product regulation. It 

opens those companies designated for full supervision and examination, even if they are not statutorily enumerated. 

However, I have concerns about how the Bureau has chosen to 

set an overly-broad and unclearly-defined market in this rule over 

companies in the general-use digital consumer payment applications space. 

Legal precedent in the antitrust laws dictate products that are 

in the same market if they are reasonably interchangeable by consumers for the same purposes. This matters because the CFPB is 

supposed to consult with the FTC when defining the market. And 

it is unclear from the testimony today if, in fact, the CFPB met its 

obligation to do so. 

In contrast, this proposal attempts to sweep in practically the entire payments ecosystem by relying on the definition of, ‘‘general 

use,’’ and thus, it is overly broad and ambiguous. 

Mr. Holshouser, does TechNet and its members view these three 

types of products as part of the same market, that is, peer to peer 

access to digital payments. Are they all part of the same market? 

Mr. Holshouser. No, no, general-use data consumer payment applications is not a market. That is an arbitrary conflation of a lot 

of different products and services. 
13 

Chairman HILL. Does the CFPB’s overly-broad approach and unclear definition of a market threaten innovation and competition in 

this space? 

Mr. HOLSHOUSER. Absolutely. We have to protect consumers and 

safeguard them. But onerous regulations like this will have a 

chilling effect on innovation, particularly for small businesses and 

startups, people in a garage who are just trying to make a dream 

work—it is really unclear whether or not—particularly with the 5 

million transactions being so low—who would be covered in this. It 

is definitely more than 17. But if we are going to impose this type 

of onerous compliance on a really small startup, we are impacting 

our job growth and our ability to compete. 

Chairman HILL. Very interesting. And Mr. Johnson, on that 

point, I think MasterCard might do 160 billion transactions a year. 

So in the payment space, the numbers are in the billions when it 

comes to consumer payment transactions, would be my judgment. 

But you were at the CFPB. Do you have any perspective on the 5 

million number as being way too small? Or is it a Goldilocks number, or not a right number? 

Mr. JOHNSON. Mr. Chairman, I would say the onus is on the Bureau to prove why that is the correct figure. 

Chairman HILL. Did they do that? 

Mr. JOHNSON. I think they have failed to—— 

Chairman HILL. What evidence have they provided that 5 million 

is a great place to start on this topic? 

Mr. JOHNSON. Putting a finger in the wind and seeing which direction it blows. My written testimony says, I believe the justification provided by the Bureau in this instance is inadequate. And 

one measure to look at here, to your question about market definitions, and each of the five prior Larger Participant rules that the 

CFPB has proposed, it was very easy for the Bureau to actually define those markets. It took two to three pages in the definitions. 

Here, just as a metric, the CFPB has struggled for seven pages in 

the Federal Register to try and define this market. And I think 

that speaks volumes about the struggle the agency has undertaken. 

Chairman HILL. Thank you. That is very helpful. But let me ask 

you this, again, based on your experience, should the LPR process 

be statutorily reformed? Should we direct the CFPB exactly how to 

propose an LPR, or provide more definition instead of this fishing 

expedition in comparison to the consumer debt collection rule in 

2012, the auto financing rule back in 2015? To your point that they 

were very specific, this seems overly broad. 

Mr. JOHNSON. At a minimum, Congress ought to provide an intelligible principle for the Bureau to follow in promulgating its 

rules. That could include a list of statutory factors the Bureau 

must consider for setting a market definition, and for setting the 

manner in which it establishes that larger—— 

Chairman HILL. Thank you. My time has expired. If you have 

anything further on that, or anyone else, please submit it for the 

record. 

Without objection, I would like to propose that some letters be 

inserted in the record: December 18th from Republican Members to 

Director Chopra; January 30th to Director Chopra from Chairman 

McHenry, myself, and Mr. Flood; and a letter dated January 5th 
14 

from Democratic Members—Mr. Himes, Mr. Gottheimer, et al, 

dated January 5th. Without objection, they will be included as a 

part of our record. 

And now, we turn to the ranking member of the subcommittee, 

the gentleman from Massachusetts, Mr. Lynch, for his questions. 

Mr. LYNCH. Thank you, Mr. Chairman. Again, I thank the witnesses. Professor Odinet, I was here when we created the CFPB. 

I was here during that debate. And the goal here and the statutory 

direction for the CFPB was we were trying to provide a single point 

of accountability for enforcing Federal consumer financial laws in 

protecting consumers in the financial marketplace. Why would this 

proposed rule be outside of the regulatory framework that we set 

up for the CFPB? In my mind, this is exactly why we created the 

CFPB. We understood, even back then, not that long ago, that technology was changing. We understood that. So, we didn’t put limitations on technology for the CFPB. We said, protect consumers in 

the financial marketplace, full stop. 

Now, technology companies are getting into the financial market- place in a big, big way: $300 billion so far in peer-to-peer apps and 

other platforms. 

Explain to me why the CFPB would not be—that would not be 

in the legitimate purview of their regulatory mission? 

Mr. ODINET. Thank you for the question. I think that regulating 

this space is absolutely within the CFPB’s jurisdiction. And I view 

it not so much as the CFPB trying to regulate tech firms, but as 

the CFPB exercising its authority, as directed by Congress, to regulate, in this case, to supervise nondepository institutions, 

nonbanks. It just so happens that these nonbanks often bill themselves as tech firms—or the term that has become so popular, financial technology companies or fintech companies. 

And this point about digital payment firms having to abide by 

the same laws, the Electronic Funds Transfer Act, the GrammLeach-Bliley Act, but not in the same way that banks do with respect to supervision, I think really accentuates a divide between 

banks and nonbanks, or shadow banks and banks, which remains 

an issue, even after the 2008 crisis. 

I think we saw this most significantly in the run-up to that crisis 

where banks, chartered institutions were subject to one set of rules, 

and nonbanks, which were largely the engine of subprime lending, 

were not. And I think it is worth saying what I mean by not subject to the same set of rules. That is really along two dimensions. 

First, they don’t have the same sort of safety and soundness requirements as banks. The result is that their business models can 

come in a form that requires very few reserves, also very thin margins, which makes them vulnerable to shocks, which, in turn, can 

trickle down to consumer harm. 

And then, supervision being the other side of that, these firms 

generally—while they have to abide by the same rules, they are not 

subject to the same monitoring—— 

Mr. LYNCH. I have to jump in here. No, I appreciate that. I have 

heard from other witnesses that there is no risk-based foundation 

for the CFPB to act. But of the 24,000 cryptocurrencies that have 

been launched, over half, 14,000, have died. So, people have lost 

their investment completely. Those cryptocurrencies have gone 
15 

dead. Gone to zero. Never mind that FTX, Mixin, ERON, TERA, 

PayCoin, and BitConnect have all gone to zero. There is a huge 

amount of risk and volatility in that, and yet, there are some who 

say there is no risk-based reason for the CFPB to venture into this. 

And let me just ask you this last question. If I set up a banking 

system that has all of the bells and whistles, all of the banking regulations for one group, and then I create another one that has no 

regulations, completely unregulated, where is the money going to 

migrate, in your estimation? Where will the money migrate and the 

financial activity migrate to? The heavily-regulated one that protects consumers or the fintech area with no regulation? 

Mr. ODINET. I think, quite simply, it will migrate over to the 

non-bank area because there are lower regulatory burdens in that 

space. But the tradeoff there is that there can be more consumer 

harm in that space because there is less watching of the players 

in that market. 

Mr. LYNCH. Thank you. I yield back. 

Chairman HILL. The gentleman yields back. Mr. Lucas of Oklahoma is recognized for 5 minutes. 

Mr. LUCAS. Thank you, Mr. Chairman. The U.S. banking sector 

is among the most highly-regulated sectors in the country. And in 

2010, the passage of Dodd-Frank unleashed more than 2,000 pages 

of sweeping reforms and new regulations across the industry. 

Dodd-Frank also established the CFPB, giving the new regulator 

broad authorities over banks and nonbanks. Part of this authority 

was supervision over the larger participants in consumer financial 

markets. 

CFPB’s proposed Larger Participant rule from this past November is the sixth rule in this category, this time aimed at digital consumer payments applications. This rule would allow the CFPB to 

supervise certain nonbanks that provide money transfer services to 

consumers. 

Mr. Holshouser, let’s talk about some fundamentals for a moment. You discussed in your testimony how the CFPB does not follow the Administrative Procedure Act. Can you expand on that? 

That is one of the fundamental issues, playing by the rules. 

Mr. HOLSHOUSER. There is a statutory rulemaking process that 

has to be followed, including plenty of time for respondents. I think 

that 60 responses were heard in this case, in what really was 41 

days, if you include all the holidays, that was supposed to be 60 

days. They also have to provide a justification of consumer harm 

and a reason for why they need to do this. And they need to explain who is going to be regulated and how it is going to happen 

for a response. 

Just to quickly answer so you can have it back, that is, in and 

of itself, not sufficient. 

Mr. LUCAS. Mr. Kim, this isn’t new for CFPB. Could you highlight the importance of a robust Administrative Procedure Act process? Why does it matter? 

Mr. KIM. It matters because the agency does have a lot of power. 

And in order to exercise its power, it should follow its statutory 

mandate in Dodd-Frank and other acts, but primarily in DoddFrank. And I think in order to have the right balance of executing 
16 

its mission to protect consumers, exercising its broad regulatory 

powers, it has to follow the mandate from Congress. 

Mr. LUCAS. There has been a significant number of questions regarding the details of the rule. For example, CFPB does not clearly 

define the term, ‘‘funds.’’ And there are concerns that this could 

rope in entities that transfer assets such as securities or even commodities that are outside the purpose of this rulemaking. 

Mr. Kim, could you please explain how elements in the proposal 

such as this are overly broad? 

Mr. KIM. Dodd-Frank has a specific requirement, or really, I 

think, ‘‘boundaries,’’ is a better word, saying very clearly that the 

CFPB’s jurisdiction ends where the SEC’s and the CFTCs begins. 

And I think it is pretty clear that those two sister agencies have 

been very active in the digital assets and crypto space. And so, the 

Bureau should, I think, respect and recognize the jurisdiction and 

the effort and the investment by those agencies and Congress in 

the digital asset space. 

Mr. LUCAS. Mr. Johnson, could you offer your perspective on the 

far-reaching nature of the proposal? This has long-term impacts. 

Mr. JOHNSON. Yes, Congressman. It does have long-term impacts. And I think the impacts will manifest over time due to the 

confidential nature of the supervisory process. An overbroad market definition and an imprecise establishment of the asset threshold for determining larger participants means that an unknown 

number of institutions will be subject to supervision. As a confidential process, the public won’t understand what the Bureau does behind the scenes afterwards. And I think that is the primary risk. 

Mr. LUCAS. Focusing in on the requirements under the proposal, 

does the CFPB outline any specific examination procedures for 

larger participants offering covered payment services? And I will 

direct that again to you, Mr. Johnson. Please give us a sense of 

what details the CFPB lays out, in my remaining time. 

Mr. JOHNSON. The only reference I am aware of is the general 

statutory requirement that the supervisory process itself be riskbased. Notably, the rule is not risk-based. The Bureau’s determination of the market and the institution subject to the proposed rule 

is not risk-based. 

Mr. LUCAS. With that, Mr. Chairman, my time is about to expire, 

so I yield back. 

Chairman HILL. The gentleman yields back. The ranking member of the Full Committee, Ms. Waters, is recognized for 5 minutes. 

Ms. WATERS. Thank you very much. To Professor Odinet, the 

misleading title of this hearing suggests that the CFPB’s Larger 

Participant rule would restrict competition in payments. But, if 

anything, this rule should increase competition by ensuring that 

the largest companies are not able to leverage their size and data 

to unfairly crowd out smaller companies. This is a concern, because 

some of these Big Tech companies do not have the best record 

when it comes to consumer protection. 

Meta, for example, has engaged in illegal data practices and has 

been a repeat offender of regulatory order, highlighting the importance of supervisory authority in this space. Can you talk about 

how this rule would help smaller companies by keeping the biggest 

companies in check? 
17 

Mr. ODINET. Thank you for the question. I agree with you that 

market dominance is a real concern in the non-bank payment 

space. The dominance and the concentration of the consumer payments market by a handful of companies poses, I think, some significant dangers. We know that when a small number of companies 

control the majority of the market, that does limit competition, and 

leads to higher prices, and, of course, to reduced innovation. Also, 

lower-income households facing financial constraints may be disproportionately affected by having fewer alternatives and, of 

course, are more vulnerable to those price increases. 

And market dominance can stifle diversity in the consumer payment space by limiting access to services that are more tailored to 

the needs of specific demographic groups. 

I see this rule as being in service to addressing that market concentration. To give you an example, the CFPB, with supervision 

authority in this space, could monitor instances of unfair and deceptive acts and practices by non-bank payment firms that make 

it more difficult for consumers to untangle themselves from their 

payment account relationships, and thus move on to other providers that might be more optimal for their uses. 

Ms. WATERS Thank you, Professor. Can you also speak to the 

broader concerns about the potential for monopolistic use of data 

and misuse of market power by Big Tech companies? How concentrated is the market for payments currently, and what risks do 

you foresee in the absence of enhanced supervision by the CFPB 

under its new proposed rule? 

MR. ODINET. Some of the empirical data right now indicates that 

a vast majority of U.S. households use just a few of the major payment platforms—I think I saw that 56 percent of U.S. adults use 

Venmo and PayPal. So, that is a great deal of concentration. And 

I think that level of concentration and the way in which it generates very sensitive consumer financial data raises really significant concerns, particularly relative to privacy. I think this rule is 

animated by that concern. 

We know that major tech companies build their business models 

around the large collection and analysis of user data, like browsing 

history, social interactions, and search inquiries. Having this payment information helps build even larger stockpiles of data about 

consumers, which, held by just a few companies, can be very powerful. And as I mentioned in my earlier remarks, unlawful price 

differentials, as well as targeted marketing. 

Ms. WATERS. Thank you so much. Mr. Chairman and Members, 

I served on one of the conference committees of Dodd-Frank. And 

I was so happy that consumers finally had an agency dedicated to 

taking care of their concerns. 

Mr. Hill has said that it has been controversial. Controversial because the opposite side of the aisle did not like the idea that the 

consumers were now going to have influence and power. So, I am 

very thankful for this hearing, although its title is misleading. But 

this helps bring out what the CFPB is responsible for, what they 

should be doing, and it does not continue to have to take certain 

kinds of criticism from the opposite side of the aisle who never 

liked the Consumer Financial Protection Bureau. Thank you, and 

I yield back. 
18 

Chairman HILL. The gentlewoman yields back. 

Mr. Rose of Tennessee is recognized for 5 minutes. 

Mr. ROSE. Thank you, Chairman Hill. 

And thank you to our witnesses for being here with us today. 

Recently, I was made aware that on February 23, 2024—my 

birthday, incidentally—the Consumer Financial Protection Bureau 

disclosed that a company had made the decision to challenge an 

order that sought to establish supervisory authority based on, ‘‘risk 

determination.’’ 

Director Chopra has described the agency’s authority as the ability to decide that a company is risky and subject to supervision 

through its statutory authority. 

Mr. Johnson, are there any meaningful considerations the CFPB 

is required to make before determining a company is risky, or has 

the CFPB set this up as an arbitrary process where they have 

nearly unlimited discretion? 

Mr. JOHNSON. The standard of evidence that the Bureau has established through its procedural rule is quite low. And the real 

problem here is that the Bureau changed its procedure rules to 

make non-public confidential processes associated with the supervision of institutions public in one instance and one instance only, 

and that is where the company challenges the proposed determination. 

So, this creates leverage for the agency to say, we want to supervise you, and if you fight us on this then we are going to publicly 

name you as having challenged that proposed designation and subject you to, among other things, class actions and reputational 

harm. 

Mr. ROSE. Thank you. One of the factors that the Consumer Financial Protection Bureau’s proposal uses to determine if a 

nonbank-covered person would be included in the general-use digital consumer payment application space is whether they provide 

at least 5 million covered transactions annually. Several market 

participants have indicated that this threshold is alarmingly low. 

Mr. Holshouser, would you describe the potential market impact 

if the CFPB categorizes entities with such a small market share as 

larger participants? 

Mr. HOLSHOUSER. The minimum of 5 million transactions is 

alarmingly low. If you think about just some of the small to medium-sized businesses having tens if not hundreds of thousands a 

day, that threshold is so low that it is obvious it is an attempt to 

increase the purview of oversight of the CFPB, which will, as I 

mentioned earlier, have an outsized effect on startups and small 

and medium-sized companies which are trying to innovate and 

grow, and will disproportionately affect them. 

Mr. ROSE. Thank you. I appreciate the insight. 

Mr. Kim, how has the CFPB historically determined thresholds 

for identifying entities to be considered larger participants under 

the Larger Participant rulemaking? 

Mr. KIM. In the past, they have conducted data-based research 

that is specific to a very well-defined market. So, there hasn’t been 

the uncertainty that there is today with this rule. 

For example, with credit reporting, that is a very well-defined 

market. I don’t think there was a lot of debate or discussion or un-
19 

certainty about what is large in that market, and it’s the same for 

a lot of the other LPRs. I think today’s hearing highlights the uncertainty with this particular LPR. 

Mr. ROSE. In your view, Mr. Kim, did the CFPB conduct significant analysis to arrive at the threshold in the proposal? 

Mr. KIM. I don’t see it in the proposed rule. I can’t tell you what 

their basis was for 5 million. I can say that, very anecdotally, there 

are, as Mr. Holshouser said, smaller to mid-sized payment companies that would easily meet that threshold within a matter of 

months. 

Mr. ROSE. Shifting gears a bit. Mr. Johnson, in addition to the 

Larger Participant rulemaking, the CFPB is attempting to create 

a nonbank registry. I signed a letter that my colleague, Mr. Ogles, 

led in May of last year highlighting our concerns with these actions 

by the CFPB. 

The CFPB has justified the need for a costly registration system 

where non-bank companies, ‘‘self-report public orders like enforcement actions or consent orders so that consumers can be on the 

lookout for repeat offenders.’’ 

Mr. Johnson, isn’t this information already public? 

Mr. JOHNSON. It is. And other aspects of that proposed rulemaking are equally troubling. 

Mr. ROSE. I see my time has expired, so I yield back, Mr. Chairman. 

Chairman HILL. The gentleman yields back. 

Mr. Sherman of California, you are recognized for 5 minutes. 

Mr. SHERMAN. I, too, would like to criticize the CFPB. It has 

taken them over a decade to come up with a rule defining who 

would be subject to some future rule. While consumers need the 

protection now, we may get it in several more years. This initial 

pre-rule is long past due. 

I have been in this town for a long time, and I have snuck in 

at least once to Lobbying 101 secret classes. The rule is very simple 

or the teaching is simple. If the facts are on your side, argue the 

facts. If you are on the side of good public policy, argue the public 

policy. And if the facts are against you, and the public policy is 

against you, argue the procedure. And that is mostly what we have 

here, people telling us that the procedure is somehow off. 

Now, the most extreme of those arguments is to have the 

cryptocurrency industry come in and say how awful and outrageous 

it is that somebody would treat crypto as a currency. If you aspire 

to be a currency, you should aspire to be regulated like a currency. 

And like our ranking member, and the chairman, and the ranking member of the subcommittee, I was here for Dodd-Frank. And 

I can assure you that when we said, ‘‘funds,’’ we certainly included 

anything that qualified as a currency. 

Banks have long not really enjoyed the Community Reinvestment Act. And so, the high-tech companies have decided, well, if 

we can be a bank but call ourselves a fintech, then we don’t have 

to live with the Community Reinvestment Act or a host of others. 

Mr. Odinet, PayPal is holding onto, I think it is about $18 billion 

of customer money. I assume that they invest it as they will, 

maybe safe investments, maybe speculation. If they go bankrupt, 

does the FDIC reimburse the customers? 
20 

Mr. ODINET. Thank you for the question. And the simple answer 

is, no. Those customers are holding their funds with a relationship 

only to that non-bank intermediary. The FDIC insurance— 

Mr. SHERMAN. So it is like loaning money to your brother-in-law, 

if your brother-in-law is Sam Bankman-Fried? 

Mr. ODINET. Yes. 

Mr. SHERMAN. I will ask Mr. Holshouser, representing TechNet, 

if one of your members goes bankrupt, will the other members chip 

in and make the customers whole, or will those customers/voters be 

here demanding that Congress bail them out? 

Mr. HOLSHOUSER. It depends on what side of the fintech industry 

you are speaking of; there is zero liability for credit and debit and 

other products, but there is some exposure—— 

Mr. SHERMAN. Right now, they are holding onto $18 billion. They 

are investing it in either something safe or maybe pork bellies. I 

don’t know where they put their money. And wherever they put it 

today, they could have put it somewhere else more risky tomorrow. 

And your members aren’t going to bail them out. They are going 

to be here demanding a bailout from Congress. 

I will point out that the deal with Venmo is that you pay 1.75 

percent to get your money 3 days earlier. I don’t think APR is really the way you should evaluate this, but for those of you who are 

fans of annual percentage rate, that is charging the consumer a 

213-percent annual percentage rate. Yes, it is only 1.75 percent, 

but that is just for 3 days instead of for 365 days. 

So, we have a situation—Mr. Odinet, I can’t think of any other 

situation where ordinary Americans put their money in a financial 

institution that is totally unregulated, and is allowed to invest 

their money into pork bellies or Mongoose Coin or whatever they 

want and they have no insurance. 

Can you think of any other place where millions of Americans 

have their money at that kind of risk, where they deposit their 

money and they think it is there? 

Mr. ODINET. No, nothing comes to mind. But, to your point, I 

think a real danger of the way consumers interact with non-bank 

payment platforms—and I will say this is also particularly true for 

crypto firms—is they do so under the misperception that when they 

do, they enjoy the same sort of regulatory protections they have 

when they deal with a broker-dealer and they invest in securities 

or deposit accounts when they deal with banks, which is manifestly 

not the case. 

Mr. SHERMAN. Thank you. 

Chairman HILL. The gentleman’s time has expired. 

The gentleman from Ohio, Mr. Davidson, who is also the Vice 

Chair of the subcommittee, is recognized for 5 minutes. 

Mr. DAVIDSON. I thank the chairman. 

I think it is great that we are having this hearing, and it is important that we address just the growth of government. It seems 

like the government expands every year. We do have one party 

that campaigns on a smaller government. We are not doing so well. 

Every year, every Congress, we get more government. 

One of the guaranteed-to-grow forms of government is the Consumer Financial Protection Bureau. And the mission and cause are 

important. I think we have multiple ways to try to address that. 
21 

But one of the things that is important is to ensure that we get 

the right kind of government wherever we have it is that participation. 

So, Mr. Kim, in the most recent proposal for more government 

by the CFPB, they state that they don’t have to demonstrate that 

any customer harm has even occurred. 

Could you explain what the bare minimum is that CFPB has to 

show to bring an entity under its supervision? 

Mr. KIM. The statute—and talking about Dodd-Frank—requires 

a cost-benefit and risk analysis. So in identifying, number one, a 

market that is ripe for supervision, it should identify risk to the 

consumers in that market. That is what I see as lacking in the 

rule. 

Mr. DAVIDSON. Thank you. I guess cost-benefit analysis might 

not overtly address harm, but it seems like there is always a case, 

we just need more government. And one of the footnotes CFPB 

tucked into their proposal, many believe would give the Bureau supervisory authority in the divisions within a company that are outside the scope of the proposal. What is the practical impact, Mr. 

Johnson, of including that wide sweeping statement in their proposal? 

Mr. JOHNSON. Congressman, I think you are referring to the 

statement where the Bureau says that if an institution qualifies as 

a larger participant within a defined market, CFPB not only 

achieves supervisory authority, can examine for that product line 

that drew it in as a larger participant, but can thereafter and forevermore examine the institution for any other product line that 

may be a covered product or service. 

And I think that expansive view of the Bureau’s authority is contrary to the specific process that Congress established for identifying a larger participant within a specific market. 

Mr. DAVIDSON. Yes. Thank you for that clarification. It is the 

hook that allows kind of more spread. A lot of times, government 

is sort of like an invasive plant. Once it gets in a field, it just keeps 

growing. And the only way to get it out is to dig it up by root and 

branch. And if it is actually doing something useful, you at least 

have to prune it to make sure it doesn’t overtake everything else. 

And I think companies that find themselves under regulatory 

scrutiny are frustrated because there seems to be no satisfaction of 

the amount of regulation. There is always more. That is particularly true in the digital asset space. 

We have seen digital asset companies come to the CFPB saying— 

or come to the SEC in particular, saying, please regulate us. We 

want clarity. We are happy to cooperate with you. What do you 

need to know? And they share endless information and they never 

get an answer. It is like, ‘‘Hotel California,’’ in a way. You can 

never check out. You can never leave. 

So, Mr. Solowey, could you highlight the particular challenge digital asset companies confront when you have CFPB trying to put 

hooks into them in a regulatory environment where in no other 

part of the economy are they getting real clarity? 

Mr. SOLOWEY. I agree, Congressman. I think the lack of regulatory clarity in the digital asset space presents a real problem for 

market participants there. 
22 

It is my view that the proposed rule only muddies the waters 

here. Not only does the lack of risk-based justification make the 

rule unjustified, but it also leaves market participants in the dark 

regarding how they are supposed to prioritize compliance and 

whether they are even supposed to be covered by the proposed rule. 

Mr. DAVIDSON. Yes. Thank you. I hope that we do what our committee has set out to do, which is to provide that regulatory clarity. 

We passed the Financial Innovation and Technology Act for the 

21st Century (FIT21). We passed a ban on a central bank digital 

currency. We passed stablecoin legislation. And we, importantly, 

protected the right of self-custody. 

Are there any concerns that the CFPB’s approach threatens selfcustody, because, frankly, one of the most important protections we 

found as companies maybe haven’t flourished, they have had problems, some have failed, users have been harmed, notably by FTX. 

Isn’t self-custody a way to protect yourself? 

Mr. SOLOWEY. Self-custody would address the risks that FTX 

presented. And the proposed rule’s lack of clarity regarding whether these technologies are covered only makes it harder for developers and users to deploy that technology, given the regulatory uncertainty. 

Mr. DAVIDSON. Thank you. My time has expired, and I yield 

back. 

Chairman HILL. The gentleman’s time has, in fact, expired. 

And we turn to the gentleman from Texas, Mr. Green, for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. I thank the ranking 

member and the witnesses as well. 

Professor Odinet, the Consumer Federation of America recently 

submitted a statement on payments fraud for a Senate Banking 

Committee hearing, outlining how the scale of payment fraud is 

sizable and increasing, including payment apps. The statement indicated that consumers had reported $100 mil- lion in unauthorized transactions on Cash App and $57 million on 

Venmo in 2022 alone. 

How would the CFPB’s proposed rule help to alleviate the 

amount of payment fraud in the market? 

Mr. ODINET. With respect to fraud specifically, when the CFPB 

has supervision over a firm, it conducts regular examinations to ensure compliance with, of course, stringent guidelines and in this 

case related to Electronic Fund Transfer Act obligations for account 

fraud. And usually the aim is to make sure that the company is 

fortifying itself with consumer protection measures as well as trying to thwart consumer fraud before it occurs. 

The Bureau can closely monitor compliance with these Acts to 

ensure that payment companies have, for instance, robust dispute 

resolution mechanisms as well as disclosures. And then, of course, 

the Bureau can also assess a company’s risk assessment strategies, 

and the Bureau can in that way delve into sort of the intricacies 

of the payment company’s operations, and kind of pinpoint 

vulnerabilities and fraud hot spots. 

Supervision will not solve all fraud problems, but it can go a long 

way toward making sure companies are doing their part to flag 

fraud before it happens. 
23 

Mr. GREEN. Is it fair to say that consumers are better protected 

with the benefit of the Consumer Financial Protection Bureau as 

opposed to without the benefits? 

Mr. ODINET. Yes. I think that is absolutely true. 

Mr. GREEN. And would the other members of the panel be so 

kind as to indicate whether you think that we ought to be concerned with fraud protection? If you think that fraud protection is 

something that we should concern ourselves with, would you kindly 

raise your hand? 

Let the record reflect that all have raised their hand. 

Let me move quickly to another aspect of this about which I am 

concerned. There have been some suggestions that the threshold 

should be raised to 10 million as opposed to the 5 million where 

it is currently proposed to be elevated to. 

What would be the consequences of raising the threshold? Professor, I am calling on you again. 

Mr. ODINET. My understanding is that the CFPB’s setting of the 

threshold at 5 million transactions in a calendar year was designed 

to enable the Bureau to supervise those firms that have the most 

significant share of this general-use digital consumer payments application market, and that it was based on available data suggesting that there is a very high concentration within this market. 

So a very small number of firms processing millions, perhaps billions of dollars’ worth of transactions in a year, while there are 

many other firms that are not captured by the rule but they handle 

fewer transactions. And the focus was really on trying to supervise 

the firms that have the most critical role in this market. 

Mr. GREEN. You indicated a small number. I have intelligence indicating that the agency has estimated that the threshold would 

capture approximately 17 entities. Is that about what you understand the case to be? 

Mr. ODINET. That is what I understand, based on the information the Bureau has provided. 

Mr. GREEN. Seventeen entities. Okay. Let’s move to another area 

quickly. 

Is it true that Cash App allows users to sell stocks, buy and sell 

stocks? 

Mr. ODINET. I am not familiar with that particular functionality 

of Cash App. 

Mr. GREEN. Is anyone familiar with that function? If so, you may 

speak—Cash App allowing users to buy and sell stocks. I received 

an indication that it does have this feature, and they can do so 

without a commission. 

This causes me some concern if this is the case, because buying 

and selling stocks is a means by which a good amount of fraud can 

occur when we don’t have the CFPB protecting the consumer. I am 

hopeful that maybe this is incorrect, and if it is, I will understand, 

but, if not, I am grateful that the CFPB is looking into this. 

I yield back the balance of my time. 

Chairman HILL. The gentleman yields back. 

The gentleman from Illinois, Mr. Casten, is recognized for 5 minutes. 

Mr. CASTEN. Thank you. Just a quick question before I start. 

And I want to be quick, but I do want to get this on the record. 
24 

All of you, before coming here, signed a truth in testimony form 

disclosing your government affiliations and contracts. I know a lot 

of you are speaking on behalf of things that would benefit the tech 

companies. Just a quick raise of hands, do any of you have clients 

that are tech companies? Raise your hands. 

Mr. Kim, only you. Can you disclose the amount of money the 

tech firms pay you? 

Mr. KIM. I don’t know, sir. I can’t say. 

Mr. CASTEN. Maybe we can follow up for the record. Thank you 

for letting us know. 

I have a very naive hope here, which I am listening to this and 

my completely naive—maybe the most naive thing I have ever 

thought in Congress is that I really hope my wife and daughter are 

watching this hearing, because we have this ongoing debate at 

home. I do all my banking with Schwab. I don’t use PayPal. I don’t 

use Venmo. They are completely addicted to it. And I keep telling 

them, there are different rules here. And I am looking forward to 

them celebrating me as a returning hero when I get home today 

at this point. 

First, just a quick question for you, Mr. Kim, and hopefully, this 

is going to help. Do you feel it is important to maintain a wall between commerce and banking? 

Mr. KIM. I think that is a policy question, sir, and I am not 

qualified to answer that one. 

Mr. CASTEN. Okay. Well, I certainly do. I asked the question because, Professor Odinet, in your testimony you mentioned that customers’ interactions with PayPal are a lot like using a bank. Do 

you want to expand on what you meant by that? 

Mr. ODINET. Yes, I would be happy to. When an individual uses 

a non-bank intermediary, the payment still has to happen along 

the transmission lines of the banking system. It is just one step removed. So, all of these non-banking platforms sit atop the transmission lines of the banking system. But the consumer is not interacting with the bank. The intermediary is interacting with the 

bank. So the benefits related to, for instance, FDIC insurance, run 

in favor of the intermediary. And that leaves the consumer with 

what is just essentially a contract claim against the intermediary. 

As long as the intermediary has the assets to make good on withdrawal requests, and payment requests, then everything is fine. 

But if the intermediary becomes insolvent, that insurance through 

the banking system ultimately does not benefit the consumer. The 

consumer just has a claim in the bankruptcy against the intermediary, not unlike the customers of the now defunct FTX. 

Mr. CASTEN. I appreciate that, because I am a dyed-in-the-wool 

deep free marketer. And free markets mean that everybody has to 

play on the same playing field. And the idea that if I use Schwab, 

and my daughter uses Venmo, there are these different rules, there 

are different incentives, that strikes me as a fundamentally anticapitalistic idea. 

I also want to just pick on there is this very sort of a vapid libertarianism that says that we should never give our information to 

the government because we can’t trust the government with information, but we should give all of our information to private companies that have no obligation to the public interest, and who can sell 
25 

it to data brokers, who can then resell that information to other 

governments whose interests are antithetical to our own. 

Professor Odinet, in your testimony you described this as a massive blind spot for the Bureau. And I wonder if you could expand 

on why we need to be more vigilant in protecting consumer data 

and what we need to do to guard against it in this rule? 

Mr. ODINET. Thank you. The reason why I said that is because 

we don’t exactly know, and it may be in some instances that the 

companies that collect and process the data, particularly as they 

use sophisticated artificial intelligence programs, know exactly 

what they are doing when they use data to make decisions relative 

to a variety of products and services. 

Now, we do have some visibility into that when banks are doing 

so, but that is because banks are subject to supervision, both by the 

Bureau above a certain asset class, but always by their prudential 

regulators. 

But we know there is way more innovation happening in data 

processing and artificial intelligence outside the bank system in the 

non-bank system. For that reason, the Bureau needs some visibility 

into what is happening on that side of the house, if you will, because that is likely to be the place where there can be more consumer harm. 

Mr. CASTEN. I see I have 15 seconds left, so maybe if we could 

just follow up for the record afterwards. I do have some concerns 

that in some of the carve-outs for crypto, particularly as we have 

seen some of the companies like PayPal developing stablecoins, as 

we have seen some of the runs on other currencies, that there are 

some blind spots. 

And so, Professor Odinet, if you have some thoughts about how 

we might improve the role to protect consumers, I would welcome 

it. 

Chairman HILL. The gentleman’s time has expired. 

Mr. CASTEN. Thank you. I yield back. 

Chairman HILL. Feel free to respond to him in writing on that 

question. 

As you know, we have votes on the House Floor, so we are going 

to take a recess for not less than 5 minutes, and we will come back 

and finish our questioning. 

We thank our panel for your excellent testimony today. 

And we are in recess for 5 minutes. 

[recess] 

Mr. FLOOD. [presiding]. The committee will come to order. 

I now recognize the gentleman from Wisconsin, Mr. Steil, for 5 

minutes for questions. 

Mr. STEIL. I thank the Chair. 

Let me start with you, if I can, Mr. Johnson. The CFPB can see 

that it, ‘‘lacks sufficient information on a substantial number of 

known market participants necessary to estimate their larger participant status.’’ 

In other words, they don’t have the data to know how many companies would be swept under the rule, so they don’t know how 

much the rule would really cost or what the full market impacts 

could be. 
26 

You served at the CFPB under a previous Administration. Would 

moving forward on a major rule like this without adequate data be 

unusual, in your professional opinion? 

Mr. JOHNSON. I think it would be unusual and would certainly 

present APA challenge risk. I think in some ways this is the Bureau’s response to an Executive Order and revised guidance for the 

Office of Management and Budget (OMB) regarding the relaxing of 

standards for cost-benefit analysis. 

Mr. STEIL. I appreciate that. I have continued concern that the 

CFPB isn’t doing a proper cost-benefit analysis. And the fact that 

we don’t have data as to who is going to be swept in under such 

a rule, I think is incredibly concerning. 

Let me continue on with you if I can, Mr. Johnson. 

The law authorizing the CFPB says that the Bureau shall consult with the Federal Trade Commission (FTC) and define covered 

persons under Larger Participant rules. The Bureau said that it 

consulted with or provided an opportunity for consultation with the 

FTC, which could obviously mean the FTC did not actually weigh 

in. 

Can you explain briefly why it is important for the CFPB to consult with the FTC and why it would be a problem if the CFPB actually didn’t fulfill its regulatory requirement? 

Mr. JOHNSON. The Dodd-Frank Act creates clear distinctions and 

boundaries between the FTC and the CFPB. And the CFPB inherited certain consumer protection authorities but not antitrust authorities from the FTC. 

So, it is vitally important that the CFPB consult on a regular 

basis and Congress require them to consult with other agencies, I 

think for the reason of establishing that they are not intruding 

upon the jurisdiction or boundaries denied them in the Dodd-Frank 

Act. 

Mr. STEIL. I appreciate that. 

Let me jump over to you, Mr. Solowey. Did I say that correctly? 

Mr. SOLOWEY. Yes, sir. 

Mr. STEIL. Thank you very much. 

There is a lot of uncertainty about how sweeping more companies 

under the CFPB’s authority would impact the cost of payment services to consumers. How does the uncertainty about the regulatory 

cost impact—the LPR impact competition and innovation in the 

payments industry? 

Mr. SOLOWEY. I think uncertainty always adds costs. Even just 

the initial legal fees dealing with the ambiguity of whether or not 

a market participant is or should be covered. 

And then, you have further uncertainty when it becomes hard to 

budget for those compliance risks. All of those issues take away 

precious time, capital, and attention that only make it harder for 

folks to innovate. When that is the case, consumers can miss out 

on new and important technologies. 

Mr. STEIL. Thank you. 

Let me jump to you, Mr. Holshouser, if I can. Let’s take a broader view of how the CFPB’s regulatory expansion impacts our economy and workers. In a period of time of high inflation, when people 

can’t afford the things that they need, the Bureau is targeting a 
27 

very competitive industry with innovators coming from across the 

globe. 

And I am concerned that overbearing and poorly-considered regulations from the CFPB will make the U.S. less competitive and 

push jobs overseas. Can you talk about how the LPR and other 

CFPB efforts may discourage innovation and investment here in 

the United States? 

Mr. HOLSHOUSER. That is a great question. You just have to balance the safeguards with the environment for innovation. Red tape 

never created innovative companies that are the envy of the world, 

like we have here in the United States. It was innovators and the 

American spirit and our laws and regulations that allow innovation 

to flourish. 

Just look at the EU. There has been a 40-percent decrease in the 

investment in startups since the GDPR, showing that an onerous 

top-down regulation has a huge constriction effect on innovation 

and investment. 

The jobs that are created in this country are mostly created by 

startups and small businesses. They are going to really see the impact and burden much more than the larger platforms. And I think 

that it is misguided to think that this rule only targets what would 

be seen as big players. 

The little ones are really the ones that need the help, and this 

is going to constrict their ability to grow and stifle innovation. 

Mr. STEIL. I share your concerns. I am incredibly concerned the 

CFPB is going to continue to stifle innovation development here in 

the United States. 

I appreciate all of our witnesses. And Mr. Chairman, I yield 

back. 

Mr. FLOOD. The gentleman yields back. 

The gentleman from California is recognized. 

Mr. SHERMAN. I have already had my 5 minutes. Do you want 

to give me another 5 minutes? 

Mr. FLOOD. The Chair recognizes himself. 

I will start with this. I have been concerned about the CFPB’s 

Larger Participant rulemaking for some time, and I am glad that 

we have the opportunity to explore its impacts further today. 

First, let’s begin with a refresher on what the Larger Participant 

rule refers to. The CFPB has four broad categories of supervisory 

jurisdiction pursuant to Dodd-Frank: number one, financial institutions with over $10 billion in assets; number two, mortgage companies, payday lenders and student lenders; number three, companies 

deemed, ‘‘larger participants,’’ in a consumer financial market; and 

number four, companies designated by CFPB as a potential risk to 

consumers. 

If unchecked, that third category, the larger participant category, 

is sufficiently broad as to potentially expand the CFPB’s jurisdiction dramatically over time. I fear that we are seeing that with this 

rule today. 

One example of how this rule expands the CFPB’s reach hasn’t 

gotten much discussion to this point as it relates to merchants. The 

CFPB is explicitly barred from supervising merchants pursuant to 

Dodd-Frank when they are selling nonfinancial goods. This is a 

common-sense guardrail. The CFPB is a financial regulator. They 
28 

don’t have supervisory authority over non-financial merchants in 

the country and they shouldn’t. 

However, I feel this proposed rule takes that boundary and 

pushes it away. One piece of this rule claims that at any time a 

merchant uses consumer payment information for something other 

than completing the transaction, including for benign purposes like 

research, they go from selling a nonfinancial good to a financial one 

and are, therefore, within the scope of the rule. 

Let’s step back and think about that for just a moment. When 

a completely nonfinancial merchant conducts research on their payments data, even for a good reason like conducting research to stop 

future fraud, they could be subject to CFPB supervision. 

For example, if a consumer buys a recliner chair at an online furniture store, whether or not that transaction is considered a financial transaction by the CFPB would depend upon exactly how the 

merchant treats the information associated with it. 

According to this interpretation, the fact that we are talking 

about a merchant selling a piece of furniture is irrelevant. The 

CFPB still may have jurisdiction anyway. Conveniently for the 

CFPB, this could extend their supervisory authority to merchants 

selling any and all kinds of goods. This interpretation allows them 

to go from a financial regulator to a regulator that could have authority over anything sold online. 

Another way the rulemaking expands CFPB’s authority is not 

just over U.S. dollar transactions, but digital asset transactions. 

Again, this would be a broad expansion of their power. 

Mr. Johnson, in your testimony you connected the CFPB’s jurisdictional grab over digital asset transactions to the major questions 

doctrine from the landmark, West Virginia v. EPA case. 

Do you believe the CFPB has clear congressional authorization 

for its claimed authority over digital assets? And please explain 

why or why not? 

Mr. JOHNSON. I don’t believe it has that authority because Congress didn’t give it that authority and didn’t give it that authority 

expressly in Title X of the Dodd-Frank Act. 

Mr. FLOOD. It is a relief to hear you say that, because the members of this committee have been working on delegating authority 

to our regulators over digital assets for over a year. It would be 

rather discouraging if the CFPB could simply claim authority over 

the space with the stroke of a pen and very little legal basis. 

I would like to close today by bringing up one more issue with 

the proposed rule. It completely failed to assess its potential impact 

on small businesses pursuant to the Regulatory Flexibility Act. The 

rule certifies it will not have a significant impact on small entities, 

but does so with no serious analysis. This is despite the fact that 

small businesses and sole proprietors are some of the most common 

users of the third-party payment technology that could be clearly 

covered under the rule. 

Mr. Holshouser, you mentioned the lack of analysis regarding the 

rule’s potential small business impact in your testimony. Would 

you provide some additional thoughts on this topic? 

Mr. HOLSHOUSER. I would be happy to. 

I think small and medium-sized businesses have no idea whether 

or not they are covered under this proposed rule, and that in and 
29 

of itself is the problem. We are hearing an estimate of 17 covered 

firms, but I think the estimate could be well in the hundreds. 

But if you are a small business and you are making a decision 

between spending money on compliance costs to deal with this new 

proposed regime versus innovating new products and then selling 

them, which is the lifeblood of creating a new business, you are 

going to see a real headwind in your ability to maintain and grow. 

And I think if you limit and define the scope of this proposed rule 

on a more targeted basis, you will certainly give more certainty to 

businesses who are really confused about whether or not they 

would be caught in this and what that means for their ability and 

need for raising money to grow. 

Mr. FLOOD. Thank you very much for your testimony. 

I now recognize the gentleman from North Carolina. 

Mr. NICKEL. Thanks to our chairman and our ranking member 

and our witnesses for being here. I represent North Carolina’s 13th 

District. 

And I have said this before, the work of the CFPB is incredibly 

important. Their mission of protecting consumers is supported by 

the vast majority of Americans, regardless of political party. 

The CFPB recently released their Larger Participant rule for digital consumer payment apps in November. I understand the goal of 

this rulemaking is millions of Americans are now using digital payment apps. However, I am concerned that this rule is overly broad 

and lacks clarity. 

Mr. Holshouser, as my colleagues have mentioned, the CFPB indicated that 17 companies will be covered by this rule. However, 

they refuse to say which companies. Is that standard practice? 

What purpose is served by keeping secret the list of companies 

which would be impacted by this rule? 

Mr. HOLSHOUSER. This is not standard practice, and I have no 

idea what this serves. Certainty is what businesses need in order 

to operate their businesses and to know how to plan. And this lack 

of specificity is a real concern. 

Mr. NICKEL. And, Mr. Holshouser, again, given the uncertainly 

surrounding this rule, will companies be discouraged from offering 

payment services to consumers and how will this impact competition and innovation? 

Mr. HOLSHOUSER. Absolutely. I think it will decrease the players 

in the market and reduce new entrants. It will cause those that are 

in it who might be caught up in this rule to retract from this market, which will lessen the number of products and, therefore, hurt 

competition. 

Mr. NICKEL. Mr. Kim, next question to you: To justify the rule, 

the CFPB only performed a cost-benefit analysis of peer-to-peer 

products. However, the rule would cover products like express 

checkout that have nothing to do with the peer-to-peer cost-benefit 

analysis. 

Is it right for the CFPB to propose such an all-encompassing rule 

when they don’t have adequate data to justify it? 

Mr. KIM. I agree that the proposed rule conflates very separate 

and distinct payment products and functionalities. It doesn’t explain why it does so. And in not explaining why it conflates them, 
30 

there is no cost-benefit or any sort of empirical analysis to support 

that kind of overly-broad definition. 

Mr. NICKEL. Mr. Kim, again, how does this Larger Participant 

rule compare to previous Larger Participant rules? 

Mr. KIM. With prior ones, we weren’t asking these questions. 

With student loan servicing, everyone knew who the big players 

were and I don’t think people really debated or had much concern 

about whether the threshold would capture the large ones versus 

the small ones. 

I think today’s hearing highlights how there is a lot of uncertainty about the scope of the rule and its potential impact. 

Mr. NICKEL. Mr. Kim, again to you, can you walk us through 

what a typical supervisory examination by the CFPB would look 

like for firms identified as larger participants, and describe what 

powers the CFPB has over an entity once it has been designated 

as a larger participant? 

Mr. KIM. They send examiners, and it is typically, at a minimum, 

several, but easily 20 to 30. And for large tech companies, I would 

imagine the CFPB would bring its so-called A game and bring as 

many as it can. 

It would probably be a combination of hosting them on-site but 

also hybrid or virtual. And these exams last months. So, we are 

talking about wave after wave of information requests and followup requests. And companies often field those questions for over a 

year, and then maybe, they might get an exam report a year or two 

later. So, it is significant. People have to kind of drop their day jobs 

to respond to the information requests in exams. 

Mr. NICKEL. Thank you. I yield back. 

Mr. FLOOD. The gentleman yields back. The gentleman from 

Florida is recognized. 

Mr. DONALDS. Thank you, Mr. Chairman. 

Wow, this has been a very interesting hearing. I often say in this 

room that the first hearing I ever watched as a citizen of this country was the Financial Services hearings when Dodd-Frank was 

being created. 

I was in the finance world, not a Member commenting on the finance world. And to be blunt, and with no disrespect to the staff 

on Capitol Hill, I was not a staffer writing memos about the financial world; I was actually doing it. 

A lot of the things in Dodd-Frank concerned me, and most overarching was the CFPB. My concern was that the CFPB would be 

this overarching agency with no real oversight, that would just 

roam the fruited plain trying to figure out what they can meddle 

in. And, obviously, they are doing that today. 

Mr. Holshouser, we get very technical in financial services. For 

the people watching at home, what actually are digital payment 

systems? What are the actual pieces of technology we are talking 

about that would apply to the American consumer? 

Mr. HOLSHOUSER. That is an incredibly complex and diverse 

question with a lot of different aspects to it. 

Mr. DONALDS. Just give me an example. 

Mr. HOLSHOUSER. You are running financial transactions there 

through a large digital pipe, through a bunch of data centers back 
31 

and forth between merchants and banks, with other regulated entities in the payments ecosystem also involved in that. 

Mr. DONALDS. Would a digital wallet be a part of this? 

Mr. HOLSHOUSER. That is subject to interpretation, but normally 

yes. 

Mr. DONALDS. Okay. So, I am a consumer. I go on my phone. I 

download a digital wallet. I could put crypto stablecoin or potentially even cash in this wallet. Would that all be subject to the 

CFPB’s rule? 

Mr. HOLSHOUSER. Under the proposed rule, yes. 

Mr. DONALDS. Okay. Professor Odinet, a question for you: Even 

in its infancy, when Dodd-Frank was being created, did the Members—I will say the Democrat Members because they are the ones 

who voted for it—think that it would make it possible that the 

CFPB would regulate consumer transactions between consumers? 

Mr. ODINET. I wasn’t involved in that process, like you. I was 

much younger. But what I do know is that Congress intended for 

the CFPB to have jurisdiction over nondepository institutions involved in the provision of consumer financial products and services. 

Mr. DONALDS. I don’t want to interrupt, but we are short on 

time. Do you know why they did that? I was a lender at the time, 

and in the lending market, the issue was home mortgages, specifically, no income, no job, and no assets (NINJA) loans, where you 

could show up and say, I want to buy this house. There was no 

credit report, no income verification, and a nonbank issued you a 

mortgage to go buy a house that you couldn’t afford. Isn’t that correct? 

Mr. ODINET. I think that the subprime mortgage crisis was at 

the forefront of Congress at the time. But that doesn’t mean that 

the Bureau’s authority is limited to the mortgage market. In fact, 

the text of the Consumer Financial Protection Act goes far beyond 

that into multiple different types of consumer financial products. 

Mr. DONALDS. Professor Odinet, I would like to opine on that. 

That is why Dodd-Frank is trash and is one of the worst pieces of 

legislation ever contemplated by this body. 

But let me move on. Do you think that digital wallets pose a systemic threat to the United States of America? 

Mr. ODINET. My understanding is that the Bureau is not making 

its rulemaking on the basis of systemic threat, but on the threat 

of consumer harm in the offering of that product. 

Mr. DONALDS. Is there a consumer harm in Americans being able 

to actually use their resources to buy goods and services from a 

business, a merchant, or from another individual? 

Mr. ODINET. Under the limited facts of your question, no. 

Mr. DONALDS. Okay. Is it plausible that an American citizen 

needs a license or needs authority or approval from the CFPB in 

order to transact business in commerce? 

Mr. ODINET. No, but the businesses that facilitate it do. 

Mr. DONALDS. You said in your statement that, ‘‘businesses could 

discriminate based upon information that they take down in the 

normal course of business.’’ 

Is there any evidence at all that there has been any discrimination with the use of digital wallets at all by these tech companies? 
32 

Mr. ODINET. I think proper supervision will reveal whether or 

not that is the case. 

Mr. DONALDS. Mr. Johnson, is there any discrimination that has 

been found by any of these tech companies or fintech companies actually allowing for these products to be used by consumers? 

Mr. JOHNSON. Not that I am aware of for laws that are within 

the CFPB’s jurisdiction. 

Mr. DONALDS. Here is a question for you: Do you think the CFPB 

even has evidence to the fact that there might be discrimination 

with the use of any of these products by consumers? 

Mr. JOHNSON. I think the Bureau’s articulated concerns in 

speeches and other communications speak to speculative concerns 

rather than actual observations of marketplace behavior. 

Mr. DONALDS. So for the people watching at home, the CFPB is 

looking for something to do, because they are busybodies. There is 

no need for them to regulate in this space. Mr. Chopra, once again, 

is way beyond his bounds, which is why this agency needs to go 

away permanently. 

I yield back. 

Mr. FLOOD. The gentleman yields back. 

The gentleman from Illinois is recognized. 

Mr. FOSTER. Thank you, Mr. Chairman, and thank you to our 

witnesses. 

Mr. Odinet, in your testimony you note that many of the firms 

that we expect to be covered under the Larger Participants rule are 

large non-bank tech firms with business lines that benefit from the 

mass collection of consumer data. 

Typically, we think of this through the lens of marketing, usually 

insights gleaned from interactions with your favorite search engine 

or social media app to shape targeted advertisements that are more 

likely to get you to buy something. 

Others have relationships with third parties, who may also have 

access to consumers’ information. As you note, large payment providers have access to a very valuable trove of financial information 

about their users that can show how much they spend, where they 

spend it, and how they manage their finances. 

Now, I imagine that most consumers would deem that sensitive 

information. What are some of the risks of non-bank financial firms 

having access to that sort of information and what safeguards do 

you believe are missing? 

Mr. ODINET. As I mentioned in my written testimony, one of the 

most important and profitable kinds of information is how people 

spend their money, and that is exactly the kind of data that these 

payment processing payment platforms are able to generate and 

capture. 

The fear, to my mind, is the ability to use that kind of information, coupled with other types of nonfinancial consumer data, 

browsing histories, social interactions, et cetera, and in combination engage in activity relative to targeted marketing, price differentials on products and services that is unlawful, and that is 

discriminatory. 

Mr. FOSTER. And there have been instances where perhaps even 

inadvertently some of the AI algorithms of some of the big firms 
33 

have been doing things like digital redlining that have resulted in 

real harm to American citizens. 

So, how do the risks change when the firm has significant lines 

of business that are outside the financial services sector? 

Mr. ODINET. I think this goes toward the question earlier about 

the separation between banking and commerce. The way in which 

nonbank, which is to say nondepository institutions, engage in the 

payment ecosystem places them outside that division, because they 

are not depositories. They don’t fall under the Bank Holding Company Act. And that allows for a level of sharing and interaction and 

penetration between the payment side of the house, if I can, and 

the commercial—we will say the tech side of the house. 

And it is the combination and the interaction of those two lines 

of business and the data that they produce that I think poses the 

risk of creating these multidimensional, very granular profiles 

about people and how that granular information can be used in 

ways that we would find problematic. 

Mr. FOSTER. In recent months, I have been happy to see the 

CFPB take steps to give consumers greater control over their personal financial data. While the details of the proposals are still 

being hammered out, the Bureau’s 1033 rulemaking, I believe is an 

important step to ensure that consumers’ data is protected and 

that they have the freedom to walk away and move their data to 

another bank or financial institution when they determine that 

they could be better served. 

My question is this: How does this Larger Participants proposal 

interact with other consumer protection laws, and what would it 

mean for something like the 1033 rulemaking? 

Mr. ODINET. I think the way that supervision interacts with this 

idea which you speak of, which is generally referred to like a component of open banking, is to ensure that those nonbank institutions that are covered by the rule that are required to generate 

consumer data in an interface that is standardized and easily sharable, which includes, as you say, controls on how much of it is 

shared and the need to get reauthorizations on an annual basis are 

being complied with. 

That is what supervision is. It is not to impose new rules; it is 

to ensure that the rules that already apply are being abided by. 

Mr. FOSTER. Thank you. How does the lack of supervisory authority over digital payments applications hinder the Bureau’s ability to protect consumers’ financial data right now? 

Mr. ODINET. The problem is that when there are breakdowns in 

compliance with the consumer financial laws, like the GrammLeach-Bliley Act or others, if the Bureau does not have the ability 

to monitor on an ongoing basis that level of compliance, the public 

generally does not discover misbehavior and wrongdoing until the 

consumer harm has already happened. 

I think it is also worth saying that there are benefits to supervision that were not mentioned at all today, one being we often 

hear about regulation through enforcement and the fear of CFPB 

enforcement. 

But supervision happens on an ongoing basis and in a confidential capacity, so that the business and the Bureau can engage in 
34 

an ongoing dialogue, and flag problems and resolve them before 

they become public. 

Mr. FOSTER. Thank you. My time is up, and I yield back. 

Mr. FLOOD. The gentleman yields back. 

The gentleman from South Carolina is recognized. 

Mr. TIMMONS. Thank you, Mr. Chairman. 

And thank you to the witnesses for being here today. 

When examining the Larger Participant proposal, one can’t help 

but see it as another power grab from Director Chopra at the 

CFPB. Since his swearing in, he has consistently applied liberal 

academic theories with no common sense or basis in the real world. 

Time and time again, these theories are put into practice and result in increased cost for services, unintentionally hurting consumers instead of protecting and promoting their best interests. 

What’s worse is that these consequences are foreseeable and even 

predicted by the seemingly ever-increasing chorus of those of us 

with business experience. Yet, our warnings are perpetually cast 

aside. 

It seems that the only possible course correction will be either 

Tuesday, November 5, 2024, or who knows, perhaps the Supreme 

Court. But for now, I guess we will continue to highlight the adverse consequences of CFPB’s proposals. 

This time, the Director has become even more emboldened, stating that the CFPB’s supervisory authority is not limited to the 

products or services that qualify a covered institution for supervision, but could essentially capture every aspect of a given business, subjecting companies that largely provide services outside of 

the financial sector to the CFPB’s oversight. 

Not only does this proposal appear to be broad, it is incredibly 

ambiguous, leaving many market participants questioning their 

status. 

Mr. Holshouser, the CFPB identifies 17 firms as potential larger 

participants under the proposal. However, the CFPB has collected 

data on almost 200 companies in consideration of this rule. To say 

the least, it appears there is widespread confusion among market 

participants, with many companies unsure of their designation. 

Given the ambiguity in the CFPB’s definition of the market in 

this proposal, are your member firms able to say with certainty 

whether they are covered? 

Mr. HOLSHOUSER. No. 

Mr. TIMMONS. Do you think that is a problem? 

Mr. HOLSHOUSER. Market uncertainty is the bane of the existence of any business but particularly small and medium-sized businesses trying to grow. 

And the 17 that are mentioned don’t account for the hundreds 

more that are in the space, that are sitting wondering, am I going 

to be covered under this even though I am a small company? 

Maybe I have 20 employees. 

Mr. TIMMONS. Businesses, no matter what size, want to compete 

on an even playing field. And they have to know the rules of the 

game in order to compete. This is not productive. 

Mr. Kim, do you find it appropriate for this rule to encapsulate 

both companies that facilitate transactions and those that provide 
35 

a native digital wallet? And what is the CFPB’s justification for 

such a broad scope? 

Mr. KIM. I don’t see the justification in the proposed rule for 

combining what I think are very different functionalities with different risk profiles. As I read the proposed rule, if you are merely 

saving and passing payment credentials and instructions but not 

actually touching the money in any way, you are still covered by 

the rule. And then, you are treated the same as a company that 

actually holds and moves the money. So, I don’t see the explanation 

in the rule for treating those two very different things the same 

way. 

Mr. TIMMONS. Unless you see it for what it is, which is just a 

way to expand their authority and have additional scope. 

Mr. Solowey, in this proposal, the CFPB includes digital assets 

in their definition of funds. This committee has been crafting legislation to address digital assets, yet it appears the CFPB is trying 

to front-run Congress and expand its authority. 

What potential implications could this proposal have on the digital asset ecosystem? 

Mr. SOLOWEY. If the CFPB were to succeed in, as you put it, 

front-running Congress, it would not only add additional regulatory 

uncertainty to an already-uncertain space, but one of the specific 

risks would be the application of this rule to self-hosted crypto wallets that do not exhibit the same underlying technological structure 

nor the same risks as more traditional digital payment apps. 

Mr. TIMMONS. Mr. Solowey, this seems like a radical expansion 

of the CFPB’s authorities. Could the CFPB use this novel interpretation of funds in future proposals? 

Mr. SOLOWEY. If unchecked and unchallenged, they could. In addition, they could take away the lesson that they can interpret and 

expand their authority broadly. 

Mr. TIMMONS. Also, Mr. Solowey, given the unique nature of 

some digital assets, does the CFPB provide sufficient guidance on 

which digital assets they would consider to be funds and which 

would be excluded? 

Mr. SOLOWEY. No, they do not. They provide little in the way of 

guidance, which is to say essentially none at all. There are very different types of digital assets out there, and the failure to distinguish between them is one of the shortcomings of the proposed 

rule. 

Mr. TIMMONS. I am not sure what this proposed rule helps. It literally only seeks to expand the Director’s authority, and it further 

complicates business’ ability to compete in the U.S. and in the global economy. 

And I really think it needs to be reconsidered but, again, as always, I imagine that our warnings will be cast aside and it will 

take the Supreme Court or an election to change its course. 

With that, Mr. Chairman, I yield back. 

Mr. FLOOD. The gentleman yields back. 

I would like to thank our witnesses for their testimony today. 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these wit-
36 

nesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

I ask our witnesses to please respond as promptly as you are 

able. 

This hearing is now adjourned. 

[Whereupon, at 11:00 a.m., the hearing was adjourned.] 
(37) 

A P P E N D I X 

March 13, 2024 
38 
39 
40 
41 
42 
43 
44 
45 
46 
47 
48 
49 
50 
51 
52 
53 
54 
55 
56 
57 
58 
59 
60 
61 
62 
63 
64 
65 
66 
67 
68 
69 
70 
71 
72 
73 
74 
75 
76 
77 
78 
79 
80 
81 
82 
83 
84 
85 
86 
87 
88 
89 
90 
91 
92 
93 
94 
95 
96 
97 
98 
99 
100 
101 
102 
103 
104 
105 
106 
107 
108 
109 
110 
111 
112 
113 
114 
115 
116 
117 
118 
119 
120 
121 
122 
123 
124 
125 
126 
127 
128 
129 
130 
131 
132 
133 
134 
135 
136 
137 
138 
139 
140 
141 
142 
143 
144 
145