Two technology trade groups have filed a lawsuit against the US Consumer Financial Protection Bureau, challenging its push to treat payment apps and digital wallets like banks.
The complaint, filed on Jan. 16 by TechNet — a bipartisan network of technology CEOs and senior executives — and internet freedom activist group NetChoice, opposes a rule issued by the Consumer Financial Protection Bureau in December.
The rule expands CFPB’s supervisory authority over “general-use digital consumer payment applications,” targeting larger participants such as payment apps, digital wallets and other nonbank financial service providers.
The 259-page rule does not include crypto waller providers or decentralized wallets but aims to target large non-bank companies.
“The CFPB’s unlawful power grab undermines the rule of law, further bloats the administrative state, and puts American consumers and innovation at risk,” NetChoice’s director of litigation, Chris Marchese, said in a statement.
“The CFPB’s actions create unnecessary roadblocks for businesses striving to meet consumer needs and set the stage for increased prices and reduced options,” he added.
“This blatant overreach is less about protecting consumers and more about overzealous bureaucrats consolidating government control over one of the most innovative sectors of the economy,” NetChoice said in a statement on X.
The rule, which targets payment apps with digital wallet functionality such as Apple Pay, Google Wallet, PayPal, Venmo and Cash App, allows the bureau to oversee compliance with federal privacy and fraud laws through “proactive examinations.”
At the time the rule was finalized, the CFPB claimed that it would protect personal data, reduce fraud and “stop Illegal debanking.”
Plaintiffs assert that many of these companies are already heavily regulated at the state level and that CFPB failed to identify regulatory gaps justifying its intervention.
The plaintiffs argue that the CFPB’s failure to adhere to statutory requirements renders the rule, which they described as “arbitrary and capricious,” invalid and requests the court declare it unlawful and beyond the bureau’s authority.
Related: CFPB leaves crypto wallets out of ‘Larger Participants’ rule
The lawsuit came on the same day that the CFPB fined Cash App parent company Block Inc. over insufficient fraud protection.
The regulator accused Jack Dorsey’s Block of directing Cash App users who experienced fraud-related losses to contact their banks for transaction reversals, which the firm denied.
The bureau’s order includes up to $120 million in compensation and a $55 million penalty to be paid into the regulator’s victim relief fund, reported Reuters on Jan. 17.
On Jan. 10, the CFPB proposed a rule that could require crypto asset service providers to reimburse users for funds stolen through illicit activities such as hacks and scams.
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