Republican leadership in the House Financial Services Committee have demanded the review of a proposed rule by the Consumer Financial Protection Bureau over its impact on crypto.
The house members say that the rule has an unclear impact on digital assets and wants the agency to take a second look at it.
Titled the ‘Defining Larger Participants of a Market for General-Use Digital Consumer Payment Applications,’ the rule doesn’t state plainly if it applies to specific digital asset entities, lawmakers wrote in a letter to CFPB Director Rohit Chopra on Tuesday.
The letter signed by House Financial Services Committee Chair Patrick McHenry, R-N.C., French Hill, R-Ark., and Mike Flood, R- Neb., further stated that:
“Prior to finalizing any rule, we urge the CFPB to provide sufficient justification demonstrating the need for the proposed rule,” they said. “The justification should include a more detailed analysis of the scope of the proposed rule and its impact. Absent such justification, the CFPB should forgo finalizing the rule,” it further stated.
The first proposed in November 2023, if finalized, will enable the CFPB to supervise “larger nonbank companies” that have services like digital wallets and payment apps, the CFPB said. It will require nonbank financial companies handling more than five million transactions a year to follow the same rules as large banks and credit unions.
“The Bureau’s approach creates more regulatory uncertainty that could undermine the digital asset industry’s functionality with respect to digital asset transactions,” the three lawmakers said in their letter.
Republicans have historically been opposed to the CFPB which is tasked with overseeing companies offering consumer financial services. Though the agency stated that the rule exempts fiat-to-crypto and crypto-to-crypto transactions on an exchange, the three lawmakers insist that it isn’t clear.
“It remains unclear if this exclusion would exempt digital asset exchanges entirely, or only in instances where they offer services limited to the conversion of fiat-to-crypto and crypto-to-crypto transactions,” they said. “If the latter is true, then digital asset exchanges may be dissuaded from expanding their services to allow for peer-to-peer transactions through wallets hosted on the platform.”
The CFPB meanwhile was open to comments on the proposed rule, which were due on January 8. It also admits that it has received the letter from the lawmakers and is reviewing it.
Crypto Industry Reacts
It isn’t only Republican lawmakers that are concerned about the proposed rule, there has been a pushback from the crypto industry also.
According to The Crypto Council for Innovation, the proposed rule could “increase regulatory fragmentation” and “front-runs” Congress.
“For the first time, and absent any congressional directive or prior industry engagement, the Bureau is looking to broadly sweep into its supervisory oversight digital asset activity that is already regulated under state and other federal frameworks,” CCI said in its letter.
Also commenting on the rule, director of research at Coin Center,Peter Van Valkenburgh said developers and publishers of crypto software should not be swept into the proposed rule.
“Mere software publishers engage in a constitutionally protected activity, expressive speech, and applying a supervisory regime to said persons would unconstitutionally burden that protected speech,” a letter sent earlier this month stated. The CFPB is expected to respond to the letter with answers on the proposed rule.