Tech Groups Sue US Consumer Finance Watchdog Over Digital Wallet Regulation

Two prominent technology trade groups, TechNet and NetChoice, have filed a lawsuit against the US Consumer Financial Protection Bureau (CFPB), challenging its recent efforts to regulate digital wallets and payment apps such as Apple Pay, Google Wallet, PayPal, Venmo, and Cash App as if they were traditional banks.

The complaint, filed on January 16, argues that the CFPB's new rule—finalized in December—unlawfully expands the bureau’s supervisory powers to include general-use digital consumer payment applications. This move, according to the plaintiffs, unfairly targets large non-bank financial service providers, including widely used payment platforms and digital wallets.

The 259-page rule gives the CFPB oversight authority over these platforms, allowing it to enforce federal privacy and fraud regulations through “proactive examinations.” While the rule does not cover cryptocurrency wallets or decentralized financial services, it specifically focuses on major players like Apple Pay, Google Wallet, PayPal, Venmo, and Cash App.

Critics of the rule, including NetChoice’s Director of Litigation, Chris Marchese, argue that it constitutes an “unlawful power grab” that undermines the rule of law. Marchese also warned that the rule could harm innovation, increase costs, and reduce consumer choices. He claimed that the CFPB's intervention is more about expanding government control over a thriving sector than protecting consumers.

“The CFPB’s actions create unnecessary roadblocks for businesses striving to meet consumer needs and set the stage for increased prices and reduced options,” Marchese said. NetChoice also accused the CFPB of engaging in overreach, arguing that it was more concerned with bureaucratic expansion than consumer protection.

The lawsuit comes just as the CFPB levied a significant penalty against Block Inc., the parent company of Cash App, for allegedly failing to provide adequate fraud protections. On January 17, the CFPB imposed a $120 million compensation order and a $55 million penalty, citing the company’s inadequate handling of fraud-related complaints. Block denied the accusations, particularly the claim that it had directed users experiencing fraud to contact their banks for transaction reversals.

The plaintiffs in the lawsuit contend that many of these payment apps are already subject to stringent state-level regulations, and the CFPB has not demonstrated any regulatory gaps that would justify its expanded oversight. They argue that the rule is “arbitrary and capricious,” asserting that the bureau has overstepped its authority. The plaintiffs are now seeking a court ruling to declare the rule unlawful and beyond the CFPB’s scope.

This legal battle highlights the growing tension between regulators and the tech industry as the government moves to address rising concerns about privacy, fraud, and security in the fast-evolving digital payments space. On January 10, the CFPB proposed additional rules that could require cryptocurrency firms to reimburse users for stolen funds due to hacks and scams, further increasing regulatory scrutiny over the digital finance sector.

As the legal challenges to the CFPB's new rule continue to unfold, the outcome could have significant implications for how digital wallets and payment apps are regulated in the future.