Republican leadership in the House Financial Services Committee say a proposed rule from the Consumer Financial Protection Bureau has an unclear impact on digital assets and wants the agency to take a step back.
The rule, dubbed the 'Defining Larger Participants of a Market for General-Use Digital Consumer Payment Applications,' is not clear on whether it would apply to specific digital asset entities, lawmakers wrote in a letter to CFPB Director Rohit Chopra on Tuesday. House Financial Services Committee Chair Patrick McHenry, R-N.C., French Hill, R-Ark., and Mike Flood, R- Neb., signed the letter and brought up other concerns about the rule.
"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."
The rule was first proposed in November and would give the CFPB the ability to supervise "larger nonbank companies" that have services like digital wallets and payment apps. The rule would require nonbank financial companies handling more than five million transactions a year to follow the same rules as large banks and credit unions, the CFPB said. Comments were due Jan. 8.
Many Republicans have historically not been fans of the CFPB, which was created in 2011 under the Dodd-Frank Act and is tasked with overseeing financial services offered to consumers.
"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.
Reps. McHenry, Flood and Hill also voiced concerns over the CFPB's proposed rule, even though the rule says explicitly that fiat-to-crypto and crypto-to-crypto transactions on an exchange would not be covered under the rule.
"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 told The Block that it received the letter and is reviewing it.
The Crypto Council for Innovation said the CFPB's proposed rule could "increase regulatory fragmentation" and noted in its Jan. 9 comment letter that the rule "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.
Peter Van Valkenburgh, director of research at Coin Center, 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," according to a letter sent earlier this month.
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