CFPB Takes Aim at Major Online Payments Applications for Digital Payments; Spares Crypto Companies
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On November 7, 2023, the Consumer Financial Protection Bureau ("CFPB") proposed a new rule, to be codified at 12 C.F.R. § 1090.109, that would bring general-use digital payment processors who process more than five million "consumer payment transactions" annually under the supervision of the CFPB (the "Proposed Rule"). CFPB supervision is consequential because supervised entities are subject to an ongoing, comprehensive review process involving on-site examinations and follow-up monitoring. The Proposed Rule takes aim at the now ubiquitous but still largely unregulated "general-use digital consumer payment applications," that consumers use to make everyday purchases in lieu of cash or physical debit or credit cards.
In that vein, the Proposed Rule defines a consumer payment transaction as "the transfer of funds by or on behalf of a consumer physically located in a State to another person primarily for personal, family, or household purposes." 12 C.F.R. § 1090.109(a)(2). Thus, while the Proposed Rule is likely to bring major payments applications under CFPB supervision, cryptocurrency exchanges and wallet providers are not likely to be subject to CFPB jurisdiction under the Proposed Rule.
Most transactions currently processed by cryptocurrency exchanges and wallet providers do not meet the Proposed Rule's definition of a consumer payment transaction because it expressly excludes the "transfer of funds by a consumer . . . linked to the consumer's receipt of a different form of funds," such as fiat-to-cryptocurrency or cryptocurrency-to-cryptocurrency trades, from the definition of a consumer payment transaction. 12 C.F.R. § 1090.109(a)(2)(ii)(A).
Likewise, the Proposed Rule would not count transfers made in connection with "the purchase or sale of a security or commodity" that is either (1) regulated by the Securities and Exchange Commission ("SEC") or the Commodity Futures Trading Commission ("CFTC"), or (2) sold through an SEC-registered broker-dealer or a CFTC-registered futures commission merchant. 12 C.F.R. § 1005.3(c)(4)(i)(ii). Nor would the Proposed Rule count transactions where users transfer funds from their exchange account to another one of their accounts or wallets.
Finally, even assuming consumers used wallet addresses provided by a cryptocurrency exchange to receive payment for goods delivered or services rendered (and the exchange was aware of the nature of that transaction), such a transaction would not count towards the annual five million transaction limit because the Proposed Rule focuses on "the transfer of funds by or on behalf of a consumer," meaning only outgoing (and not incoming) transactions would count towards that limit.
Consequently, the lion's share of transactions processed by cryptocurrency exchanges and wallet providers (e.g., trades, swaps, and off-ramp transfers) would not count towards the Proposed Rule's annual five million transaction limit. While cryptocurrency is lightyears ahead of where it was five, much less 10, years ago in terms of public acceptance and adoption, everyday purchases made with cryptocurrency "for personal, family, or household purposes" are not so commonplace that cryptocurrency companies should concern themselves with the Proposed Rule.
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