there can be more consumer harm. >> i see i've got 15 seconds left to meet if we could follow-up in the record afterwards, i do have some concerns that in some of the carveouts for crypto, taken as we've seen some of the company site paypal developing stablecoins as we've seen some of the runs and other currencies, there are some blind spots so tonight if you thoughts about how we might improve the role to protect -- >> the time of the gentleman has expired. >> thank you. yield back. >> feel free to respond to a writing on the question. the committee, we have votes on the floor, were going to take a recess for not less than five minutes and we'll come back and finish are questioning. we think our panel for excellent testimony today, , so we are in recess for five minutes. [inaudible conversations] [inaudible conversations] comme.

>> the gym before wisconsin is recognized for five minutes. >> i think the chair. let me start with you if i can, mr. johnson. the cfpb can see that it quote lacks sufficient information of substantial number of known market participants necessary to estimate their larger participant status, end quote. in other words, they don't know the data can then have the data to and how many companies will be swept under the role. it of how much the rule really consult with the full market impacts could be. cfpb uscirf under cfpb. with this the unusual in your professional opinion? >> i think would be unusual and certainly present a challenge risk. in some ways this is bureaus response to an executive order and revise guidance or omb regarding the relaxing of standards for cost-benefit

analysis. >> i appreciate that. i continue to have concert cfpb isn't doing a proper cost-benefit analysis and the fact we don't have data that will be swept in and residual ethic is currently concerning. let me continue on which if i can mr. johnson. the law authorizing the cfpb says the bureau shall consult with the federal trade commission to define covered person under larger participant rules that the bureau has said its consulting with or provide an opportunity for consultation with the ftc which could be the ftc did not actually wait in. can you explain briefly for the record why it's important the cfpb to consult with the ftc of white would be a problem if the cfpb actually did not fulfill its regulatory requirements? >> the dodd-frank act creates clear distinctions and boundaries between the ftc and cfpb. and the cfpb inherited certain

consumer protection authorities but not antitrust authorities from the ftc. so it's vital importance the cfpb consult on a regular basis and caucus require them to compel other agencies. i think for the return of establishing their not intruding upon the jurisdiction boundaries the ninth of in the dodd-frank act. >> appreciate that. let me jump over to you, mr. solway. to say that correctly? >> yes, sir. >> thank you much. filibustered about how sweeping recoveries under the cfpb's authority would impact the cost of payment services to consumers. and so how does insert about the regulatory cost impact the lpr impact of petition and innovation in the payments industry? >> i think uncertainty always adds cost come even just the initial legal fee is to do with the ambiguity of whether or not a market participant is a should

be covered. then your further uncertainty when it becomes hard to budget for those compliant risks. all of those issues take away precious time, capital and attention to only make it harder for folks to innovate. when that is the case consumers can miss out on new and important technology. >> thank you. let me turn to you, mr. holshouser, if i can. let's take a broader view of the cfpb's expansion impacts are a kind of workers. at added some high inflation pe can afford thinks any. the bureau has targeted a competitive industry with innovators coming from across the globe. i am concerned overbearing and poorly considered regulations from the cfpb will make the u.s. less competitive and pushing jobs overseas. can you talk about how the lpr and that the cfpb efforts may discourage innovation and investment here in the united states. >> us great question. you got to promise the safeguards within five and for innovation comes , redtapee

innovative companies that are the envy of the world we have here in the u.s., innovators and the american spirit and our laws and regulation that allow innovation in two floors. you just look at the eu. there's been a 40% decrease in investment and started since the gdpr, showing an onerous top-down regulation has a huge constriction effect on innovation and investment. the jobs that are created in this country are mostly created by startups and small businesses. they are going to really see the impact and burden much more than larger platforms, and to think it's misguided to think this rule only targets what is being seen as big plays. little ones are the ones that need to help and this is going to constrict their ability to grow and stifle innovation. >> i share your concerns. i met currently concerning the cfpb is going to continue to stifle innovation did love it here and the united states. our witnesses. mr. chairman, i yield back.

>> gentleman yields back. adjustment from california is recognized. >> i have redone my questions. >> i will give you another five. the chair recognizes himself. also with this but i think since about the larger participant rulemaking for sometime and abroad we have the opportunity to explore its impact for the today. first let's begin with refresher what the larger participant rule refers to. the cfpb has four broad categories of supervisory jurisdiction pursuant to dodd-frank the number one, financial institutions with over $10 billion in assets. number assets. number two, mortgage companies, payday lenders and student lenders. company -- number three, companies quote-unquote larger participant in the consumer financial market, and the before, companies by cfpb as a potential risk to consumers. if unchecked that third category the larger participant category is sufficiently broad as to potential to expand the cfpb's jurisdiction dramatically over

time. i fear we are seeing that with this rule today. one example of how this will expand cfpb's which hasn't gotten much discussion as it relates to merchants. cfpb is explicitly barred from supervising merchants pursuant to dodd-frank when they are selling nonfinancial goods. this is a common sense guardrail. cfpb is a financial regulator. they don't have supervisory authority over nonfinancial merchants in the country, and they shouldn't. however, i go this proposal takes the boundary and pushes it away. one piece of visual claims if at any time the merchant uses consumer payment information for something other than completing the transaction including for benign purposes like research, they go from selling a nonfinancial good to a financial one and are therefore within the scope of the rule. let's step back and think about that for just a moment. when a completely nonfinancial merchant conducts research on their payments of data, even for good reason like conducting research to stop future fraud,

they could be subject to cfpb supervision or for example, if a consumer buys a recliner chair at an online furniture store, whether not the transaction is considered a financial transaction by the cfpb would depend upon exactly how have merchant treats the information associated with it. according to this interpretation the fact we are talked about a merchant selling a of first venture is relevant. cfpb still have jurisdiction anyway. to delay for the cfpb this could extend the supervisory authority to merchants selling any and all kinds of goods. this interpretation allows them to go from a financial regulator to regular to the could of authority over anything sold online. another way the rulemaking expand cfpb's authority is not just overuse dollar transactions but digital asset transactions. again, this would be a broad expansion of their power. mr. johnson, in your testimony you connected the cfpb's jurisdictional wrap over digital asset transactions to major questions doctrine from the

landmark west virginia versus case. do you believe the cfpb has clear congressional authorization for its claimed authority over digital assets? and please explain why or why not. >> i don't believe it has of that authority because congress didn't give it that the authority and didn't give it that authority expressly in title x of the dodd-frank act. >> it's a relief to do you say that because the members of the smith at the work of delicate authority to regulators over digital asset for your pet will be rather discouraging if the cfpb could simply claim authority over the space with the stroke of the pin and very little legal basis. i would like to close today but bring up one more issue with the proposed rule. it completely failed to assess its potential impact on small businesses pursuant to the regulatory flexibility act. the rules certified there will not have significant impact on small entities but does so with no serious analysis. this is despite the fact small

businesses and sole proprietor for some of the most common uses of third-party payment technology that could be clearly covered under the rule. mr. holshouser, to mention the lack of analysis regarding the rules potential small business impact in your testimony. would you provide additional thoughts on this topic. >> was i'd be happy to. i think small and medium-size businesses have noted whether not they're covered under this proposal is that in itself is the problem. we're very investment of 17, at first but it think it estimates could be well in hundreds. if you're a small business and making decisions between spending money on compliance cost to do with this new propose regime versus innovating new products and then selling them, which is the lifeblood of creating a new business, you are going to see real headwind in your ability to maintain and grow. and i think if you limit and define the scope of this proposed rule in and more targeted basis, you will

certainly give more certainty businesses were really confused but whether they would be caught into this and what that means for their ability and need for raising money to grow. >> thank you very much for your testimony. i never make it as a general from north carolina. >> thanks to our church and a ranking member under witnesses for being here. i represent north carolina's 13th district, and i have said this before, the work of the cfpb is incredibly important. the mission of protecting consumer support by professor george americans regardless of political party. cfpb recently released their larger participant rule for digital consumer payment apps in november or kindest and the goal of this rulemaking as millions are now using digital payment apps. however, i'm concerned this rule is overly broad and lacks clarity. mr. holshouser, as my colleagues have making the cfpb indicated that 17 companies would be

covered by this role. however, they refuse to say which companies. is that standard practice? what purpose is served by keeping the list of companies who would be impacted by this rule secret? >> this is not instead of practice and have no idea what this serves. certainty is what businesses need in order to operate their businesses and know how to plan. and this lack of specificity is a real concern. >> mr. holshouser, again to you, given ten certainty this role,, companies we discussed offering payment services to consumers and how will this impact competition and innovation. >> absolutely unthinkable decrease the players in the market and reduce new entrants. it will cause those that are in it might be caught up in this role to retract from this market which will lessen the number of products and, therefore, hurt competition. >> mr. ken, next question to you. to justify the role that cfpb only perform a cost-benefit analysis of peer-to-peer

products, however the road cover products like express checkout that have nothing to do with the future. cost-benefit analysis is a right for the cfpb to propose such an all-encompassing when you don't have adequate data to justify it? >> i agree the proposed rule conflates very separate and distinct payment products and functionalities. it doesn't explain why it does so. and not explaining why conflates them, there's a cost-benefit or any sort of empirical analysis to support that kind of overly broad definition. >> mr. kim, i came to you. how is this larger participant role compared to previous larger participant rules? >> well, with prior ones we were not asking these questions like with service, and when who the big players were i don't think people debated by much concern

about whether the threshold would capture the large ones versus the small ones. i think today's hearing highlights how there's a lot of uncertainty about the scope of the rule and its potential impact. >> mr. kim, again to you. can you walk us through what a a typical supervisor examination by the cfpb would look like for firms identified as larger participants and describe what powers the cfpb has over an entity once it has been designated as a larger participant? >> well, they sin examiners -- santa. it's at a minimum several that easily 20 to 30 who are logitech companies, i would imagine the cfpb would bring it so-called a game and bring as many as it can. it would be probably a combination of hosting an on-site but also hybrid or virtual. and these exams last month. so were talking about wave after

wave of information requests and follow-up requests, and then companies often field of those questions for over a year and then maybe you might get an exam report a year or two later. so it's significant. people have to kind of dropped their day jobs to respond to information requests. >> thank you, and i yield back. >> gentleman yields back. gentleman from florida is like a. >> thank you, chairman. [laughing] , this a been a very hearing. i say often in this room that the first thing i ever watched as a as a citizen of this country was the financial services hearings when dodd-frank was being created. i was in the finance world, not a member and to be blunt and no disrespect to the staff on capitol hill, not a staffer of writing memos about the financial world i was actually doing it. a lot of the things in dodd-frank concerned me.

most overall overarching was the cfpb and the concern was the cfpb will be this overarching agency with no real oversight that which is roam the fruited plains trying to figure out what they can meddle in. obviously we are doing that today. mr. holshouser, we get very technical in financial services for the people watching at home, what actually our digital payment systems? what are the actual pieces of technology we're talking about that will apply to the american consumer? >> that's an incredibly complex and diverse question with a lot of different aspects to it -- >> just give me an example. >> but you are running financial transactions through large digital pipe a bunch of data sent back and forth between merchants and banks with other regular entities and payment ecosystem also involved in that. >> would cryptoware be part of that. >> was subject to interpretation

but yes. >> on a consumer i go on my phone i download a digital wallet. i put crypto stablecoins potentially even cash in this won't work with that i'll be subject to the cfpb's role? >> under the proposed rule, yes. >> okay. mr. odinet, professor odinet, question for you. even in this infancy when dodd-frank was being created, did the members i will see democrat members because they are going to voted for, did actually think it would make it possible that the cfpb would regulate consumer transactions between consumers? >> so i wasn't involved in that process. like you i was much younger. but what again is congress intended for the cfpb to have jurisdiction over non-bank, not depository institutions involved in the provision of consumer financial products and services. >> i don't want to overdo in representative but i'm short on time. you know why they did that? because of the lending market because i was a lender at the time. in the lending market, home

mortgages specifically where you could jump itself want to buy this house, you have no credit report, no income verification and a non-bank issues you a mortgage to go buy a house that you can't afford, isn't that correct? >> so i think the subprime mortgage crisis was at the forefront of congress at the time but that doesn't mean that the bureau's authority is limited to the mortgage market to contact the text of the act of forgot that into multiple different types of consumer financial products. >> professor odinet i would like to opine on the part that's when dodd-frank is trashed and what are the worst piece of legislation ever contemplated by this body. but let me move on. do you think the digital wallets poses a systemic threat to the united states of america? >> by justin is the bureau is not making this will make on the basis of systemic threat but of the threat of consumer harm and offering of -- >> is there consumer in americans being able to actually use the resources to buy goods and services from a business, a

merchant from another individual? >> under the limited facts of the questions, no. >> okay. is it plausible that an american citizen needs a license or needs authority or approval from the cfpb under to transact business income? >> no, but the business that facilitated do. >> you said in your statement that and i want to say quote, businesses could discriminate based upon information that they take down in the normal course of business. is there any evidence at all that there's been any discrimination with the use of digital wallets at all by these tech companies? >> i think proper supervision will reveal whether or not that is the case. >> mr. johnson is it any discrimination that's been found by any of these tech companies or fintech company actually allowing for these products to be used by consumers? >> not that i'm aware of for loss of data within the cfpb

jurisdiction. >> here's a question for you. do you think cfpb has evidence to the factor might be discrimination with use of any of these products by consumers? >> i think the bureau is articulate concern consh and of the key medications speak to speculative concerns rather than actual observations of marketplace behavior. >> for the people watching at home the cfpb is looking for something to do because they are busybodies. there is funded for them to regulate into space. mr. chopra once again is way beyond his bounds which is why this agency needs to go away permanently. i yield. >> the gentleman from illinois is recognize. >> thank you, mr. chairman, to witnesses. mr. odinet come in your test what you don't many of the friends we expect to be covered of the larger participants role our large non-tech bank friends. and as a slice of benefit from the mass collection of consumer data. typically we think of this through the lens of marketing

usually insights from interactions with your favorite search engine associated out to shape targeted efforts that are more likely to get you to buy something or others have relationships with third parties also access to consumers information. as you note large payment providers have access to a very valuable trove of finance information about their users that can show how much they spend, where they spent it and how they manage their finances. now, i mentioned most consumers would deem that sensitive information. what are some of the risks of non-bank financial firms having access to that sort of information and what safeguards do you believe are missing? >> as a naked in my written testimony one of the most important and profitable kind of information is that people spend their money, at that is exactly the kind of data that these payment processing payment platforms are able to generate and capture. the fear to my mind is a billy to use that kind of information coupled with other types of nonfinancial consumer data

browsing history, social interactions, et cetera. and in combination engaged in activity relative to targeted marketing, price differentials on products and services that is unlawful but is a discriminatory. >> and there have been instances where perhaps even inadvertently some of the ai algorithms of some of the big firms have been doing things like digital redlining that have resulted in real harm to american citizens. so how do the risk change when significant lines of business outside the financial services sector? >> so i think this goes towards a question earlier about the separation between banking and commerce. the way in which nonbanks, not depository institutions engaged in the payment ecosystem places him outside that division because they're not depository, not falling under the bank holding act. that allows for a level of

sharing and interaction and penetration between the payment side of house, if i can, and the commercial we will say the tech site of the, and it's the combination and the interaction of those lines of business and the data that they produce that a think poses the risk of creating these multidimensional very granular profiles about people and how that range of information can be used in ways that would find problematic. >> in recent months i've been happy to see the cfpb take steps to give consumers greater control over their personal financial data. while the details are still being hammered out, the bureau's 1033 rulemaking i believe is an up or step to ensure that consumers and it is protected and that they have the freedom to walk away and move the data to another bank or financial institution when to determine that they could be served better. so my question is this. how does his larger participants proposal interact with other

consumer protection laws and what would it mean for something like the 1033 rulemaking? >> so i think the way that supervision interacts with this idea, which generally referred to like a couple of open banking, is to ensure that those non-bank institutions that are covered by the role that are required to generate consumer data that is standardized and easily shareable which includes as you say controls on how much of it is shared and the need to get reauthorization on an annual basis are being complied with. that's what supervision is. it's not to impose new rules. it's to ensure that the rules already apply are being abided by. >> thank you. how does the lack of supervisory authority over digital payment applications hinder the bureau's the ability to protect consumers financial data right now? >> the problem is that when

there are breakdowns in compliance with the consumer financial laws like the gramm-leach-bliley act, or others, if the bureau does not have the ability to monitor on an ongoing basis, that level of compliance of public generally does not discover misbehavior and wrongdoing. until the consumer hormuz or haven't. it's it's also worth saying that there are benefits to supervision that were not mentioned at all today. one being we often hear about regulation through enforcement and the fear cfpb enforcement. supervision happens on an ongoing basis and in a confidential capacity so that the business of the beer can engage in an ongoing dialogue, flag problems and resolve them before they become public. >> thank you. my time is up and i yield back. >> gentleman from south carolina is recognized. >> thank you, mr. chairman and thank you to the witnesses for being here today. when examined the larger participant proposal, one cannot help but see it as another paragraph from director chopra

cfpb. since swearing in his his applied liberal academic theories with no common sense or basis in the real world. time and time again he said there's are put into practice can result in increased costs for services, and potential hurting consumers a set of protecting and promoting their best interest. what is worse is discussed which is our for siebel and even predicted by the seemingly ever-increasing chorus of those of us with business experts. our warnings are perpetually cast aside. it seems the only possible course correction will be either resist to 24 or who knows pes the supreme court. but for now i guess we will continue highlight the average cut to quinces of cfpb's proposals. this time the director is becoming more boldly bole cfpb supervisory authority is not limited to the products or services that qualify the covered execution supervision but could essentially capture every aspect suggesting companies fellow to provide services outside of the

financial sector to the cfpb's oversight. not only does this proposal appeared to be brought it's incredibly ambiguous leaving many participants questioning their status. mr. holshouser, the cfpb identifies 17 firms as potential larger participant under the proposal. however, that collected data on the most 200 copies in consideration of the troll. to say the least it appears this widespread confusion among market participants with many copies unsure of the designation. given the ambiguity in the cfpb's definition of the market in this proposal are your member firms able to say with certainty whether they are covered? >> no. >> do you think that's a problem? >> market uncertainty is the bane of the existence of any business but particularly small and medium-size businesses that's try to grow. the 17th that are mentioned don't account for the hundreds more that are in the space that are sitting wondering and likely to be covered under the scheme

is on the small company, maybe i have 20 employees. >> businesses no matter what size you want to compete on an even playing field and it got to know the rules in order to compete. this is not productive. mr. kim defined appropriate for the children caps with both companies to facilitate transactions and those that provide a native digital wallet and what is the justification for such a broad scope? >> i don't see the justification in the proposed rule for combining what you think a a y different functionalities with different risk profiles. if, as every the proposal if you are merely saving and passing payment credentials but that actually touching the money in any way, you are still covered by the rule. they then you treated the same as the company that holds and uses money. i don't think i see the explanation for treating those two very different things. >> relationship for what it is which is just a way to expand the authority and have additional scope.

mr. soloway, and this proposal the cfpb includes this digital assets. this committee has been crafting legislation that appear cfpb is trying to front run congress and expand its authority. >> what implications could this proposal out on the digital asset ecosystem? >> if the cfpb were to succeed and as you put it front running congress, it would not only add additional regulatory uncertainty to an already uncertain space but when the specific risk would be the application of the filters self posted crypto want to do not exhibit the same underlying technological structure nor the same risk as more traditional digital payment apps. >> this seems like a radical expansion of the cfpb's authorities. could the cfpb uses novel interpretation of funds in future proposal? >> if unchecked and challenge they could get an addition they could take away the lesson that they can interpret and expand their authority broadly. >> also given the unique nature

of some digital assets doesn't cfpb provide sufficient guidance on which it digital assets they would consider to be funds and which would be excluded. >> no, they do not. they provide little by way of guidance which is to say essentially none at all. they are very different types of digital assets out there and the failure to distinguish between them is one of the shortcomings of the proposed rule. >> i'm not sure what this proposed rule helps. it literally only seeks to extend the directors authority and it further complicates this is his ability to compete in the u.s. and global economy. i would think it needs to be reconsidered. again, as always i imagine that our warnings will be cast aside and it will take the supreme court or an election to change course. with that, mr. chairman, i yield back. >> i would like to thank our witnesses for the testimony today. without objection all members will have five legislative days within which to submit additional written questions for

the witnesses to the chair which will be forwarded to the witness for the response. i asked eyewitnesses to please respond as probably as you are able. this hearing is adjourned. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] ..