Few industries welcome attention from the Consumer Financial Protection Bureau (CFPB). But Director Rohit Chopra’s recent statement that the CFPB use its “tools to promote competition and shift market power toward consumers” is welcome news for companies challenging Wall Street incumbents. In particular, the digital asset community may welcome CFPB engagement for two reasons.
First, CFPB engagement might force the Securities and Exchange Commission (SEC) to say what constitutes a security. Here’s how that would work. The Dodd-Frank Act created the CFPB, and exempts “person(s) regulated by the [SEC].” Who is regulated by the SEC? Companies that issue securities.
For example, the current and past SEC chairmen have said that stablecoins may be securities. Stablecoins are a digital asset pegged to another asset, such as the dollar. They function like a payment instrument. In other words, stablecoins compete with companies traditionally under CFPB jurisdiction, such as Venmo, or Paypal, or Western Union. But if stablecoin companies must register with the SEC, then the CFPB can’t use its full enforcement authority. A defendant facing certain CFPB actions could respond, “I’m regulated by the SEC.”
This phenomenon could repeat itself with other digital assets. Every time the SEC says a digital asset is a security, the CFPB would lose more authority. Digital assets may be the future of payments, lending, and deposit-like activities. Or they may not. My guess is that Director Rohit Chopra will not stand by while the SEC grabs jurisdiction over what could be the future of consumer finance. Though conspicuously excluded from the President’s Working Group on Financial Markets, expect the CFPB to join the stablecoin discussion.
A second reason the digital asset community may welcome the CFPB is that the agency is less susceptible to Wall Street influence. Across the past two administrations, the politically appointed agency heads most hostile to digital assets have been former Wall Street lawyers or bankers. Some see a nefarious protection plot between incumbents and regulators. However, the truth may be more benign. Those trained on Wall Street tend to see new products through a Wall Street lens.
Moreover, some agencies’ missions may be institutionally aligned with Wall Street profitability. Many long-time CFPB staff remember Senator Elizabeth Warren’s seminal article proposing the CFPB. That article argued that financial stability regulators tend to focus on Wall Street profitability, rather than the “financial impact on consumers.” By design, digital assets use technology to cut out Wall Street intermediaries. Eliminating intermediaries’ fees can be great for consumers, but lower fees mean lower profits. The CFPB sheds no tears over lower Wall Street profits.
Dodd-Frank directs the CFPB to focus on consumer benefit, including facilitating financial access and innovation. This means the CFPB is more likely to focus on a product’s function for consumers. For example, can stablecoins provide a real-time payments network that contributes to reducing overdraft fees, remittance costs, and demand for high-cost consumer credit? The digital asset community wants to talk about function. It is weary of regulators stretching or chopping digital assets until they fit onto the procrustean bed of securities regulation.
Of course, the CFPB wields a large enforcement stick. The digital asset community needs to have its house in order, and avoid any practice that smacks of deception. However, the CFPB is not known for protecting Wall Street with its enforcement authority. Director Chopra’s initial statements on competition and empowering consumers do not indicate any intention to change this reputation. Moreover, Director Chopra’s time at the Federal Trade Commission featured fierce challenges to social media companies’ market concentration. This means the digital asset community may have what it needs: a consumer-focused agency open to Wall Street-challengers, and skeptical of incumbents.
This op-ed originally appeared in Morning Consult on October 20, 2021. Read the full op-ed here.