that when banks are doing so. that is because banks are subject to supervision both by the bureau above a certain asset class but always by the credential regulators. but we know there is way more innovation happening in data processing and artificial intelligence outside the bank system in the non-bank system. in that way, the bureau needs sort of some visibility into what is happening on that side of the house, if you will, because that is likely to be the place where there can be more consumer harm. >> i have 15 seconds left so we could follow up on the record after. i do have some concerns and some of the car votes -- carveouts for crypto as we have seen some of the currencies, there are some blind spots. so i don't know if you have thoughts on how we can improve this to protect that.

>> feel free to respond in writing on that question. as you know we do have votes on the floor and we will take a recess for not less than five minutes and we will come back and finish up her questions and we think the panel for excellent testimony. we are in a recess for five minutes.

>> i want to thank all of our witnesses for being here and i recognize opening comments. the gentleman from wisconsin is recognized for five minutes. >> i think the chair and let me start with you if i can come mr. johnson. cfpb can see that it lacks sufficient information of substantial number of known participants necessary to estimate their larger participant status. in other words, they don't know -- have the data to know how many companies will be swept

under the rule and they don't know how much it costs or what the impact could be. you served as cfpb under a previous administration but does moving forward without adequate data, is it something usual? >> i think it would be unusual and certainly present a challenge risk. i think in some ways this is the bureau's response to an executive order and revised guidance or omb regarding the relaxing of standards for cost- benefit analysis. >> i do appreciate that but i have concerned that they are doing a proper cost-benefit analysis and the fact that we don't have data saying who will be swept in under such a rule is concerning. let me continue on. the law authorizing the cfpb says the bureau shall consult with the federal trade commission under larger participants rules and the

bureau said it has consulted with or provided an opportunity for consultation with the ftc which could mean they could not actually weigh in. can you briefly explain why it is important to for cfpb to consult with the ftc and why it would be a problem if they actually did not fulfill its regulatory requirement? >> 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 is important that they consult on a regular ba congress required them and i think for the reason of establishing they are not intruding upon the jurisdiction of boundaries and denied them in the dodd frank act. >> i appreciate that. let me jump over to you, mr.

solowey. did i say that correctly? >> yes, sir. >> thank you. there is a lot of uncertainty about how sweeping these companies under the authority of the cfpb would impact the cost of payment services to consumers. so how does the uncertainty about the regulatory cost impact the competition and innovation in the payments industry? >> i think uncertainty always adds cost. even just the initial legal fee is dealing with the ambiguity of whether or not a market participant is or should be covered. you then have further uncertainty when it becomes hard to budget for those compliant risks. all of those issues take away precious time, capital, and attention and make it harder lks to innovate. when that is the case, consumers can miss out on new and important technology. >> thank you. let me jump to you, mr. holshouser. let's take a broader view of how the regulatory expansion

of cfpb impacts workers . in high inflation, people can afford things they need in the bureau targets a competitive industry with innovators coming from across the globe. i am concerned about overbearing regulations will make the united states less competitive and push jobs overseas. can you talk about how the lpr and other efforts by cfpb may discourage innovation and investment here ? >> great question. you have to compromise the safeguards. and innovators in the american spirit in our laws and regulations allow innovation to flourish and you look at the eu. there has been a 40% decrease in the investment in startups and showing a 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 goinsee the impact and burden much more than the larger platforms. i think it is misguided to think that this rule only targets what was being seen as big players. the little ones are the ones that need help. this is going to constrict their ability to grow and stifle innovation. >> i do share your concerns. i am incredibly concerned the cfpb will continue to stifle innovation and development here in the united states. i appreciate all of our witnesses. i yield back . >> the gentleman from california is recognized. >> i will give you another five. the chair recognizes himself.

i will start with this. i have been concerned about the larger participant rulemaking for some time. and i am glad we had the opportunity to explore its impacts. let's begin with a refresher on what the larger participant rule refers to. cfpb's four broad categories of supervisory jurisdiction pursuant to dodd-frank. the first is financial institutions with over $10 billion in assets. mortgage companies, payday lenders and student lenders and company -- number three, companies idered larger participants and also companies designated as a potential risk to consumers. if unchecked, that third category, the la participant category, is sufficiently broad as to potentially broad the jurisdiction of the cfpb dramatically over time. i fear we see that with this rule the day. an example of how this will expand the reach hasn't got much discussion to this point as it relates to the merchants. the cfpb has been barred from supervising merchants pursuant to dodd-frank when they are selling nonfinancial goods. this is a common sense guard rail. cfpb is a financial regulator. they don't have supervisory authority over nonfinancial merchants in the country. they should not.

however, i feel this proposal takes the boundary and pushes it away. one piece of this claims that at any time a 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 a moment. when a completely nonfinancial merchant conducts research on their payment data, even for a good reason like conducting research to stop future fraud, they could be subject to cfpb supervision. for example, if a consumer buys a chair at an online furniture store, whether or not the transaction is a financial transaction by the cfpb would depend upon exactly how the merchant treats the information associated with it. according to this interpretation, the fact we are talking about a merchant selling a piece of furniture is irrelevant. the cfpb still may have

jurisdiction anyway. and this could extend their supervisory authority to merchants selling any and all kinds of goods. this allows them to go from a financial regulator to a regulator that could have authority over anything sold online. another way the rulemaking expands the authority of cfpb is not just over united states dollar transactions but digital asset transactions. this would be pansion of their power. mr. johnson, in your testimony, you connected the jurisdiction of the cfpb grab over digital asset transactions to major questions doctrine from the landmark west virginia versus epa case. do you believe the cfpb has clear congressional authorization for its claimed authority over digital assets? please explain why or why not. >> i don't believe it has that authority. because congress didn't give it that authority and didn't give it that authority expressly in title x of the dodd frank act.

>> it is a relief to hear you say that because the members of this committee have been working on delegating authority to a regulator for digital assets for over a year and it would be rather discouraging if the cfpb could simply claim authority over the space with the stroke of a pen and very little legal basis. i would like to close today by bringing up another issue. it completely failed to assess its potential impact on small businesses pursuant to the regulatory flexibility act. the rules certified it will not have a significant impact on small businesses but does so with no serious analysis. this is despite the fact that small businesses and sole proprietors are some of the most common users of third- party payment technology that could be clearly covered under the rule. mr. holshouser, you mentioned the lack of analysis regarding the rules potential for small business impact in your testimony. could you provide additional

thoughts on that? >> i would be happy to. small and medium-sized businesses have no idea if they are covered under this rule and that is a problem. we are hearing an estimated 17 firms but i think it could be well into the hundreds. if you are a small business and making a decision on spending money on compliance costs to deal with this new proposed regime versus innovating new products and then selling them, which is the lifeblood of creating a new business, you are going to see a real headwind in your ability to maintain and grow. and i think if you limit and define the scope of this proposed rule in a more targeted basis, you will certainly give more certainty to businesses who are confused as to whether or not they should be caught up in this and what that means for their ability and need for raising money to grow. >> thank you very much for your testimony. recognize the gentleman from north carolina. >> thank you to our chair and ranking member and our witnesses for being here. i represent the 13th district of north carolina. and i have said this before. the work of the cfpb is incredibly important and the

mission of protecting consumers is supported by the vast majority of americans regardless of political party. the cfpb released recently there larger participant rule for digital consumer payment apps in november. i understand the goal of this rulemaking as millions of americans are now using these digital payment apps. but i amthis is overly broad and lacks clarity . mr. holshouser, as my colleagues have said, they have indicated that 17 companies would be covered by this rule but they refused to say which companies. is that standard practice? what purpose is served by keeping a list of companies that would be impacted by this rule secret? >> this isn't standard practice. i don't know what idea it serves. certainty is what businesses need in order tod know how to plan. this lack of specificity is a real concern.

>> again, given the uncertainties surrounding this rule, would companies be discouraged from offering payments and reverse -- services to consumers and how would this impact competition and innovation? >> i think it would decrease the players in the market and reduce new entrants and it will cause those who are in it to be caught up in this rule to retract from this market which will lessen the number of products and therefore hurt competition. >> the next question is for you, mr. kim. they say it only performs cost- benefit analysis for peer-to- peer products but the rule would cover products like express checkout that have nothing to do with peer to peer cost-benefit analysis. is it right for cfpb to propose an all-encompassing rule when they don't have adequate data to justify it? >> i agree the rule conflates a very separate and distinct payment product and functionality and it doesn't explain why it does so and in

not explaining why it conflates them i think there is no cost- benefit or any sort of empirical analysis to support that overly broad definition. >> again to you how is this larger participant rule compared to larger participant rules? >> well, with prior ones, we were not asking these questions like with student loan servicing, everybody knew who the big players were. i don't think people really debated or had concern about whether the threshold would capture the large one versus the small ones. i think the hearing today highlights how there is a lot of uncertainty about the scope of the rule. and it's impact. >> again to you, mr. kim. can you walk us through what a typical supervisor examination by the cfpb would look like for firms identified as larger participant and describe what powers the cfpb has over an

entity once it has been designated as a larger participant? >> well, they send examiners and typically at a minimum several, easily 20 to 30, and for a large tech company, i would imagine the cfpb would bring the so-called a game and bring as many as it can. it would be probably a combination of hosting them on site but also hybrid or virtual. these exams last a month. we are talking about wave after wave of information requests and follow-up requests. and then companies often field those questions for over a year. then maybe you may get an exam report a year or two later. so it is significant. people have to kind of drop their day job to respond to the information requests in advance. >> thank you. i yield back. >> the chairman yield

>> in the gentleman from florida is recognized. >> thank you and this is been a very interesting hearing. i say often in this room that the first hearing i ever watched as a citizen of this country was the financial services hearing when dodd- frank was being created. i was in the finance world and not a member commencing on the finance world and to be blunt and no disrespect to the staff on capitol hill, not a staffer writing memos about the financial world. i was doing it. a lot of the things in dodd- frank concern me. most overarching was the cfpb and the concern was that the cfpb will be this overarching agency with no real oversight that would roam the fruited plain trying to figure out what they could meddle in. obviously, we are doing that today. mr. holshouser, we get very technical and financial services. for the people watching at home, what actually are digital payment systems? what are the actual pieces of

technology we are talking about that will apply to the american consumer? >> that is an incredibly complex and diverse question with a lot of different aspects to it. >> an example? >> but you are running financial transactions through a large digital pipe and a bunch of data centers back and forth between merchants and banks with other regular entities and the payment ecosystem also involved. >> would a digital wallet be a part of that? >> subject to interpretation but yes. >> so i am a consumer and i go on my phone and download a digital wallet and i put crypto stable coins or maybe cash and would that be subject to the cfpb rule? >> under the proposed rule, yes. >> a question for you, professor odinet. even in this infancy when dodd- frank was created, did the members and i will say

democratic members because they are the ones who voted for it, did they truly think it would make it possible that the cfpb would regulate consumer transactions between consumers? >> i was not involved in that process. like you, i was much younger. what i do know is that congress intended for the cfpb to have jurisdiction over non- bank non- depository institutions involved in the provision of consumer financial products and services. >> i don't want to interrupt but we are short on time. do you know why they did that? because of the lending market. i was a lender at the time and the issue was home mortgages specifically ninja loans where you could say i want to get this house and you have no credit report, no income verification and a non-bank issues you a mortgage to go get a house that you can't afford. is that correct? >> i think the subprime mortgage crisis was at the forefront of congress at the time, but that is mean that the authority of the bureau was limited to the mortgage market. in fact the text of the act of

consumer protection went into that into multiple different types of products. >> professor, i would like to opine on that. that is why dodd-frank is trash and one of the worst piece of legislations ever contemplated by this body. let me move on. do you think digital wallets pose a threat to the united states of america x >> my understanding is the bureau is not making rulemaking on the basis of systemic threat but consumer harm and offering of -- >> is there harm in americans being able to use resources to buy goods and services from a business, merchant, or other individual? >> under the limited facts of your question, no. >> okay. is it plausible that an american citizen needs a license or authority from the cfpb or approval from them in order to transact business and commerce? >> no. but the businesses that facilitate it do. >> you said in your statement and i said i want to say, "businesses could discriminate based upon information that they take down in the normal

course of business" is there any evidence at all that there has 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 there any discrimination found by any of these tech companies or fintech companies actually allowing for these products to be used by consumers? >> not that i am a where of four loss of data within the cfpb jurisdiction. >> do you think they have evidence to the fact there could be discrimination with the use of any of these products by consumers? >> i think the bureau has articulated concern in speeches and other communication speaking to speculations rather than actual observations. >> for the people watching at home, the cfpb is looking for something to do because they are busybodies? there isn't a need for them to

regulate in the space ? mr. chopra once again is way beyond his bounds which is why the agency needs to go away. permanently. i yield. >> the gentleman from illinois is recognized. >> thank you, mr. chair and to our witnesses. professor odinet, you mentioned many of the firms we expect to be covered are large non-bank tech firms. and with those that benefit from the mass collection of consumer data. we typically think of this through the lens of marketing usually insights from interactions with your favorite search engine or social media app or advertisements. and more likely to get you to buy something. others have relationships with their parties who may also have access to consumer information. as you note large payment providers have access to a very valuable trove of financial information about their users that can show how much they spend, where they spend it, and how they manage their finances.

now, i would imagine most consumers deem that sensitive information. what are some of the risks of non-bank financial terms having access to that information? and what safeguards are missing? >> as i mentioned in my written testimony, one of the most important and profitable kinds of information is that how people spend their money. that is exactly the kind of data that these payment processing platforms are able to generate and capture. this fear into my mind is the ability to use that kind of information coupled with other types of nonfinancial consumer data browsing history, social interactions, et cetera. in combination, engage in activity relative to targeted marketing. >> we will step away at this point to hear from federal officials on their investigation into the collapse of the francis scott key bridge. live coverage on c-span3.

>> we are waiting for the start of this hearing on the investigation into the collapse of baltimore's francis scott key bridge. the congressman is the chair and

the representative of washington is the top democrat for the panel and witnesses include officials from the coast guard, the u.s. army corps of engineers and also administration and the national transportation safety board. again expecting it to get underway shortly with live coverage here on c-span3.