Consumer Financial Protection Bureau Director Rohit Chopra speaks during a meeting with the Treasury Department's Financial Stability Oversight Council at the U.S. Treasury Department on October 03, 2022.
Photo: Anna Moneymaker/Getty Images

The CFPB is under siege

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Friday: the CFPB under siege, Apple Pay’s unhappy 8th birthday, and the worst regulatory advice we’ve heard lately.

Off the chain

Apple Pay turned 8 yesterday. Already intrigued by Square Wallet (RIP), I was an early and enthusiastic adopter: No more slipping a credit card into my running belt in case I wanted a coffee! (The Starbucks app was still months away at that point.) But vanishingly few American consumers have embraced Apple Pay: While it has 44% of the share of mobile wallet payments in stores, those account for 2.4% of total transactions, according to PYMNTS. Apple has persuaded many iPhone users to sign up for Apple Pay, but it struggles to get them to use it. That may explain why Apple’s keen on pushing the Apple Card and developing a savings account; getting deeper into the flow of funds may help Apple offer meaningful incentives to use the system. “It’s new” isn’t enough of a proposition to change shoppers’ habits, and at 8 years old, Apple Pay isn’t even that new anymore.

— Owen Thomas (email | twitter)

Who watches the watchdog’s funding?

A federal appeals court struck a major blow against the Consumer Financial Protection Bureau with a finding that its funding mechanism is unconstitutional. The decision is likely to be challenged, setting up a major fight for the future of the top U.S. consumer-finance watchdog. That battle could introduce significant uncertainty for the many fintech businesses that fall under the agency’s purview.

The CFPB has faced legal challenges before. But the ruling from a three-judge panel of the New Orleans-based 5th Circuit Court of Appeals on Wednesday, finding that the CFPB’s funding structure violated the Constitution’s separation of powers doctrine, could be the most serious threat yet.

  • As set up under the 2010 Dodd-Frank Act, the CFPB is funded by the Federal Reserve rather than congressional appropriations. That way, in the Obama administration’s view, the agency could avoid political influence. But Republicans have chafed at what they view as anti-business practices and a lack of oversight.
  • Other courts have found the CFPB’s funding to be constitutional, a point the Wednesday ruling acknowledged. But the panel of Trump-appointed judges said the CFPB’s setup is different from other self-funded agencies, calling the system “a double insulation from Congress’s purse strings that is ‘unprecedented’ across the government.”
  • The CFPB has faced several challenges to its existence over its 11 years in business. In 2020, the Supreme Court ruled that restrictions on when its leader can be removed were unconstitutional, but rejected a plea to strike down the agency as a whole.

The CFPB is expected to challenge the ruling. A CFPB spokesperson said the agency “will continue to carry out its vital work enforcing the laws of the nation and protecting American consumers.”

  • To that point, the CFPB issued new guidance to credit-reporting agencies Thursday about omitting what it called “junk data” from credit reports.
  • An analysis from the law firm Ballard Spahr noted that the 5th Circuit’s decision applies only to federal district courts in Texas, Louisiana, and Mississippi. But “because it is an appellate court ruling, it might be given weight by district courts outside of the Fifth Circuit considering challenges to CFPB enforcement actions.” That means the impact could spread far beyond the agency’s payday lending rule.

In the meantime, fintechs face uncertainty. The CFPB under Biden-appointed director Rohit Chopra has taken a more aggressive stance toward the financial industry than predecessors during the Trump administration.

  • That includes a growing focus on fintech products such as algorithmic lending and “buy now, pay later” arrangements. Chopra has also promised scrutiny over the way large technology companies are expanding into financial services.
  • But the agency is also taking up initiatives with fintech industry support, including finally setting up open-banking rules to guide data-sharing between financial institutions and tech companies.
  • “If you don’t know what the rules are, it is hard to innovate,” said Melissa Baal Guidorizzi, a partner with the law firm Orrick and former senior CFPB enforcement attorney. “Legal uncertainty can cause considerable friction, particularly for innovators.”

What the ruling means for the fintech industry remains to be seen. Should it hold up long term, a lack of resources could hamper the CFPB’s pledge to supervise a broader group of fintech businesses. While regulators and companies can occasionally come into conflict, the agencies also serve an important role in providing rules of the road and certainty for business models. If the decision casts further uncertainty around CFPB’s existing regulation, that’s probably bad for business.

— Ryan Deffenbaugh (email | twitter)

A version of this story first appeared on Read it here.

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On the money

On Protocol:Inside Molly White’s campaign against crypto.

Stripe has been slowly reducing its workforce. While not technically layoffs, Forbes reports that some senior leaders are asking managers to start giving lower ratings on performance reviews to edge employees out.

Fidelity is expanding its crypto team. The Fidelity Digital Assets workforce could grow by at least 100 over the next six months.

The CFTC has been busy with crypto enforcement.About 20% of the futures market regulator’s enforcement actions involved digital asset companies, according to its annual report.

Amazon is going insurtech in the U.K.The tech giant has launched a home insurance comparison site in the country.

Gary Gensler’s agenda is wearing some employees down.An SEC inspector general report said agency managers were concerned that the uptick in rulemaking activity is stretching staff thin.


Forget agility, now you need “porosity,” maybe? “The porosity we have allows us to reach more distant places and offer services where there are none. We are in every Mexican state,” Asensio Carrion, director general of Mexican neobank Spin, told Reuters. (Spin is owned by convenience store chain Oxxo, which is where it gets those pores.)

Our colleague Veronica Irwin got an earful at TechCrunch Disrupt. Former FTX US president Brett Harrison described his brief stint at the crypto exchange as “the longest year and a half of my life.” That good, eh? And Mary-Catherine Lader, COO of Uniswap Labs, offered what is probably the worst advice ever for fintech founders facing regulation: “I think the simplest rule of thumb is if you had to go before a judge and explain why what you’re building is good for the world and good for a user, do you feel like you can do that? And if you can, you shouldn’t worry too much.” Given reports the SEC has been looking into Uniswap, we’re not sure we’d turn to its leaders for advice.

The chart

DeFi hackers have had a shaky year as the crypto market reeled from a severe crash. The number of hacks is still down from its peak in March. But the total value of DeFi hacks soared to more than $718 million this month, the highest for the year.

A message from At-Bay

“If money were not an issue, the first thing I would do is move all of our customers to the cloud. As an insurer, we know that moving your business systems, data, and services to established cloud environments can dramatically reduce your attack surface and improve security controls, while reducing the time and cost to recover in the event you’re hit with an attack.” - Rotem Iram, Co-founder and CEO at At-Bay

Learn more

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