Tech lobbyists are angry that the feds want to regulate digital payment apps like banks

A pair of technology trade groups have sued the federal government over its attempts to regulate digital payment apps and wallets like banks. lawsuit foot The company claims against the Consumer Financial Protection Bureau that new regulations introduced last year are arbitrary and capricious, and jeopardize “creativity.”

The legal action comes shortly after a high-profile scandal last year in which a fintech startup called Yotta Savings managed to lose track of the situation. 100 million dollars In clients’ money. Users did not realize that Yotta itself was not technically a bank, meaning that they did not have their own bank accounts with Yotta and were not entitled to deposit insurance. A broker called Synapse, which had been sending Yotta deposits to accounts at physical banks, suddenly collapsed in May, and since then there have been recriminations with neither party able to pinpoint exactly where the money went. Many clients And they still haven’t gotten their money back. Yota encouraged users to save by rewarding them with random cash prizes.

All of this is to say that it’s interesting that a group of technology lobby groups are now trying to roll back regulation that could hurt “innovation.” The new rules, which took effect in December, allow the CFPB to oversee digital payment processors’ compliance with federal privacy and fraud laws through proactive testing. Apps included under the rule include Apple Pay, Google Wallet, PayPal, Venmo and Cash App. The trade groups that filed suit opposing the law, NetChoice and TechNet, claim the CFPB did not adequately identify consumer risks or gaps in oversight to justify the rule.

The new lawsuit also comes as Block, the operator of Cash App, agreed to pay $255 million to regulators who alleged the company violated banking laws, including through inadequate fraud protection. “The ban used Cash App’s weak security protocols and put its users at risk,” the CFPB said in a statement. He releases. “While Block is required by law to investigate and resolve disputes related to unauthorized transactions, the company’s investigations were woefully incomplete.”

Most average consumers don’t understand the technical nuances when dealing with various fintech startups. The CFPB warned that money held in accounts using apps like Venmo and Cash App could be FDIC-insured but… Only under certain conditionsas if users requested a debit card. Chime, another popular fintech company, offers FDIC insurance because customers get their own bank account. Services like Venmo and Yotta essentially pool each user’s money into a single custodial trust, which is not eligible for FDIC insurance.

This doesn’t even begin to mention all the issues with cryptocurrencies, where wallet users regularly fall victim to attacks that drain their accounts because they did something as simple as clicking a button by mistake. Cryptocurrency transactions are typically irreversible, meaning that once Bitcoin leaves the wallet, it is gone forever. That’s why North Korea relied on it Cryptocurrency theft To finance its nuclear weapons development through traditional fiat currency, which is subject to strict anti-money laundering laws that would prevent large funds from moving easily.

Unfortunately, President-elect Trump is busy deregulating Encryption in particularSo this lawsuit against the CFPB may not be necessary until a few days from now.