Regulators Need to More Thoroughly Checkout the Costs, Consequences and Necessity of Their Proposed Rules

By at 11 June, 2024, 4:01 pm

By Karen Kerrigan –

The impact of regulation can be especially insidious for small business. Particularly if regulators “overreach,” act blindly, or do not consider downstream effects. A recent House Small Business Committee report scrutinizes the activity of various federal regulatory agencies that have either ignored their responsibilities to understand those effects, or have erroneously determined that their proposed rulemakings would not harm or impact small businesses. The Consumer Financial Protection Bureau (CFPB) is noted four times in the report. Unfortunately, there are various other proposed regulations and actions the CFPB is considering that could have harmful effects on small businesses.

For example, the CFPB is considering a proposed rule on “Larger Participants of a Market for General-Use Digital Consumer Payment Applications.” The sprawling nature of the rulemaking would capture the activity of digital payments services – specifically, merchant payment processing, including express checkout technologies – used by small businesses. In comments filed about the proposed rule, the National Retail Federation (NRF) explains that the CFPB does not have the authority to assert supervisory authority in this area. Moreover, no risk or harm have been identified to justify such action, even if the CFPB had such authority. As the NRF noted:

The proposed rule makes clear that it would initiate supervision for services that provide express checkout options for third-party merchant sites and apps. These services are designed to make checkout faster and more secure for consumers, who do not need to enter their payment information in order to complete the transaction, and they are especially valuable to small merchants who are not yet established in the market. The CFPB includes these services in the Larger Participant Rule, but it is unclear what consumer risks or harm the CFPB has identified to rationalize their inclusion. NRF is unaware of any complaints related to express checkouts being filed with the CFPB, or the process of express checkouts violating any CFPB rules. Because of this, the CFPB should make clear in its final rule that merely providing express checkout options does not trigger supervision under the Larger Participant Rule.

Smart government policy should respect and applaud innovations that save consumers time and money. And ones that are consumer-friendly from a risk standpoint. As highlighted in a 2022 Buy Button report, “Accelerating Checkout Optimization,” express checkout (buy buttons) save consumer 148 million hours each year. And online checkouts with a buy button “take 46% less time than when not using one.”

In comments filed by the Chamber of Progress it is noted that the CFPB has, in fact, “recognized the contributions that digital wallet providers have made to accelerate the use of ‘contactless’ payments or ‘tap-to-pay.’” But at the same time has “failed to highlight the consumer risks associated with the use of digital wallets, and have also failed to explicitly mention why these products would fall under their regulatory purview.”

It should also be noted that millions of small businesses that utilize technology platforms to sell goods and services benefit greatly from express checkout. Small merchants on Amazon, for example, utilize the convenience and protection extended by Amazon Pay to streamline the checkout process, which is free to consumers. As Amazon points out in comments about the proposed rulemaking: “Notably, unlike other ‘digital wallets,’ Amazon Pay is narrowly focused on supporting third-party merchants, often smaller businesses, to streamline checkout, and it neither holds consumer funds nor offers person-to-person (P2P) payments or a stored value component.”

So again, the expansive nature of the proposed CFPB rule would capture such payments systems, which fall outside the bureau’s authority and would have a downstream effect on small businesses. Effects that could include new costs or a disruption in sales due to the unforeseeable consequences of regulation.

Regulations must emerge from a process that is thoughtful, rational and defensible – where consumer harm has been clearly identified. Rulemakings must be thoroughly examined from a cost-benefit perspective, and unintended consequences must be explored. If the CFPB undertook such an approach to the “general-use digital consumer payment applications” (for large participants) proposal, they would clearly determine action is not warranted, or at a minimum study the matter in much more detail.

Karen Kerrigan is president & CEO of the Small Business & Entrepreneurship Council


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