A coalition of tech companies that represent giants Apple and Google want to stop the Consumer Financial Protection Bureau from regulating their digital wallets in the same way it regulates payment companies.

Digital wallets like Apple Pay and Google Pay do not directly pay for goods and services and should therefore not be subject to an interpretive rule the CFPB finalized last November, TechNet and NetChoice — organizations that advocate for tech firms — said in a lawsuit filed Jan. 16. 

The bureau’s interpretive rule — which went into effect Jan. 9 — said that providers of digital wallets and payments apps that involve at least 50 million transactions annually are subject to the agency’s supervision. The rule gives the bureau the right to supervise tech companies’ use of consumer data, monitor how they handle fraud and complaints, and scrutinize account shutdowns.

“There are fundamental differences between the regulatory standards implicated by funds transfer functionalities and wallet functionalities, given that the latter commonly do not store funds and merely transmit payment credentials (such as a consumer’s credit card information) to facilitate a purchase from a merchant,” the complaint filed in the U.S. District Court for the District of Columbia said.

The suit is intended in part to rein in some of the agency’s authority, acknowledged Chris Marchese, director of the NetChoice litigation center. He argues the bureau overstepped its bounds.

“Our argument is that the CFPB lacks the authority to promulgate the rule,” he said in an interview.

The bureau misclassified digital wallets, the suit alleges, because it isn’t Google Pay or Apple Pay making the payment, but rather a credit card stored on one of those apps.

By grouping those things together, “the agency is regulating outside the bounds of the law,” Marchese said.

A consumer advocate, on the other hand, said the case is a thinly veiled effort to help tech companies sidestep regulation. “Complaints of a distinction should be recognized as efforts to evade responsibility through semantics,” said Adam Rust, director of financial services for the Consumer Federation of America.

The tech industry’s argument about digital wallets has some merit, said Ramnath Chellappa, a professor of Information Systems & Operations Management at Emory University’s Goizueta Business School. But he stressed that a digital wallet is not the same as a physical wallet — a company that makes a physical wallet, for example, can’t shut you out of your account. Apple and Google have some obligation to the consumer if their payment apps are vulnerable to hacking, he added.

“Even if this particular law doesn’t make sense, that doesn’t mean there shouldn’t be any regulation,” Chellappa said. “The tech companies have some responsibility in this.”

Spokespeople for Apple and Google did not respond to requests for comment on the lawsuit.

The CFPB, for its part, argues that technology companies have the same obligation under consumer protection laws as their payments industry counterparts.

“Consumers can face serious harms when they lose access to their app without notice or when their ability to make or receive payments is disrupted,” the bureau said in a Nov. 21 news release when it finalized the rule.

The agency has always had the authority to regulate tech companies, but the interpretive rule gives the bureau the power to proactively investigate those companies to ensure compliance, the release said.

“Supervision is an important tool for the CFPB to assess risks that can emerge rapidly in this market,” the release said.

An agency spokesperson did not respond to a request for comment on the lawsuit.

TechNet and NetChoice consider the rule an overly broad effort to oversee the technology companies that they say CFPB Director Rohit Chopra has had in his crosshairs for years.

“Director Chopra has made clear that the purpose of the Final Rule is to ‘crack down’ on ‘large technology firms,’ and is the culmination of his efforts throughout his tenure at the Bureau to do just that,” the complaint filed on Jan. 16 said.

“There is no agency at the federal level that is dedicated solely to supervising digital services, and so I think [Chopra] saw an opportunity with the broad language and to do what Congress has yet to pass into law, which is to create a regulator of digital tech,” Marchese said.

Rust disagreed with TechNet and NetChoice’s take on the CFPB’s rule.

“Consumers are using payment apps and digital wallets to make electronic funds transfers, and they rely on them to handle their funds safely,” he said. “Enforcement actions taken by the CFPB show that consumers have had trouble receiving prompt and reasonable responses from them when they try to resolve problems.”

The risk of consumers losing funds if their accounts are closed is real, Rust added.

The CFPB supported that notion in the Nov. 21 news release. “Consumers have reported concerns to the CFPB about disruptions to their lives due to closures or freezes,” the release said.