Will Congress stop Facebook's Libra?
WASHINGTON — The rush to hold hearings in both the House and Senate on Facebook's plan to develop an alternative payment system reflects broad skepticism of the idea across the political spectrum, but lawmakers are unlikely to tackle the issue legislatively.
Congress — at least for now — will find other ways to convey lawmakers' concerns, observers said.
“There is hard power and soft power,” said Isaac Boltansky, director of policy research at Compass Point Research & Trading. “I find it difficult to envision how Congress will use hard power to stop this. … I think ultimately their soft power can and will alter the landscape for Libra. Whether that’s directly through pressure on Facebook or indirectly through pressure on their partners.”
The hearings, scheduled for July 16 in the Senate Banking Committee and a day later in the House Financial Services Committee, will likely result in additional negative headlines for Facebook.
“I don’t think there would be anything sort of immediate that Congress can do to make it not happen,” said Dwight Fettig, a partner at Porterfield, Fettig & Sears and former Democratic senior Senate Banking Committee staffer. “The single biggest thing they can do in the short run to impact it is just the attention.”
When Facebook first announced its plans to launch Libra, House Financial Services Committee Chairwoman Maxine Waters, D-Calif., requested Facebook put a “moratorium” on further developments of the cryptocurrency until Congress can examine it. She raised concerns about the amount of data Facebook already collects from consumers, as well as a lack of regulations for cryptocurrencies.
Sen. Sherrod Brown, D-Ohio, the ranking member of the Senate Banking Committee, raised similar concerns, saying Facebook is already “too big and too powerful” and that it should not be able to run a risky new currency without proper oversight.
But Facebook doesn't have to comply with requests from Congress to halt its work on Libra, and it would be difficult for lawmakers to pass legislation to keep the social media giant from moving forward.
“It’s tough to legislate any prohibition of further development,” said Huhnsik Chung, a partner at Stroock & Stroock & Lavan. “And we are not a country where you create legislation prohibiting one company from pursuing developments that it is entitled to develop.”
That doesn't mean the hearings won't have an impact, however. The hearings are likely to put a spotlight on the privacy, competitive and systemic risks of Facebook's plan.
“There’s just so many questions that need to be answered and there’s just way too short a time,” said Christina Tetreault, senior policy counsel at Consumer Reports. “We have called for any number of consumer protections for cryptocurrency at both the state and federal level. … My hope would be that the many, many unanswered questions are explored and that the great concerns are addressed before any consumer funds are held.”
The hearings may also give lawmakers a deeper look at the U.S. payments system, as well as focus regulators on Facebook's efforts.
“What Congress could do … is understand better how the payment system works,” said Karen Shaw Petrou, managing partner of Federal Financial Analytics. “Where the risks lie, whether it’s crypto or tech platform payment products, and ensure very quickly that the U.S. payment system is robust. Right now it isn’t."
“We have a very sound interbank payment system," Petrou continued, "but tech platform companies are very quickly cherry-picking that and becoming payment system agents in varying ways without necessarily the capital and liquidity to support their payment system risks.”
Facebook will also likely be pressed to ensure that the new cryptocurrency doesn’t compromise consumer data. Senate Banking Committee Chairman Mike Crapo, R-Idaho, and Brown have asked for stakeholders to offer feedback on potential data privacy and security legislation.
“It really plays into what Crapo and Brown were already doing on the whole data security and data privacy issue,” Fettig said. “This just gives them one more high-profile hearing.”
He added that with the launch of Libra, Facebook would obtain even more data on consumers than it already has.
“What’s interesting about this is because it involves a currency, there is going to be more personal data that Facebook is going to have on people,” Fettig said.
So far the unease surrounding Facebook appears to be bipartisan.
“There are a lot of concerns across the political spectrum,” Petrou said. “The increasing concern about a monopoly oligopoly power, particularly when it starts to be exercised in the individual household pocketbooks, I don’t think that’s a partisan concern.”
Fettig said both parties will likely want to clarify who owns consumers’ data.
“It doesn’t feel partisan in terms of the concern or the oversight that everyone seems to want to be able to do here,” he said. “The concern even among Republicans is who is controlling this data.”
Boltansky added that the scrutiny Facebook has already faced from Washington over Russian interference in the 2016 presidential election and other scandals likely fueled the swift action to set hearing dates on its cryptocurrency plans.
“I am absolutely confident that we would not be having the same degree of congressional interest if it were anyone other than Facebook,” Boltansky said.