In principle, I'm sure one could come up good regulations. In practice, I'm leery of congress's ability to do anything besides make PayPal more bank-like. That would be bad, since if customers really wanted a bank, they would already have a merchant account at one of {BankAm, Citi, Chase, PNC, ...}.

Some sort of "cc-number portability" regulations might be useful - i.e., if your customers saved their recurring payment cc-number into PayPal, you can take the cc-numbers to a new service provider. It's a minimal intervention which empowers customers.

I'd also be interested in having congress create a BankLite category of institution - more protections than PayPal, but not as heavyweight as BankAm. Some people want something which is 51% paypal, 49% bank, and a BankLite category might fit their needs better. Shoehorning PayPal into this would be a bad idea, but creating the option might be helpful.

[edit: As suggested by extension, better disclosure of PayPal's non-bank like nature would also be very helpful. Minimalist regulations which enhance customer choice/knowledge are awesome.]