As the final votes get counted for the 2020 presidential election, industry observers are speculating on how a new government would oversee the fintech industry.
The (increasing) likelihood of a Biden administration is bolstering enthusiasm around support for new business models. Analysts who spoke with FinLedger acknowledged that while some directions may change, others are likely to hold regardless, particularly a greater openness toward digital-only financial services propositions. The Consumer Financial Protection Bureau, however, could take a stronger oversight role under a Democratic administration, a former employee of the agency explained.
Below are a few conclusions industry sources shared with FinLedger:
Receptiveness toward fintechs’ pursuit of banking charters is unlikely to change.
Thomas Hoenig, a distinguished senior fellow at the Mercatus Center at George Mason University, and a former vice chairman of the Federal Deposit Insurance Corporation (FDIC), told FinLedger regulators have kept pace with recent changes in the industry. Recent examples included the success of Varo Money in obtaining a national banking charter and SoFi’s success in acquiring preliminary approval for a banking charter from the Office of the Comptroller of the Currency.
“Whoever the administration is, the incentives for the companies to get the charter is created because they get deposit insurance,” he said. “And second of all, the administration will be more willing to accept that, because the public is reasonably protected.” In other words, bringing fintechs under the regulatory cover of a banking license is an area where Democrats are likely to be aligned with Republicans.
Regulators are still likely to keep a close eye on big tech companies getting into banking.
The march of big tech toward financial services – including Amazon, Facebook or Google – will continue to be closely watched and scrutinized.
“There has been a long-standing preference in the U.S. and actually elsewhere to limit the mixing of banking and commerce — that is kind of a standard that we go by,” said Hoenig. One exception to this would be the rollout of industrial loan company charters, which allow nonbanks to offer banking services.
A new Consumer Financial Protection Bureau director could set the stage for a stronger oversight role for the agency.
Leslie Parrish, a senior analyst at Aite Group and former employee of the Consumer Financial Protection Bureau (CFPB), said nominating a new director of the CFPB will be a top priority for the first 30 days of a Biden administration. Recent efforts to downgrade the enforcement and fair lending offices will also likely be reversed as a result of this move, she noted.
“A new administration will really be getting back to the [CFPB’s] roots,” said Parrish. “It will steer back towards an emphasis on rulemaking and enforcement, instead of putting most of its eggs in the financial education and innovation basket as it has done more recently.”
One area that could be revisited is payday loans, an area where the Trump-era CFPB reversed requirements for lenders to verify borrowers’ ability to pay.
“A priority for a new director I would imagine is revisiting this payday and small-dollar lending rule, seeing where they come down on it, and what the next course of action should be,” said Parrish. “Other rulemakings could be possible — one that comes to mind immediately would be something looking at overdraft fees for example.”
Peter Renton, chairman of Lendit Fintech, believes a Biden win would likely mean a more aggressive CFPB, particularly on consumer protection issues. He suggests this could impact fintech, particularly small-dollar lending.
GDPR-style customer data regulations aren’t likely in the cards.
John Pitts, head of global policy at Plaid, expressed that the market will likely continue to steer the directions around consumers’ ability to access and control their financial data. The CFPB’s recent Advance Notice on Proposed RuleMaking (ANPR) around section 1033 of the Dodd-Frank Act, will help propel an ecosystem where consumers will be able to exercise control over how their data is used, he said.
“It is unlikely that the U.S. would implement prescriptive regulatory frameworks like open banking. Instead, we’re seeing a market-driven approach take shape, with regulation that follows.” he said, in an email to FinLedger. “With the CFPB’s rulemaking, we have an opportunity to implement regulations that provide necessary and helpful guidance for the ecosystem to flourish.”