Fintech
The CFPB’s proposed rules aimed at fintechs are a boon for big banks
The fintech sector has brought unprecedented new levels of competition to the financial services sector. The new rules proposed by the Consumer Financial Protection Bureau would stifle it, writes Adam Kovacevich, CEO of the Chamber of Progress.
Jakub Jirsak/jirsak – stock.adobe.com
The one from last month Supreme Court decision affirming the financing structure of the Consumer Financial Protection Bureau means that the agency it’s here to stay. And for consumers worried about unfair practices on Wall Street, that’s a good thing.
The CFPB was established in the wake of the Great Recession to protect Americans from financial exploitation by financial institutions such as big banks.
But in recent years the CFPB has taken aim at a new target: fintech services.
CFPB Director Rohit Chopra is trying to repurpose laws originally written to oversee Wall Street and apply them specifically to services that offer consumers an alternative to big banks.
Under the CFPB’s proposed rules, PayPal, Apple Pay and Google Pay would all be eligible treaty like banks. Meta — which processes more cat memes than payments — would also be regulated like a bank under the CFPB’s proposal.
Dodd-Frank’s regulatory hurdles exist for a reason: to protect consumers from the financial chaos wrought by big banks. As the Great Recession revealed, safeguarding Americans from Wall Street’s worst impulses requires serious oversight.
But PayPal won’t cause a financial meltdown, and Amazon Pay won’t trigger a housing market collapse. However, the CFPB is moving forward and swinging its regulatory hammer to force square pegs into round holes.
To make matters worse, the CFPB has failed to determine why bank-level oversight of technology and fintech services is necessary. The consumer watchdog is skipping a crucial step in its rulemaking process by repeatedly asserting regulatory rules without public buy-in, stakeholder input or evidence of consumer harm.
The CFPB should determine a risk to consumers before initiating rulemaking. This process typically involves extensive research, public comment, and analysis of potential impacts. When it comes to fintech, the CFPB has continually failed to demonstrate any systemic risk to consumers or our financial system.
The federal courts have taken note of this failure.
In April, PayPal won a landmark legal victory against the CFPB, highlighting the precariousness of the agency’s current strategy. U.S. District Judge Richard J. Leon ruled that the CFPB had “no rational justification” for subjecting digital wallets to a rule requiring disclosure of fees for prepaid card services.
Judge Leone dried up the “arrogance” of the CFPB in applying the prepaid card rule to digital wallets without presenting evidence of harm to consumers or even conducting a cost-benefit analysis. Instead, the CFPB acted solely on speculation that PayPal’s product may one day be subject to fees similar to those used for prepaid cards.
Before imposing rules that could impede progress and harm consumers, the CFPB needs to show its work. Otherwise, the agency risks drowning consumer-friendly innovations in regulations aimed at Wall Street.
It is important to note the irony in the CFPB’s stance on fintech. democrats, Included Chopra himself, for a long time called for greater competition in the financial system. Fintech services have spurred unprecedented competition in the industry, disrupting traditional banks and democratizing mainstream financial services. The CFPB now threatens to undermine this progress by targeting Wall Street’s biggest competitor.
The CFPB should consider why fintech services are so popular with consumers. At the very least, the CFPB should identify clear, evidence-based risks to Americans before implementing new rules. Speculation does not provide a solid basis for regulation.