Last week, the Consumer Financial Protection Bureau (CFPB) proposed rules to regulate Big Tech and their Fintech services. The CFPB is targeting firms like Facebook, Google, Amazon, Apple, and others.
According to the statement issued by the CFPB, the agency seeks to regulated digital wallets and payment apps offered by Big Tech, claiming they must comply with the same rules as big banks and other financial services firms. While these services are already highly regulated and, in some cases, Big Tech partners with established financial services firms to provide digital financial services, the addition of Big Tech to its remit will expand the CFPB’s portfolio of firms in which it holds oversight.
The expansion of the CFPB garnered a comment from the Chair of the House Financial Services Committee, Representative Patrick McHenry. A longtime supporter of innovation in financial services, McHenry said the proposed rule would only entrench the status quo by impeding the adoption and development of innovative products and services.
“This, paired with Director [Rohi] Chopra’s recent actions, will only limit nonbanks’ ability to offer products and services consumers and small businesses rely on—eliminating choice and competition in our payments system. The CFPB is once again stretching its supervisory authority to the detriment of the consumers the agency was created to protect.”
CI connected with Casey Jennings, counsel in the law firm of Seward & Kissel and its Financial Services Regulatory Group and Blockchain and Cryptocurrency Group. Prior to joining Seward & Kissel, Jennings worked at the CFPB, where he developed and implemented a financial policy with a focus on “unfair, deceptive, and abusive acts and practices” (UDAAP); electronic fund transfers, truth in lending, qualified mortgages, fair credit reporting, and data privacy and security. He currently advises various financial services companies, including Fintechs, on federal and state banking and securities law issues.
We asked Jennings for his opinion on the CFPB’s new regulatory proposal. Our discussion is shared below.
The CFPB is looking to expand its portfolio of regulated firms. Do you think this is justified?
Casey Jennings: Yes, I think it is. The entities that the CFPB has in mind – such as PayPal, Venmo, Apple Pay, Google Wallet, etc. – are all important financial institutions today. They are already subject to any number of federal consumer financial protection laws, including the Electronic Fund Transfer Act and the prohibition on Unfair, Deceptive, or Abusive Acts or Practices. But despite their importance in the consumer financial services market, and the fact that they are subject to federal consumer protection laws, they are not currently subject to examination by any federal regulator. It doesn’t seem unreasonable that they ought to be.
Will this kill or mitigate the practice of some Fintech firms partnering with regulated firms to provide services?
Casey Jennings: I doubt it has any impact in practice. No bank is going to ditch PayPal as a partner simply because they might be subject to CFPB examination. If anything, being directly examined by a federal regulator would make such Fintechs a more attractive partner for banks, whose partnerships are increasingly being scrutinized by the prudential bank regulators.
One thing was missing in the statement announcing its ambition to bring Big Tech into its remit: allegations of wrongdoing. Is this a case of looking for a problem where one does not exist?
Casey Jennings: I don’t think so. I think this is just a recognition of how important these firms have become to the consumer financial services landscape. All banks are subject to federal supervision, even if they have never done anything wrong, because they are important institutions and federal supervision is a recognition of that.
Congressman Patrick McHenry issued a statement that the CFPB’s aggressive proposal would undermine innovation in financial services. Do you concur with this statement?
Casey Jennings: Not really. If the CFPB is correct that their proposal only brings 17 firms under their supervisory authority (kind of a big “if” – the proposal may inadvertently sweep up many more firms), it shouldn’t affect innovation among emerging companies.
Some people believe that creating a new regulator overseeing financial services is bad government growing bigger. Should policymakers be looking to reduce the number of federal agencies (not to mention the 50 states) touching the activity of financial services firms? Are other established jurisdictions that have fewer regulators (ex. UK) doing a better job?
Casey Jennings: This is a valid and important philosophical question – our dual supervision system of federal and state regulators, coupled with our multiple federal regulators, makes for a balkanized regulatory system that borders on indecipherability. But that was kind of the whole point of the CFPB – it was essentially created as a corporate roll-up to house all consumer protection functions in a single federal regulator. I do think that consolidating supervision into fewer regulators would more effectively foster innovation, but I don’t think it’s politically possible. First, the states would raise hell. And second, look how much hell has been raised about the CFPB.