Fintech innovation operates in an ever-evolving financial regulatory landscape. Regulators are stepping up scrutiny of non-banks, particularly marketplace lenders, even as the new Consumer Financial Protection Bureau (CFPB) establishes its mandate and rules. This shifting landscape carries regulatory implications for traditional banks weighing fintech partnerships. In this blog series, Mirador will recap the latest regulatory developments with potential impact for bank-fintech partnerships.
Since Election Day, the stock market has responded favorably to the upcoming Donald Trump presidency. But the impact of his administration on the larger financial services industry remains unclear.
During the campaign, Trump, a Republican, promised to dismantle Dodd-Frank, but the President-Elect never revealed his thoughts on the Consumer Financial Protection Bureau (CFPB), although he repeatedly squabbled with its founder, Democrat Senator Elizabeth Warren. A recent court decision questioned the legality of the agency, so members of the financial services industry are now left wondering: What does the future hold for the CFPB? Will Trump abolish it, overhaul its leadership structure or do something else entirely?
One of the main complaints lawmakers have about the CFPB is its lack of oversight and accountability. For example, Director Richard Cordray cannot lose his job for poor performance, nor does the CFPB have to adhere to Office of Management and Budget guidelines, rules, and regulations, which attempt to eliminate excessive government spending. Despite these issues, shuttering a federal agency — even in its infancy — would be difficult to accomplish and might not even be the correct solution.
While fintech has an anti-regulation reputation generally, there are some reasons why the industry should want the CFPB’s doors to remain open.
For instance, many large banks already limit or are against “screen-scraping,” a data-sharing technique that consumers can use to provide their personal financial account information to financial planners, online lenders, and other third-party web services. Why the opposition? They claim it puts customers’ personal information at risk since the data might not be properly protected from hackers and other security intrusions.
But as the banking community knows, aggregating financial account information is beneficial (and often necessary) not just to fintech companies, but also to consumers themselves when using financial management tools. Mirador uses 256-bit RSA encryption with a 2048-bit SSL key and regularly undergoes vulnerability scans and penetration testing, making it extremely unlikely customer data will fall into the wrong hands. Fortunately, the CFPB recognizes that fintech companies aren’t endangering consumers and in November of this year, voiced its support of third-party data access, saying that customers should be able to access their own information and give permission to fintech companies to retrieve it.
While the CFPB hasn’t issued an official ruling on data sharing, it’s monitoring the conversation and could step in if banks and fintech companies can’t come to a resolution.
This leaves Republican lawmakers in a conundrum: They praise fintech when citing examples of exemplary American innovation. But now they’re considering shutting down the CFPB — the very agency that supports fintech in its battle for free third-party data access. How could they navigate this tricky political situation?
Short of closing the agency, legislators could mandate that the CFPB’s budget be approved through the Congressional appropriations’ process and restructure its leadership — getting rid of the director position and creating a bipartisan, five-member panel to run the CFPB.
If that happens, Director Cordray may be the first federal employee to hear the words, “you’re fired.”