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Tag: Politics and policy

  • Kansas City Fed rejects Custodia’s master account application

    Kansas City Fed rejects Custodia’s master account application

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    The Federal Reserve Bank of Kansas City has denied Custodia Bank’s application for a master account, according to a U.S. district court filing.

    The reserve bank disclosed the rejection in a motion to dismiss filed with the U.S. District Court of Wyoming on Friday afternoon. Custodia is suing both the Kansas City Fed and the Fed Board of Governors over its long-delayed application for a master account, which grants access to the Fed’s various financial services, including its payment system.

    In its filing, the Kansas City Fed and the Board of Governors argue that the ruling should render Custodia’s lawsuit moot. The bank had sought to pressure the Fed to make a decision about its two-year-old application, arguing that it had been subject to an unreasonable delay.

    The Federal Reserve Bank of Kansas City rejected Custodia’s application for a master account Friday afternoon, just hours after the Fed Board of Governors denies the bank’s application to become a state member bank. The moves have dealt a blow to the digital asset bank’s efforts to join the Fed system, though the bank is expected to continue to pursue its case in court.

    Bloomberg News

    The Kansas City Fed’s denial of Custodia’s master account application came just hours after the Board of Governors rejected the Wyoming-based digital asset bank’s bid to become a state member bank. The designation would have made the Fed Custodia’s primary supervisor and — according to the central bank’s recently enacted application review framework — made it easier for the bank to receive a master account.

    Nathan Miller, a spokesman for Custodia, said the bank plans to continue its litigation against the Fed, noting that the bank intends to challenge whether the bank has congressional authority to pick and choose which institutions can have master accounts. Custodia and others argue that any state chartered depository is entitled to master account access.

    In a written statement, Miller accused the Board and the Kansas City Fed of taking “coordinate action against” the bank and said the rationale for the rejections was “misguided and wrong.”

    “It will not protect American consumers, will discourage responsible innovation, and will provide even greater advantages to incumbent banks,” Miller said in a written statement. “Custodia Bank offered a safe, federally regulated, solvent alternative to the reckless speculators and grifters that the Fed has allowed to penetrate the U.S. banking system, with disastrous results for some banks. Custodia actively sought federal regulation, going above and beyond all requirements that apply to traditional banks.”

    The Kansas City Fed’s court filing did not disclose a reason for the denial. The reserve bank declined to comment on the decision Friday afternoon.

    For its rejection decision, the Board of Governors cited safety and soundness concerns related to Custodia’s “untested” business model, which involves providing custody services for crypto assets and calls for the eventual creation of a stablecoin. 

    Custodia filed its lawsuit against the Fed in June, claiming that not only had the Kansas City Fed taken too long to review the matter, but that the Board of Governors had intervened, violating the Fed’s stated policy that regional reserve banks have sole authority over granting master accounts.

    Both the Board and the Kansas City Fed have made multiple attempts to have the case against them dismissed, but the matter has survived to move to trial — a rarity for legal challenges involving the central bank.

    Following a pretrial hearing earlier this month, the parties have begun the discovery process, which involves requesting and disclosing information of material importance to the suit. Disclosures were set to be made this summer, with a tentative trial date set for Nov 6.

    Along with decisions from both the Kansas City Fed and Board of Governors, the Fed also issued a policy statement on Friday, requiring federally supervised state banks without federal deposit insurance to be subject to the same rules around crypto activity as those that are both insured and regulated at the federal level. The move was designed to align the supervision regimes for the Fed and the Office of the Comptroller of the Currency.

    The White House also announced a “roadmap” to mitigating cryptocurrency risks, in which it directs regulatory agencies to “ramp up enforcement” and issue guidance around best practices in dealing with digital assets. It also called on Congress to empower regulators to have greater oversight of the crypto space without greenlighting greater engagement with the sector by mainstream institutions.

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    Kyle Campbell

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  • California’s AG defends small-business disclosure law opposed by merchant cash advance lenders

    California’s AG defends small-business disclosure law opposed by merchant cash advance lenders

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    California’s Attorney General Rob Bonta is defending the state’s newly enacted small-business disclosure law that requires merchant cash advance lenders, factoring firms and some fintechs to divulge annual percentage rates to borrowers.

    Bonta sent a letter last week to Rohit Chopra, the director of the Consumer Financial Protection Bureau, supporting the agency’s view that California’s law — which went into effect on Dec. 9 — is not preempted by the federal Truth in Lending Act.

    The California law mandates that nonbanks disclose the APR, total interest and fees on financings of $500,000 or less.

    Rob Bonta, California’s attorney general, is defending the state’s lending disclosure law for commercial loans in court.

    Bloomberg News

    Bonta submitted the letter in response to a preliminary determination by the CFPB last month that small- business disclosure laws in four states — California, New York, Utah and Virginia — do not run afoul of TILA, the seminal consumer protection law that created the current consumer disclosure regime. But TILA only governs consumer disclosures; there currently are no federal disclosure requirements for commercial loans.

    State disclosure laws that protect small businesses are a relatively new concept and only California and New York require that lenders calculate and disclose key terms. The issue is further complicated by the proliferation of short-term, high-cost financing options online, made primarily by nonbanks to small-business borrowers with bad credit. As states have become more proactive in seeking to regulate small-business lending, the lenders have filed lawsuits and floated novel legal theories to gut the state laws.

    Bonta wrote in the comment letter to the CFPB that California’s disclosure law “was enacted in 2018 to help small businesses navigate a complicated commercial financing market by mandating uniform disclosures of certain credit terms in a manner similar to TILA’s requirements, but for commercial transactions that are unregulated by TILA.”

    He noted that the law went through four years of public notice-and-comment with extensive input from industry. Nevertheless, last month a trade group group of merchant cash advance firms sued California’s Department of Financial Protection and Innovation in what many see as a Hail Mary pass to gut the new law. The Small Business Finance Association, based in New York, sued California’s DFPI Commissioner Clothilde Hewlett alleging that the disclosure law violates nonbank lenders’ free speech rights by forcing them to describe their products to borrowers “in ways that are false and misleading,” according to the lawsuit. 

    “The reason for the lawsuit is there are a lot of reasons why APR disclosure doesn’t work for commercial finance products,” said Steve Denis, CEO and executive director of the Small Business Finance Association. “What’s confusing to customers is they don’t understand what APR is and with products with shorter terms it skews the calculation.”

    Asset-based lenders and factoring firms allege that calculating an APR is challenging for businesses that pledge receivables for working capital.  They also allege that the state disclosure laws will raise the cost of credit for short-term financing particularly one- or two-week bridge loans for commercial borrowers. Some experts also contend the state are mandating yet another disclosure regime with reams and reams of fine print that borrowers never read.

    Bonta is urging the CFPB to further articulate that state laws that require more disclosures than federal law are not preempted. He also said state law should be preempted only where there is an actual conflict with federal law.

    “It is vital that businesses and entrepreneurs have the information they need to understand the risks and benefits of borrowing and to have the tools available to find the solution that best meets their needs,” Bonta said in a press release.

    California’s DFPI said it tailored the regulations to cover a wide range of financing, from closed-end loans to open-end credit plans, merchant cash advances, asset-based lending, lease financing and factoring transactions. When an offer of commercial financing is made, the funder must disclose the total dollar cost of the financing, and the total cost of the financing expressed as an annualized rate, which means lenders must disclose any finance charge, or estimated finance charge, the annual percentage rate, or estimated APR, depending on the specific commercial financing arrangement.

    Lenders allege the regulations will require that they provide information that does not accurately describe the costs of financing. They also claim that the new law prevents lenders from giving prospective customers additional information without the risk of fines, penalties and further liability. 

    “The disclosures required under the Regulations, far from providing accurate information that would allow businesses to compare the terms and costs of different financing options, actually require providers to give inaccurate disclosures,” the lawsuit states. 

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    Kate Berry

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  • Could credit card late fees drop to $10? CFPB looks to rein in late fees

    Could credit card late fees drop to $10? CFPB looks to rein in late fees

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    Credit card late fees could drop dramatically under a proposal expected to be released soon by the Consumer Financial Protection Bureau. Some analysts are predicting that late fees could be cut in half to as low as $15, while consumer advocates want the CFPB to reduce late fees to as low as $9 or make them proportional to the debt owed by a cardholder.

    CFPB Director Rohit Chopra launched a broad assault last year on so-called “junk fees,” and has said he specifically wants to slash the $12 billion a year in late fees charged by credit card companies. The CFPB is expected to publish a notice of proposed rulemaking this month on late fees but analysts expect the proposal will be released in February.

    “Our expectation is that the CFPB will lower credit card late fees through the rulemaking process to between $15 to $25, though there are some advocates that want fees to go as low as $9,” said Ed Groshans, senior policy and research analyst at Compass Point Research & Trading. 

    The Consumer Financial Protection Bureau may seek to reduce the amount that banks can charge for credit card late fees. The move is the most recent effort by the bureau to set new rules on what CFPB director Rohit Chopra has called “junk fees.”

    /svort – stock.adobe.com

    Banks and credit card companies argue that a reduction in late fees would harm subprime and low-income consumers the most. Any reduction in late fees would force credit card issuers to increase fees on other products, reduce credit, raise annual percentage rates on all cardholders, and potentially even slash rewards and cash-back cards, bank trade groups argue. 

    Robert Maddox, a partner at the law firm Bradley Arant Boult Cummings, noted that most large banks cut or eliminated overdraft fees last year under pressure from the CFPB and other regulators. 

    “The fact that banks cut overdraft fees opened up just about every fee that is consumer-related as a possible target,” Maddox said. 

    Currently, banks and credit card issuers can charge $29 for the first late credit card payment and $40 for subsequent late payments within six billing cycles. Some credit card executives have said they are not worried about changes made by the CFPB because nearly all late fees currently are in compliance with the maximum amounts set by the Credit Card Accountability Responsibility and Disclosure Act, known as the CARD Act.

    In its upcoming proposal, the CFPB is expected to re-examine whether Regulation Z — the implementing regulation for the CARD Act and the Truth in Lending Act — should continue to have a safe harbor provision that was created by the Federal Reserve Board in 2010. The safe harbor allows credit card companies to raise late fees annually in line with inflation. It also allows for higher late fees for second violations to deter consumers from paying late. 

    Chopra also has signaled that changes are coming. 

    “The Fed created a set of immunity provisions that has been going up [due to] inflation every year,”  Chopra said at a conference last year. “We are going to be reviewing whether that number makes sense or whether there needs to be a new framework on it.”

    Credit card companies are coming off three years of abnormally low levels of delinquencies and charge-off rates. Even with a recession looming, credit card delinquencies are expected to rise to 2.6% at the end of this year, up from 2.1% last year, according to a forecast released this week from the credit bureau TransUnion. The number of new credit cards opened is at its highest point in 10 years, TransUnion found. 

    “As we face headwinds with a potential recession, and more and more people have a significant amount of debt on their credit cards, the consumer advocates have been pushing for late fees to go down,” Maddox said. 

    Banks and credit card issuers say that late fees must be set at a level to cover costs, and that a penalty fee is not a hidden cost but rather is necessary to reduce the frequency of a consumer making late payments. Dan Smith, executive vice president and head of regulatory affairs at the Consumer Bankers Association, said efforts to reduce credit card late fees are misguided and would harm the very consumers with subprime credit scores that the bureau is trying to help. 

    “Late fees are intended to encourage responsible spending behavior and empower consumers to avoid negative impacts on their credit scores that may arise from defaults and delinquencies,” Smith said. “Eliminating or dramatically reducing the safe harbor threshold will undoubtedly affect consumers’ access to these valued products as credit card issuers would be forced to drastically alter their business models to mitigate the risks associated with increasing instances of missed payments.”

    The CFPB is considering changes to the CARD Act including the safe harbor for penalty fees. Currently, credit card companies cannot impose a late payment penalty unless they have determined that the dollar amount of the fee represents “a reasonable proportion of the total costs,” incurred by the financial institution, the CFPB said in an advance notice of proposed rulemaking in June. 

    Groshans at Compass Point said he thinks the bureau may decide to change the language of the safe harbor to favor consumers rather than financial institutions. 

    “The entire industry has been operating under that safe harbor for over a decade, so don’t think the safe harbor is going away,” Groshans said. “But the risk is that the CFPB tries to change the basis of the safe harbor.

    “Right now the basis [of the safe harbor] is if the fee is reasonable … relative to the cost incurred by the financial institution,” he said. “Do they try to change that to whether the fee is reasonable and proportional to the harm to the consumer? That’s a very different safe harbor and it seems like that could be feasible.” 

    Consumer advocates say credit card late fees disproportionately impact subprime borrowers and serve as a back-end profit center for banks and credit card companies. Advocates want late fees tailored to the amount of the debt owed by a cardholder and suggest that the CFPB include a mandatory waiting period of several days before a late fee can be assessed. 

    “The late fees imposed by card issuers exceed the amounts they incur in costs, especially for accounts with smaller balances and for delinquencies of short periods of time,” said Chi Chi Wu, a staff attorney at the National Consumer Law Center. 

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    Kate Berry

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  • Gruenberg confirmation heralds the end of one era at the FDIC and the beginning of another

    Gruenberg confirmation heralds the end of one era at the FDIC and the beginning of another

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    When the Senate voted to confirm Martin Gruenberg to his second term as official Chairman of the Federal Deposit Insurance Corporation’s Board of Directors Monday, it was an unmitigated victory for the administration and firmed its grip on the bank regulatory apparatus. 

    Todd Phillips, principal at Phillips Policy Consulting and a former FDIC attorney, said Gruenberg’s appointment is an important milestone for the administration and that his tenure would settle leadership questions at the agency for years to come. 

    “Marty is a very smart, thoughtful regulator,” Phillips said. “It’s great that he’s going to be at the helm of the agency again for at least another five years.”

    Martin Gruenberg, newly confirmed chair of the Federal Deposit Insurance Corp., will have a freer hand to pursue his policy goals, but will also be subject to the same majority-rule dynamics on the agency board that preceded former chair Jelena McWilliams’ departure in February 2022.

    Bloomberg News

    Partisan scuffles left Gruenberg — who has served on the FDIC board in various capacities since 2005 — serving as acting chair since February, and vacancies have left the board operating with the bare minimum number of members for that time.  Gruenberg’s predecessor, Trump-appointed board Chairman Jelena Mcwilliams, resigned from the agency after Democratic board members Gruenberg, CFPB Director Rohit Chopra and acting Comptroller of the Currency Michael Hsu launched a review of bank merger policy against her wishes.  Gruenberg was elevated to acting Chairman upon her resignation.

    But without an official Senate appointment, Gruenberg’s place at the helm of the board was tenuous. At the same time as Gruenberg’s nomination was confirmed, the upper chamber also confirmed Republicans Jonathan McKernan and Travis Hill to fill the remaining vacancies on the board.

     Under FDIC board rules, the party with control of the Senate could select their board member nominee to replace an acting chairman. Some Democrats worry future election power shifts could complicate regulatory efforts. Todd Philips also addressed the board’s lingering partisan precarity saying, “if Democrats lose in 2024, we would potentially end up with a situation where Marty is a Democratic Chair with a Republican board, and we may see a similar fight [like with that of former Chairman Mcwilliams].”

    Jaret Seiberg, policy analyst for Cowen Washington Research Group agreed, saying that future elections would more explicitly dictate the direction of the agency going forward. 

    “[Democratic] control is likely only as long as there is a Democrat in the White House,” Sieberg said. “The CFPB director is a voting member of the FDIC. A Republican would put a new director in charge of the agency. That would then create a three-vote GOP majority. Under the precedent that Democrats set last year, the Republicans would control the agency’s agenda.”

    Others see Gruenberg’s appointment as good for the FDIC, with the Chairman now able to focus less on the risk of replacement, and more on regulation itself.

    Carl Tobias, Williams professor of Law at the University of Richmond, said Gruenberg’s confirmation gives him a freer hand to pursue his and the administration’s agenda.  

    “It’s one thing to be acting, and another thing to be the head for a pretty long time,” Tobias said. “This time he has the authority to move, and he has the majority, so it might be a good time to be in charge.”

    The newly appointed chairman’s goals for the next few years remain to be seen, but given his statements and the collapse of crypto firm FTX, digital assets are sure to be targeted for more explicit regulation.  In a Senate Banking Committee hearing with fellow regulators last month, Gruenberg indicated he would work closely with his fellow regulators to prevent the kind of mass market disruptions seen this year.

    “Crypto-assets bring with them novel and complex risks that, like the risks associated with the innovative products in the early 2000s, are difficult to fully assess,” Gruenberg said. “As [the regulators] develop a better collective understanding of the risks associated with these activities, we expect to provide broader industry guidance on an interagency basis.”

    Gruenberg also made clear his crypto concerns extend to stablecoins, a particular type of digital asset often claimed to be pegged to real-world assets like currencies, U.S. Treasury securities, or commercial paper. The chairman has noted, however, that some of the technology used for digital speculation could have utility in a more formal and regulated setting.

    “The distributed ledger technology upon which [stablecoins] are built may prove to have meaningful applications and public utility within the payments system,” Gruenberg said at November’s Senate Banking hearing on regulatory oversight. “This raises a host of important policy questions that will be the subject of careful attention by all of the federal financial regulators.”

    In addition to addressing cryptocurrencies, some familiar with the agencies predicted Gruenberg would pursue a stronger focus on bank merger reform and revising bankruptcy protocols.

    “We believe that means the agency will tighten bank merger standards with a broader focus on how to measure competition,” Sieberg said. “This should mostly impact smaller banks, which are the bulk of whom the FDIC oversees.”

    Sieberg also said that the FDIC could compel top-tier holding companies of regional banks to take greater responsibility for restructuring company debt and equity in the event of a bankruptcy.

    “We continue to expect the Fed and FDIC will impose at least a version of single-point-of-entry on regional banks,” Sieberg said. “That could result in higher regional bank capital requirements.” 

    With Gruenberg confirmed by an enduring Democratic Senate majority, concerns about partisan struggles may be deferred for now. Democrats will control the Senate and White House for the time being, but if this year’s close election is any indication, the bank regulatory apparatus may be increasingly susceptible to political pendulum swings.

    And with all five FDIC Board members seated for the first time in many years, the only acting principal at a federal banking regulator is acting Comptroller Michael Hsu. Some have speculated that Gruenberg’s confirmation could provide momentum for making Hsu’s seat official.  However,  the unique nature of the position makes acting comptrollers less dependent on congressional majorities. 

    Daniel Meade of Cadwalader, Wickersham & Taft LLP says that while President Biden has a freer hand in the next Congress to appoint a permanent head at the Office of the Comptroller of the Currency, the law also lets him make that decision more or less at the time of his choosing.  , 

    “While President Biden may very well nominate someone (possibly including Mr. Hsu) to be confirmed as Comptroller, the National Bank Act permits an acting Comptroller to stay at the pleasure of the Secretary of the Treasury,” Meade said.

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    Ebrima Sanneh

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  • How 2022 hastened the decline of overdraft fees

    How 2022 hastened the decline of overdraft fees

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    What started as a trickle of overdraft-fee policy changes in 2021 became a flood in 2022 as a growing number of large and midsize banks made their policies more consumer-friendly.

    The list includes megabanks like Citigroup, which this year became the largest U.S. bank to eliminate overdraft fees entirely, and Wells Fargo, which recently launched a new small-dollar loan program to help customers avoid overdraft charges.

    It also includes regional banks such as Charlotte, North Carolina-based Truist Financial, which dropped all fees tied to transactions that get rejected because the customer lacks sufficient funds, as well as charges for overdraft protection transfers.

    The pressure on banks to reform overdraft policies has been mounting for years, with consumer advocates and lawmakers arguing that such policies are particularly harmful to lower-income customers. More recently, Biden-era regulatory changes and competition from lower-cost online competitors have put pressure on large banks to reconsider their strategies.

    Here’s a look back at American Banker coverage from 2022 that highlights the evolution of overdraft policy.

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    Allissa Kline

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  • BlackRock and State Street grilled by Texas lawmakers in ESG debate

    BlackRock and State Street grilled by Texas lawmakers in ESG debate

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    Texas lawmakers grilled finance industry executives they summoned to a remote corner of the Lone Star State for a hearing Thursday, questioning whether their environmental, social and governance policies are hindering state pension investments.

    The GOP-led committee on state affairs called the hearing amid growing concern in the party that financial firms are pushing a “woke” ideology with investing rules tied to ESG issues. They summoned officials from BlackRock, State Street and Institutional Shareholder Services to defend their practices before a committee made up of seven Republicans and two Democrats.

    Harrison County Courthouse, Marshall, Texas. Photographer: Joe Sohm/Visions of America/Universal Images Group/Getty Images

    Republican state Sen. Lois Kolkhorst cited a Harvard Business Review study this year that showed ESG funds tend to lag behind the overall market.

    “We have a commitment to our retired teachers and we have a commitment to our retired state employees to do better with our money,” Kolkhurst said at the hearing in Marshall, in eastern Texas. The state is the nation’s largest energy producer.

    BlackRock’s head of external affairs, Dalia Blass, stood by the firm’s record in handling the assets of its clients in the state.

    “We are really proud of our performance for the Texas institutions that have entrusted us with their money,” Blass told the panel. “We have one bias: to get the best risk-adjusted returns for our clients.”

    The setting, chosen because it’s in the district represented by the panel’s chair, was unusual for Wall Street. With a population of almost 25,000, Marshall is 150 miles (241 kilometers) east of Dallas, 70 miles south of Texarkana and about as far as can be from the world of high finance.

    The committee is focused on how ESG policies may impact Texans’ retirement savings, but the investigation is part of a broader effort by GOP officials around the country to push back against what they see as progressive ideologies among corporations. New York-based BlackRock, the world’s largest asset manager, is a frequent target.

    Florida’s chief financial officer has urged state pension funds to remove BlackRock as an asset manager over ESG concerns, while Louisiana and Missouri have pulled a combined $1.3 billion from the company this year. In August, Texas included the firm on a list of those it says boycott the energy industry. Republicans have also clashed with PayPal Holdings and the Walt Disney Co. over their policies.

    The firms have struggled with how to respond, often trying to assure conservative critics that they embrace fossil fuels while at the same time telling environmentalists they’re committed to helping to fight climate change. Vanguard Group recently announced it was leaving the world’s largest climate-finance alliance, saying it would help “provide the clarity our investors desire.” The company was slated to join the hearing but was then excused.

    “We do not pick and choose what to invest in,” Lori Heinel, global chief investment officer for State Street Global Advisors in Boston, told the committee. “More specifically, we do not discriminate against energy companies, or any other sector.”

    ESG’s impact on the fossil-fuel industry is of particular concern to lawmakers worried that it could dry up funding sources. In August, the committee sent letters to the four firms asking for documents and testimony from executives related to their investing and consulting practices and any impacts on state pensions.

    “When there’s no funding for energy projects, energy projects don’t get done, energy costs go up, jobs go away and the cost of everything we buy goes up,” committee Chairman Bryan Hughes said Thursday. “This is real. This is family security. This is national security.”

    Republicans in the U.S. Senate have also homed in on how the biggest asset managers use their stakes in public companies to cast proxy votes, alleging they favor a “liberal political agenda,” according to a report from Banking Committee staff. They called for congressional probes into how the firms influence corporate policies on carbon emissions reduction, board diversity or racial-equity audits.

    — With assistance from Saijel Kishan.

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  • What happened at FTX? Senate Agriculture Committee wants to find out

    What happened at FTX? Senate Agriculture Committee wants to find out

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    WASHINGTON — Sens.  Debbie Stabenow (D-Mich.), chairman of the Senate Agriculture Committee, and John Boozman, R-Ark., the panel’s ranking member, have scheduled a hearing on the collapse of FTX. 

    The hearing, set for Dec. 1, is the third announced by Congress following the unwinding of the crypto exchange. The Senate Banking Committee and House Financial Services Committee have both said they will host hearings on the issue, scheduled for an undetermined date in December. 

    The Senate Agriculture Committee will host Commodity Futures Trading Commission Chairman Rostin Behnam. 

    Sen. Debbie Stabenow, D-Mich., who chairs the Senate Agriculture Committee, announced that the committee will hold an inquiry into the demise of cryptocurrency exchange FTX next month.

    Bloomberg News

    The hearings come after the collapse of trading platform FTX and the dramatic downfall of its CEO Sam Bankman-Fried, a major player in Washington D.C. conversations about crypto given his large donation portfolio, especially among Democrats. 

    Stabenow and Boozman are also trying to salvage their bill to regulate crypto, which was backed by Bankman-Fried. It would have given the CFTC more responsibility for policing the two largest cryptocurrencies, bitcoin and ethereum. 

    The legislation has not been withdrawn, but the senators are looking to revisit it because of the FTX collapse. 

    “In light of these developments, we are taking a top-down look to ensure it establishes the necessary safeguards the digital commodities market desperately needs,” Boozman previously said in a written statement.

    The Stabenow-Boozman bill represents one of several factions when it comes to regulating cryptocurrency. After the downfall of FTX, these competing groups have doubled down on their visions of what oversight into digital assets should look like. 

    Reps. Maxine Waters, D-Calif., and Patrick McHenry, R-N.C., are working on a bill that would regulate stablecoin issuers, while  Sens. Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, D-N.Y., would make it easier for certain digital asset banks to get access to Federal Reserve accounts.

    Bankman-Fried made two appearances before the Senate Agriculture Committee earlier this year. The Agriculture Committee oversees the Commodity Futures Trading Commission, which monitors crypto exchanges. FTX is registered and licensed with the CFTC and, until last Friday, it was seeking to register its subsidiary, LedgerX, as a derivatives clearing organization.

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    Claire Williams

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  • Lawmakers should embrace an overhaul of financial regulation

    Lawmakers should embrace an overhaul of financial regulation

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    The economy was one of the defining issues of the midterm elections, with inflation and the rising cost of living topping the list of concerns for American voters.

    Now, a divided Washington faces the task of finding common ground to tackle these pocketbook challenges. Supporting an open and competitive economy should be a top priority, because a competitive marketplace means more choices and lower costs for consumers, businesses and the economy.

    Technology-driven financial services (or fintech) are breaking down barriers to financial services. More than eight in 10 American consumers use financial technology to manage their money, improve their financial well-being and access preferred financial services. Seventy-seven percent of consumers say fintech services made it easier to pay for their purchases and build better financial habits. Strong pluralities of users say fintech helps them understand their finances better and put money aside in savings. 

    But Washington can help unleash even more consumer benefits by modernizing its approach to financial policy and regulation. Taking an affirmative, risk-based approach to regulation will help unleash the competitive benefits of financial technologies for more Americans, from the young person using an alternative payments platform to purchase items interest-free to the local coffee shop owner reaching new customers online or the daughter managing her elder parent’s finances through budgeting apps. 

    Other countries and regions are updating their regulatory frameworks to account for these developments, providing greater regulatory certainty to fintechs and increased consumer choice. Modernizing the U.S. financial regulatory framework to address fintech innovations will help ensure U.S. competitiveness from a global perspective. Pilots and sandboxes that carry the appropriate safe harbors could help facilitate policymakers’ efforts to encourage and advance responsible innovation.

    Consumers’ top reason for using fintech is to access their financial information in real time from anywhere, but payments are a crucial area needing modernized policy. Giving a broader set of firms, including financial technology companies, access to federal payment rails would help lower costs, drive competition and speed up payments for consumers. That can start by ensuring the leading payments companies can access infrastructure like FedNow, a real-time settlement service that the Federal Reserve is developing to facilitate instant payments 24 hours a day, every day.

    Innovations in artificial intelligence and machine learning are also bringing competition to financial services. The responsible use of AI/ML technologies helps lower costs, increase efficiency, expand fairness and enhance access to credit. But there is a need for clear guidelines to continue fostering the use of AI/ML, both for the companies using the technology and the regulators overseeing it.

    Strengthening consumers’ control of their financial data and affirming their right to choose their preferred financial services is critical to ongoing innovation and competition in the marketplace. The Consumer Financial Protection Bureau is leading efforts to establish consumers’ data rights through Section 1033 rulemaking. Conversations are also ongoing on Capitol Hill and elsewhere about the future of alternative credit services like buy now/pay later and early wage access products, which help consumers take control of their finances.

    Financial technology can mean the difference between being able to pay a bill on time and incurring an overdraft fee, or weathering a short-term financial shock and turning to a predatory lender. At a time when almost 40% of American adults don’t have enough savings to cover a $400 emergency, these fintech advances are meaningful because they give consumers alternatives to expensive legacy financial products.

    Consumers are turning to fintech because they prefer speed, convenience and transparency. It’s time for our financial policy to catch up and embrace these critical drivers of consumer-friendly services. Modernizing our approach to financial policies will be essential for America to remain competitive moving forward and can be an area of productive common ground for a new Washington. 

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    Penny Lee

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