A blue wave would put the federal government out front in fintech regs

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With polls routinely showing Donald Trump trailing Joe Biden, it's possible there could be a change in the U.S. government after the election.

And with recent antitrust action by the Department of Justice against Google, the tech community is particularly focused on reading the tea leaves. What might a Biden administration mean for a subset of tech, the fast-growing fintech space?

So far fintech has been mostly regulated at the state level. But in the face of a restrained federal government, states have bulked up and started banding together to pursue regulation, and sue the federal government in various instances.

Additionally, the Consumer Financial Protection Bureau, the federal financial watchdog, has been criticized for not pursuing reform aggressively enough under President Trump, and states like California have created their own “mini-CFPBs” in response.

Under a Biden administration, these state-led actions are likely to continue, but with a reinvigorated CFPB and more active federal government there will likely be turf battles. And some actions may end up taking an unpredicted course under a new administration.

For example, states have recently banded together to sue the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. over recent rules they promulgated regarding secondary loan sales. The states are seeking to challenge what they consider as corporate-friendly rules that allow for freer sale/assignment of loans. Under a Biden administration, with a more hands-on regulatory posture, the OCC/FDIC could very well reverse course on these rules, making the lawsuits obsolete and resulting in an outcome as desired by the states.

Other initiatives may not be so clear-cut. States have also recently sued to challenge the OCC’s authority to issue a special purpose charter for payments companies. They claim that banking regulation is historically within their jurisdiction; the federal government responds that it has clear authority in its mandate to provide a charter for nonbank financial companies, like many of the payments companies proliferating today.

Interestingly, the idea of the special purpose payments charter was a “pro-tech” initiative begun under the Obama administration. And the idea of 50 different state rules for payments companies is part of why the Obama administration introduced the idea. So this initiative could very well proceed under a Biden administration, and it would be curious whether the states challenging the charter would change course, when there is a friendlier regime in the White House.

In all, the specifics of each regulatory development may hinge on nonpolitical facts and circumstances, and there isn’t a predictable wave in a single direction on the future of fintech regulation.

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