By Jim Puzzanghera
Los Angeles Times
WWR Article Summary (tl;dr) As LA Times columnist Jim Puzzanghera reports, “A Treasury Department report released Tuesday calls for regulatory changes to advance new financial technology companies and services, known in the industry as fintech.”
Some of the recommendations are controversial, including endorsing the ability of fintech firms to operate nationwide and urging Congress to develop national rules for data security and data breach notifications. Both moves would preempt tough regulations in California and other states.
In addition, the long-awaited Treasury report urges the Consumer Financial Protection Bureau to rescind tough new nationwide rules on payday and other short-term loans.
Treasury Secretary Steven T. Mnuchin said changes were needed to keep the U.S. competitive as the financial industry evolves.
“American innovation is a cornerstone of a healthy U.S. economy. Creating a regulatory environment that supports responsible innovation is crucial for economic growth and success, particularly in the financial sector,” Mnuchin said in releasing the 222-page report.
“America is a leader in innovation,” he said. “We must keep pace with industry changes and encourage financial ingenuity to foster the nation’s vibrant financial services and technology sectors.”
Companies such as San Francisco online lender SoFi have sprung up in recent years to leverage technology and offer consumers, particularly younger ones, new ways beyond traditional bank accounts to manage their money and make payments.
Most of those companies fall outside the existing banking system and a regulatory framework largely designed years before the internet and smartphones.
“Financial services are being significantly reshaped by several important trends, including (1) rapid advances in technology; (2) increased efficiencies from the rapid digitization of the economy; and (3) the abundance of capital available to propel innovation,” the report said.
The Treasury report is the last of four ordered by President Trump in early 2017 to review the nation’s financial regulations.
The report makes 80 recommendations to help companies “more rapidly adopt competitive technologies, safeguard consumer data, and operate with greater regulatory efficiency,” the Treasury Department said.
Among the proposed changes are:
Better enabling digital communications, data sharing and the use of cloud computing and machine learning while setting a national standard for data security and consumer notification of data breaches.
Streamlining the regulatory environment nationwide “to create a clear and consistent environment for innovators and existing financial institutions.”
Modernizing some specific regulations to advance new services such as further digitizing of the mortgage lending process and retail payments.
Encouraging technological experimentation by establishing a framework involving federal and state regulators that would allow companies to develop innovative services.
While some changes, such as new data security and data breach notification rules, require congressional action, many of the recommendations can be done by regulators.
One such regulatory move the report supports is for the Office of the Comptroller of the Currency to offer national bank charters to fintech firms. The agency has been considering such a move, which would allow fintech companies to do business nationwide.
“This type of banking charter may provide a more efficient, and at least a more standardized, regulatory regime, than the current state-based regime in which they operate,” the report said.
But the report said fintech firms with national charters should not be allowed like banks to have Federal Deposit Insurance Corp. coverage for deposits, “to reduce risks to taxpayers,” the report said.
Right now, states have primary regulatory oversight for many types of financial technology and non-bank services.
State regulators have opposed granting fintech firms national charters. The Conference of State Bank Supervisors and New York State’s Department of Financial Services both have filed lawsuits challenging the legality of the OCC allowing national charters. Judges threw out the suits because the OCC has not yet granted any national charters to fintech companies.
Consumer advocates have strongly supported the CFPB’s payday lending rules, which were adopted last year by the bureau when it was led by Obama-appointee Richard Cordray.
Payday lenders and many Republicans oppose the rules, which don’t take effect until August 2019. The regulations require lenders to determine the ability of potential borrowers to make repayments and limit to three the number of loans that could be made in quick succession to an individual borrower. There are no caps on interest rates.
Mick Mulvaney, who took over as acting director of the CFPB last fall, initially expressed support for a congressional effort to repeal the rules. But that effort never gained momentum. The bureau said in January that it intended to start a new formal rule-making process to reconsider the regulations.