The transition to the new Biden administration is expected to bring significant changes to many areas of American life. And U.S. banking regulations, including changes to the Consumer Financial Protection Bureau (CFPB leadership), are inevitable. President-elect Joe Biden is widely expected to tighten regulations and up enforcement of existing rules.
Here are some of the banking regulations the Biden administration is anticipated to impact.
1. Replacing CFPB Leaders
The CFPB is uniquely positioned to understand and respond to the concerns of ordinary Americans’ financial troubles. During the pandemic, the CFPB saw a major increase in consumer complaints, ranging from predatory payday lending attempts to vaccine-related scams to misuse of consumers’ personal information.
During the Trump years, when it is commonly thought that he weakened the CFPB’s reach, the Bureau was unable to serve consumers in the same way. This was most evident by the Trump administration’s decision to appoint Mick Mulvaney, a harsh critic of the regulatory body who tried to limit its power from within. Mulvaney halted hiring, stopped collecting fines, and reviewed all current investigations.
With a neutered CFPB, Biden is likely to restore the CFPB to its original purpose. A significant part of that is nominating a new CFPB director. There is speculation that former director Richard Cordray will return to his post. Other options include Senator Elizabeth Warren (Democrat-Massachusetts), Representative Katie Porter (Democrat-California), or former New York City Consumer Affairs Commissioner Mark J. Green.
2. Restoring the CFPB’s Mission
Regardless of the choice of CFPB director, one can be sure that the new leadership of the CFPB will reflect the original justification for the organization: enhanced governmental oversight of businesses.
The new director will likely bring new banking regulations. This is an inevitability. A more progressive and regulation-minded director will mean greater monitoring and enforcement, as well as reinstating regulations that were sidelined under the Trump administration. For example, payday lenders will likely be required to only underwrite loans to consumers who are able to repay them. Given the destabilizing effects of the recession on millions of Americans, this will likely be positioned as serving an important role in protecting susceptible populations from financial harm.
Agile compliance technology can make it easier for banks to reduce the headaches that often accompany new CFPB regulations. For example, automated workflows can make it easy for compliance teams to tweak business rules surrounding stip requirements, terms and conditions consent, and other things required to keep up with changing requirements.
3. Ending the Covid-19 Pandemic
One of the less-often talked about consequences of the coronavirus crisis is the increase in consumer complaints. The CFPB received 29,494 complaints in March 2020 alleging consumer mistreatment — which climbed to 37,926 by June 2020. Predatory lenders and businesses took advantage of people’s desperation for help, whether financial or medical. While there will always be bad actors, and while regulation will always be necessary to keep them in check, tackling the underlying cause of heightened fraud is critical.
While president-elect Obama had to tackle an economy in crisis due to market factors, Biden is inheriting an economy that cannot rebound until the current health crisis is resolved. Therefore, while Obama needed to prioritize fixing the financial system, and heavily invest in tightening regulations, that will not be enough for the America Biden has inherited.
Biden has already unveiled a $1.9 trillion spending package, designed to combat the pandemic and its impact on the economy. The funds will come entirely through greater federal borrowing. If he manages to win the war on Covid, the economy is very likely to pick back up — along with jobs and healthcare. Under these new conditions — better employment and health — one would hope that consumers would be less vulnerable to scams and unfair practices.
4. Enforcing the Use of Fintech For the Benefit of Consumers
Fintech, or financial technology, has the potential to be a great equalizer. New fintechs can allow disadvantaged groups to gain more equitable access to auto lending, mortgages, and other financial services.
It’s likely that the Biden administration will introduce new regulations to ensure fintechs are used to strengthen laws such as the Community Reinvestment Act (CRA). Expanding diverse populations’ access to cutting-edge financial services is likely to be a focus for the administration.
For instance, fintechs sometimes use a person’s cash flow to gauge their eligibility for a loan, as opposed to their credit (FICO) score. Over-reliance on credit scores has long been an issue, and it’s likely that regulators under the new administration will change rules that require analyzing credit scores.
Another possibility is that the new administration will incentivize fintechs to help bring the country out of the economic crisis. For instance, fintechs more than traditional banks can easily harness technology to expedite loan forgiveness of PPP round two.
Regulators may also set new rules surrounding access to consumers’ financial information under Section 1033 of the Dodd-Frank Act. Currently, Section 1033 allows consumers to gain access to the data that fintechs collect from them, and use it to gain control over their financial activities. While this move was designed to improve the consumer’s fintech experience, allowing vendors to use personal data to improve or develop new products, it was also fraught with consumer risk. Adding new rules to Section 1033 will allow consumers to maximize their gains from fintechs while minimizing their risk exposure.
The Bottom Line: New Banking Regulations and Oversight Are On the Way
It’s unlikely that introducing new banking regulations will be Biden’s first priority soon after his inauguration. Battling the coronavirus, increasing unity in a fractured nation, and getting financial relief into the hands of citizens will be top of mind. At the same time, all of these actions will indirectly contribute to a population that’s less vulnerable to predatory business practices.
The Biden administration will inevitably pass laws and appoint people that create a stricter regulatory environment than the one Trump presided over. But as the Covid threat passes and the economy rebounds, Biden may not need to allow the pendulum to swing in the opposite direction of overregulation. A middle ground that allows financial institutions and businesses to breathe while protecting citizens from financial harm is more than possible.