Biden's plans for payday loans and crypto take shape

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With Joe Biden returning to the White House to become the 46th president of the U.S., his agenda for financial regulation is already moving ahead, based on the people he's chosen to put in key roles.

Biden's nominations of Rohit Chopra to head the Consumer Financial Protection Bureau and Gary Gensler to head the Securities and Exchange Commission place two consumer advocates in prime spots to reverse outgoing President Donald Trump's deregulation while beefing up oversight of cryptocurrency and payday lending.

Chopra, a commissioner at the Federal Trade Commission, used to be the assistant director of the CFPB, and helped found the bureau championed by Sen. Elizabeth Warren, D-Mass. Biden also nominated Gensler, the former chair of the Commodity Futures Trading Commission, to be chair of the SEC. Both Chopra and Gensler have careers in government that tie them to the Obama-era reforms and regulations that followed the 2008 banking crisis.

As a Warren ally, Chopra will face one of the more contentious Biden cabinet confirmation hearings, but the Democratic victories in Georgia's runoffs make his path to the CFPB's top job relatively easier. Also, Chopra was already confirmed to his current post at the FTC and can serve at the CFPB on an interim basis.

Bloomberg

More financial services regulation is certain to come as a result of the 2020 election, but the ease of the confirmation hearings will go a long way toward determining how aggressive the Biden administration can be.

The CFPB was heavily deregulated during the Trump years, with the Republican administration getting a key Supreme Court victory giving the White House more oversight over the CFPB's management. The Trump administration also rolled back payday lending regulations designed to protect borrowers from taking on debt they could not pay.

Writing for PaymentsSource, Christopher Peterson, financial services director of the Consumer Federation of America, argued the payday loan reversal was harmful to consumers, calling for curbs on interest rates.

Additionally, companies that offer early access to wages have become popular during the pandemic and subsequent financial crisis, and address many of the same financial stresses among consumers that often lead to payday lenders, providing a potential alternative to payday lending. Venture capital has flowed to early wage access companies in anticipation of the trend becoming permanent.

Chopra will likely push to restore the Obama-era rules for payday lending, while the CFPB will retain its centralized leadership structure rather than the decentralized structure preferred by Republicans. Chopra, who has served as a Fellow at the Consumer Federation of America, will likely focus on many of that association's priorities, said Eric Grover, a principal at Intrepid Ventures.

"Payday lending and subprime consumer credit are always high on activists' wish lists," Grover said, adding there could also be heavier scrutiny on cryptocurrency-related projects like Diem, the Facebook-affiliated stablecoin project formerly known as Libra. Libra has long been subject to regulatory heat from both liberals and conservatives globally.

Crypto under scrutiny

Acting as FTC commissioner, Chopra in 2019 joined U.K. Information Commissioner Elizabeth Denham, EU Data Protection Supervisor and other international regulators in calling for tight scrutiny of Libra. Gensler's nomination to head the SEC could be bad news for Ripple, since Gensler in the past has said initial coin offerings should be regulated as securities, a stance that puts the SEC at odds with Ripple's stance that XRP is a utility. Gensler has also worked on cryptocurrency technology at MIT and is a proponent of strong cryptocurrency regulation.

"In the past the CFPB has warned about the risks of cryptocurrencies," Grover said. "If they become more mainstream, if Diem launches, expect the CFPB to do more."

A push to curtail payday lending could open opportunities for fintechs that provide payroll flexibility without creating the compounding debit of payday loans. Blockchain and AI-driven services have emerged over the past few years, using faster payment processing and alternative underwriting to issuer lower cost short-term credit.

Other early Chopra priorities will likely include restoring the fair lending unit and increased enforcement. An advanced notice of proposed rulemaking will also likely come for open banking, which signals more rules for data aggregators such as Plaid. Visa recently called off its bid to acquire Plaid, partly due to regulatory scrutiny, according to Benjamin Saul, a banking partner in Washington with the firm Bryan Cave Leighton Paisner.

"There will be a continued focus on consumer ownership of data as well as third party access to bank information when cleared by consumers," Saul said, adding the CFPB will likely continue with programs to encourage payments and fintech innovation such as the trial disclosure sandbox. "However, success by fintechs pursuing these avenues will depend much more heavily on the bureau's assessment of the net benefit to consumers of a given product or service."