Preemption for Fintechs? There's a Bill Coming
WASHINGTON — Top House Republicans plan to release legislation in the coming weeks that will focus on removing regulatory barriers to financial technology.
The so-called Innovation Initiative announced recently in Silicon Valley will be a package of bills, a significant chunk of which will focus on fintech issues, according to Rep. Patrick McHenry, R-N.C., a co-author of the effort.
"What we are trying to do is to drive to members that we need to put more emphasis on" financial technology, McHenry told reporters Thursday at an event here sponsored by an alliance of large technology companies called Financial Innovation Now.
The digital currency industry reacted warily to a model framework for regulating such firms released Tuesday by the Conference of State Bank Supervisors, arguing the language is too vague and treats digital assets like normal money.
House Financial Services Committee Chairman Jeb Hensarling signaled an aggressive assault on the Dodd-Frank Act on Tuesday, outlining a bill that would allow banks to be released from some of the 2010 reform law's regulations and Basel III requirements if they hold sufficient capital.
Three-fourths of House lawmakers signed a bipartisan letter that calls on the Consumer Financial Protection Bureau to take more steps to carve out community banks and credit unions from onerous regulations. But will it make a difference?
One of the bills could include giving federal preemption for technology companies so that they do not need to struggle with state-by-state licensing requirements.
"We have a national marketplace when it comes to lending … and when you have a national marketplace you have to have a national law and regulatory structure that keeps with that," said McHenry, the vice chairman of the House Financial Services Committee.
While not naming specific members, McHenry said he has had conversations with Democrats about his legislation and pointed to his previous work with Rep. Maxine Waters, D-Calif., the top Democrat on the House Financial Services Committee, and Rep. Carolyn Maloney, D-N.Y., on an equity crowdfunding bill.
"Fintech incumbents that have already succeeded … they have to apply for separate licenses in all 50 states to do business when we have a national marketplace and each with their own time frame requirements for approval," McHenry said during remarks to the group.
McHenry's comments came the same week that House Financial Services Committee Chairman Jeb Hensarling was asked if the House was looking at passing legislation that would force financial technology companies to comply with banklike rules.
Hensarling said that if banks "operate at a competitive disadvantage" because of their charter it would be a concern. Still, that doesn't mean tightening regulation of fintech firms, so much as loosening rules for bankers.
"What I am trying to do is bring [banks] regulatory relief, so it is a concern of ours, but the answer is not necessarily to bring them down as it is to lift you up," he said.
McHenry said he has hopes "that we can legislate in this key area this year," but acknowledged it's an uphill battle in a presidential election year.
Isaac Boltansky, a policy analyst at Compass Point Research & Trading, said in a research note that the McHenry package, which is authored with Rep. Kevin McCarthy, R-Calif., "will face a series of particular hurdles which make passage unlikely."
"Specifically, our sense is that this package is likely to include a series of bills intended to curtail the CFPB's authority, which is effectively a nonstarter with both Senate Democrats and the White House," Boltansky said.
He added that while a national regulatory law "would conceivably be positive for online/marketplace lenders who have struggled with state-level laws" it would be "both procedurally and politically problematic."
In his remarks McHenry, said, "Here in Washington our regulators are more interested [in forcing] fintech companies into regulatory categories that are much more fitting with the 1930s, the 1940s and the 1950s. We have to update these systems here in Washington to meet these new categories."