The key policy questions facing Trump's FDIC pick

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The nomination of Jelena McWilliams to chair the Federal Deposit Insurance Corp. moves the Trump administration one step closer to completing its team of regulatory appointments in its push to undo former President Obama's post-crisis policies.

But it is unclear whether McWilliams will pursue President Trump's deregulatory agenda with the same zeal as some of her fellow appointees.

McWilliams is currently the chief legal officer at Fifth Third Bank in Cincinnati. Previously she spent six years as a Senate Republican staffer, and before that she served as an attorney at the Federal Reserve Board. She is the administration's second nominee for the FDIC job after former House aide James Clinger withdrew from the running in July.

She has said little in public about her own policy views, in contrast to more outspoken officials such as Mick Mulvaney, the White House budget director and former congressman who made known his antipathy for the Consumer Financial Protection Bureau prior to his appointment as the bureau's acting director.

Yet McWilliams brings plenty of behind-the-scenes experience, which will be an important asset, said Benjamin Olson, one of her former colleagues at the Fed.

“Change comes slowly in government, but she is going to know how to use her staff to turn the battleship,” said Olson, who is now a partner at Buckley Sandler. “She understands what it means for staff to work under new leadership in the government and how to get the most out of her people.”

Here are four key policy questions that she would face as head of the FDIC:

Does McWilliams favor rolling back Obama-era rules that the FDIC helped write?

McWilliams would succeed current FDIC Chairman Martin Gruenberg, who is the last Obama holdover among heads of the bank regulators.

Under Gruenberg, the FDIC has been strongly supportive of consumer protection policies and has helped steer tougher capital requirements on the biggest banks, including a higher leverage ratio than is required by global regulators.

The agency is often criticized by bankers for its post-crisis regulatory stances, which began with Gruenberg's predecessor, Sheila Bair. Among the industry's biggest concerns has been the slow pace of FDIC approvals of new bank applications. The FDIC, however, has traditionally had a tougher regulatory stance than other agencies since it must clean up failed banks and guard the Deposit Insurance Fund.

The biggest question facing McWilliams is the extent to which she would reverse course, bringing a more industry-friendly touch to FDIC policy. She is after all the first FDIC nominee since Donald Powell — Bair's predecessor — to have worked as a bank executive.

Bankers and industry watchers will likely want to know if she supports reforming any of the post-crisis capital rules, easing the FDIC's conservative stance toward brokered deposits and speeding up the pace of new bank approvals, among other things.

Will McWilliams sign off on applications for industrial loan companies?

The FDIC is currently considering an application for an industrial loan company charter from the payments processor Square. The San Francisco-based firm already makes loans to merchants that use its payments technology, and it wants to add deposit products. A bank license would enable it to do so.

But the implications of Square’s application go well beyond a single company. If Square is successful, more applications from additional fintech firms — as well as other nonbank companies drawn to the ILC charter's exemption from the Bank Holding Company Act — seem likely to follow.

Square’s application is opposed by the Independent Community Bankers of America, a perennial opponent of ILC bids. Critics of the charter say it lays the groundwork for large commercial firms, and perhaps even tech giants like Amazon, to get into the banking business. In the past, the industrial banking charter has been used by commercial firms such as Target Corp., John Deere and BMW.

But ILC activity slowed down sharply following the public outcry over Walmart's ILC application, which preceded the crisis.

Under Gruenberg’s leadership, the FDIC has not approved a single industrial bank, suggesting that the agency’s current leadership is skeptical of the charter.

But the issue does not have much of a partisan hue, and it is unclear where McWilliams will come down.

Will the FDIC rescind its deposit advance guidance?

Four years ago, the FDIC and the Office of the Comptroller of the Currency issued guidance that killed off the deposit advance product — a small-dollar, short-term, high-cost consumer loan from a bank.

McWilliams’ current employer, Fifth Third, was among the companies that were forced to stop offering the product, which consumer advocates derided as a payday loan by another name.

The regulatory crackdown drew protests from banking trade groups, but it was not until earlier this year that they saw much hope for a reversal. In October, under the leadership of acting Comptroller Keith Noreika, the OCC rescinded its guidance.

So far the FDIC has not followed suit, and the picture is further complicated by the fact that the CFPB, shortly before the departure of Director Richard Cordray, issued a small-dollar lending rule that places new constraints on banks.

Fifth Third and U.S. Bancorp have both expressed interest recently in getting back into the small-dollar consumer credit business, but they have yet to hammer out plans.

“What’s most important is that … we can help our customers when they have emergency shortfalls,” Fifth Third CEO Greg Carmichael said in a recent interview.

Analysts at Compass Point Research & Trading said in a note published Friday that they expect the FDIC under its new leadership to reverse the 2013 guidance on deposit advances.

Will the FDIC be more open to payday lenders gaining access to the banking system?

During the Obama administration, federal banking agencies got a reputation for being hostile to payday lending, and many of the industry complaints focused on the FDIC.

In a 2014 lawsuit, payday lenders alleged that the FDIC and other agencies put back-room pressure on banks to end longstanding relationships with small-dollar loan providers. The FDIC said that it is ultimately up to individual banks, not their regulators, to make decisions about particular business relationships.

Still, payday lenders say that banks have continued to drop them, even after the end of Operation Choke Point, and they blame bank regulators.

Choke Point, led by the Justice Department, was intended to stop fraudsters in various sectors by targeting banks that processed their payments. But critics alleged that it unfairly chilled relationships with law-abiding payday lenders.

Senate Banking Committee Chairman Mike Crapo, R-Idaho, under whom McWilliams served as the committee’s chief counsel, was a vocal opponent of Operation Choke Point.

Critics of the FDIC’s current leadership are optimistic that McWilliams will change course.

“She won’t be as lenient on staffers who push Operation Choke Point-style abuses of power,” said J.W. Verret, a former GOP congressional staffer who is now an assistant law professor at George Mason University.

Ian McKendry contributed to this report.

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Law and regulation Deposit advances Payday lending Fintech Fintech regulations Licenses and charters FDIC OCC Federal Reserve CFPB Fifth Third Bancorp U.S. Bank