#1: He Loves Me … He Loves Me Not
What happened?
More fun and excitement at the CFPB.
First, President Trump nominated Jonathan McKernan to be the new Director of the CFPB:
McKernan previously served on the Federal Deposit Insurance Corp.’s board for more than two years, resigning his post Feb. 10.
McKernan, a Republican, developed a reputation as a serious regulator who was able to find some common ground with his Democratic colleagues on the FDIC’s board, such as former CFPB Director Rohit Chopra.
That’s welcome news for at least some CFPB watchers following the biggest upheaval at the agency since it opened its doors in 2011.
But it’s unclear how much CFPB there will be left to run by the time he is confirmed, as the acting Director of the CFPB (Russell Vought) is continuing to scale back the CFPB’s spending:
The Consumer Financial Protection Bureau canceled contracts with all expert witnesses in existing enforcement litigation as it purges more than $100 million in contracts across the agency, an indication the watchdog is planning to stop or significantly scale back its enforcement proceedings.
And get rid of its employees:
Acting Consumer Financial Protection Bureau chief Russell Vought is planning a “mass layoff” at the consumer watchdog that “may occur imminently—as early as today or tomorrow,” the agency’s union said in a Thursday court filing.
Official communications announcing the likely impending layoff haven’t yet been circulated, but the union in its filing said Vought is preparing to fire “over 95% of the Bureau’s employees.”
President Donald Trump on Feb. 11 nominated Jonathan McKernan to be the next CFPB director. Even if McKernan aims to rebuild the agency, his ability to rehire staff may be limited by Trump’s executive order mandating that four employees be fired for every new hire at a federal agency.
So what?
I don’t get it.
By all accounts, Jonathan McKernan is a thoughtful and pragmatic regulator. I doubt that he would run the CFPB the same way that Rohit Chopra did, but it seems likely that he would run it with professionalism and respect for its Congressional mandate.
Why nominate McKernan to this post while also allowing Vought and Elon Musk to eliminate most of the people who work at CFPB and starve it of resources?
What are we doing here?
Shit, even banks and credit unions are getting nervous:
Banks and other financial companies were seeking a lighter touch and more certainty from the Consumer Financial Protection Bureau.
What they’re getting is a sudden evisceration of the agency. And it’s starting to cause industry jitters.
“Having this much uncertainty in the regulatory arena is of concern here at America’s Credit Unions,” Carrie Hunt, the credit union trade association’s chief advocacy officer, said on a Monday call with reporters.
#2: If You Love Something, Set It Free
What happened?
Affirm is partnering with FIS:
Affirm, which pioneered the buy now, pay later business (BNPL), has partnered with FIS in a deal that will allow the fintech company to offer the pay-over-time service to its banking clients and their millions of individual customers.
Any bank that partners with FIS will be able to provide its own version of the Affirm Card, which launched in 2021, without asking customers to adopt a new piece of plastic. Consumers can access Affirm’s biweekly and monthly installment plans and have the money automatically deducted from their checking account.
So what?
I feel like I say this a lot regarding Affirm, but this is smart stuff.
A few initial thoughts:
- The big credit card issuers would have no interest in offering this type of product because it would undercut their credit card interchange and interest revenue. However, smaller banks (many of which use FIS for debit issuing and processing) don’t have that same conflict, and it’s absolutely in their best interest to take advantage of any functionality that can make their debit cards more competitive.
- I’m assuming that this partnership is facilitated by Visa’s Flexible Credential. If so, this is a big win for them.
- From the press release, it sounds like this partnership will not only allow for consumers to retroactively split individual purchases after the fact but also to proactively select merchant-funded financing offers (0% APRs, longer payment terms, higher credit limits) from Affirm’s 335,000+ merchant partners. This sounds like Affirm is trying to unlock embedded advertising within the mobile banking apps of FIS’s bank customers, which would be … a big deal.
- Obviously, all of this only matters if Affirm can get FIS to get its debit-issuing bank clients to actually adopt and promote this functionality to their end customers. That’s a tall order, but Affirm has a long and successful track record of partner enablement. Bet against that track record at your peril.
- I am impressed with Affirm’s ability to play multiple games of chess at the same time. They have done a good job simultaneously building a consumer-facing business (that is more than just a glorified shopping app) and continuing to expand their merchant network. Now, they are adding in “debit card issuer enablement.” I’ll be interested to see if they can keep all the balls in the air.
#3: Love Triangle
What happened?
The Financial Technology Association, a trade association that counts large fintech companies like Plaid and Stripe as members, is attempting to intervene in the lawsuit brought by the Bank Policy Institute (a trade association for big banks) against the CFPB over open banking:
The Financial Technology Association (FTA) today filed a motion to intervene in the lawsuit brought by the Bank Policy Institute (BPI) and Kentucky Bankers Association challenging the Consumer Financial Protection Bureau’s (CFPB) Section 1033 open banking rule. By moving to intervene, FTA seeks to preserve consumers’ right to securely access and control their financial data in the digital age, helping ensure ongoing innovation and U.S. global competitiveness.
The nation’s largest and most powerful banks are challenging personal financial data rights in an attempt to undermine innovation and limit consumers’ ability to access competing services. The BPI/Kentucky Bankers Association lawsuit threatens a return to the era of closed banking, where consumers cannot freely choose which digital financial apps and services they want to use. The Trump Administration must preserve critical consumer data rights, reaffirm that consumers’ data belongs to them, and ensure that financial innovation can flourish so the U.S. doesn’t fall behind.
So what?
Why is the FTA doing this? And what legal right do they think they have that would allow them to intervene in this case?
The motion to intervene (which is a fun read) has our answer:
Even assuming the CFPB full-throatedly defends the Final Rule—which, based on recent developments, appears uncertain given the acting Director’s directive to cease the CFPB’s activities—the CFPB’s interests differ from FTA’s interests. As a governmental entity, the CFPB’s stated goal is to advance its sovereign interests. FTA’s goal is to advance the business interests of its members.
The precipitating event for this motion to intervene is the recent chaos that we were just talking about at the CFPB. Specifically, acting Director Vought’s instruction to “refrain from making or approving filings or appearances in any litigation except to ask for a pause in proceedings.”
And the reason that the FTA believes that it has the right to intervene is because it has “a substantial interest … to defend a rule that benefits its members”.
Of course, the degree to which the CFPB’s Personal Financial Data Rights Rule benefits the FTA’s members isn’t equal across the board. Chime, Block, and Klarna would be deeply inconvenienced if the BPI lawsuit succeeds. Plaid would suffer significant and direct economic harm.
This case is about money.
Another reason I know that?
From the BPI lawsuit:
Section 1033 implicitly [does not] delegate to the Bureau the authority to ban banks from charging reasonable access fees, thus providing a windfall to fintechs and data aggregators.
Banks want to be able to charge fintech companies for the data. Data aggregators disagree. That, fundamentally, is what this is all about.
