Payments 3.0: Letters From the House Betoken a Regulatory Stance

A series of letters from the House Financial Services Committee provides clues about how regulation may evolve in the new administration.

The Republican member of the committee sent nine letters dated March 28 and March 31 to the heads and acting heads of a variety of agencies, including banking regulators, the Consumer Financial Protection Bureau, the Securities and Exchange Commission, and the Financial Stability Oversight Counsel.

As of mid-March, we were still waiting for confirmation of a permanent comptroller of the currency, a new chairman at the Federal Deposit Insurance Corp., and a new director of the CFPB. But the letters offer recommendations for what the acting heads of the agencies should do to prepare for their successors.

The letters focus primarily on reducing regulations. A letter to Russell Vought, acting director of the CFPB, recommends putting medical debt back onto credit reports, redefining overdraft so that it is not credit, and removing the credit card fee cap, among other suggestions. It also says earned wage access products should not be classified as credit and that the payday-lending rule should be updated so it does not cover buy now, pay later products.

A letter to the Federal Reserve encourages withdrawing a proposal to lower overdraft fees, citing fraud costs.

The letter to the FDIC applauded the agency for withdrawing its proposed brokered-deposits rule, which would have increased costs for fintechs. It also said the rule on recordkeeping for deposits from fintechs is overly broad and suggests that the agency solicit more comments from stakeholders.

Another theme that emerges in these letters is that the Committee would like to see regulatory agencies take a more hands-off approach to banks that use distributed ledgers and hold digital assets. In a March 31 letter to the FDIC, the Federal Reserve, and the Office of the Comptroller of the Currency, the committee encourages the agencies to withdraw supervisory letters that would put restrictions and requirements on banks using these technologies.

But there are signs the committee still expects regulators to take an active role in watching the industry.

A March 28 letter to the Fed, FDIC, and OCC says the agencies’ most recent update to the Community Reinvestment Act should be rescinded or modified to reduce its complexity. Note that it does not call for getting rid of the CRA altogether, which the committee might easily have done.

Another paragraph in the same letter stands out for being different in tone. While the letters generally push for less regulation and less guidance, this letter refers to guidance issued in 2023 on managing risk in third-party relationships. Here, the letter changes tone and says that the guidance had good intentions but missed the mark:

“The emphasis on banks’ sound management of potential risks arising from their third-party relationships throughout the relationship life cycle, while logically valid, was not accompanied with clear and objective expressions by the Federal banking agencies as to what third-party risk management practices would be consistent with the agencies’ expectations. The agencies should revise the existing guidance or issue new guidance that provides greater clarity to financial institutions and their third-party vendors.”

This suggests the Committee is okay with rolling back some rules, but it still expects regulators will be busy. So don’t reduce your compliance and government-relations teams.

Instead, make sure your compliance policies and procedures are up-to-date and ready for change.

— Ben Jackson bjackson@ipa.org