Thursday , March 28, 2024

Payments 3.0: The Pendulum Swings in Washington

The regulatory pendulum is swinging again in Washington, and while the changes might be predictable, they are not always optimal for consumers.

The Consumer Financial Protection Bureau got a new director when Rohit Chopra was confirmed by the Senate on Sept. 30, and the Biden Administration has nominated a new Comptroller of the Currency.

Additionally, Congress continues to take an active interest in the payments business. The House Financial Services Committee and its Financial Technology Task Force held hearings on a wide variety of payment products. These hearings provide clues about the attitudes and agendas for both regulators and legislators.

On Oct. 27, Chopra testified in a hearing entitled “Bringing Consumer Protection Back: A Semi-Annual Review of the Consumer Financial Protection Bureau.” The title reflects that many in Congress expect regulators to step up their scrutiny of the industry.

In the hearing, Chopra pledged to do this, citing mortgages, consumer debt, and big technology companies as three areas of early focus. He also noted that he plans to hold organizations of all kinds accountable.

“I have to tell you, one of the things that bothers me so much is when small players break the law, they get shut down and when the large players repeatedly break the law, it feels like nothing happens,” Chopra said. “In my testimony, I submitted one of the areas that is going to be a focus for me is the issue of repeat offenders.”

But even with that focus on big companies, Congress, and with them the regulators, are not going to ignore the rest of the industry. On Nov. 2, the Task Force on Financial Technology held a hearing entitled “Buy Now, Pay More Later? Investigating Risks and Benefits of BNPL and Other Emerging Fintech Cash Flow Products.”

The hearing covered the short-term financing now being offered at the point of sale and in online checkouts by non-traditional lenders. It also looked at earned-wage-access products that provide workers with access to the money they have earned outside of traditional pay cycles.

This and the Chopra hearing make it plain that credit products are top of mind for regulators and legislators. Brian Tate, the chief executive of the Innovative Payments Association, testified on earned-wage-access products and tried to make it clear that these products are not credit in that they provide access to money that workers have already earned.

Using both of these hearings as a guide to what is coming next, one disappointing trend is that preconceived notions seem to rule the day. Even the titles of the hearings spell out the attitudes of lawmakers. Depending on who’s talking, either regulators are the devil or industry is the devil. People in the industry and, more important, the customers themselves, know that neither is true.

Whether a financial product is good or bad often depends on the circumstances of the people using it. Too often, regulators and consumer advocates operate on the assumption that everyone has the same access to products and services (and operates on the same income level) as someone in Congress or a lawyer at a nonprofit has. While they intellectually understand that many people could not manage a $400 emergency expense, it appears they have no visceral sense of what that means.

As with any other issue facing this country, the reality is not reflected in radical rhetoric. The industry, regulators, and even advocates need to come together to ensure that laws and regulations do not end up hurting the very people they are supposed to protect by eliminating the ability for certain products to exist.

—Ben Jackson, bjackson@ipa.org

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