Prioritizing Pragmatic Financial Services Policymaking in the New Administration

Phil Goldfeder is CEO of the American Fintech Council, the premier trade association representing the largest financial technology companies and innovative banks offering embedded finance systems. He has more than a decade of experience in financial services and was previously a Senior Advisor to Senator Chuck Schumer and a New York State Assemblyman.

The election is over, the results are in, and the new administration will undoubtedly carve a new policy path for financial services broadly and fintech in particular. While this new policy path will be a welcome relief for some across the financial services industry, the truth is that pragmatic, financial services regulation and policymaking should be apolitical in nature. Responsible industry participants, regulators and policymakers should all strive to ensure that the best policies, not the best politics or ideology, determine the future of finance.

As I have said many times before, not all fintech is created equal. Given the recent election results, this view is especially prescient as we move into a future that some project will focus on deregulation. While a deregulatory shift may sound promising and seem beneficial in some areas of fintech, we should be clear that deregulation is not a cure-all for encouraging sound innovation, and will not provide the proper foundation needed for a strong future of finance. Financial services regulation should not shift with political winds but rather needs continued collaboration to ensure we are adequately protecting consumers without stifling innovation. 

Currently, the fintech industry faces strong headwinds due to a significant mismatch between the fintech used to conduct our daily lives and the regulatory mechanisms designed to ensure a fair and stable banking system. To reverse these headwinds into productive tailwinds, we must recalibrate the regulatory dynamics that exist to help the continued development of responsible innovation. This requires sound, pragmatic public policy and a strong focus on regulatory modernization. 

To that end, I recommend that President  Trump and the incoming administration take on a robust and pragmatic policy agenda focused on three key areas: 

Embedded Finance and Bank-Fintech Partnerships

Over the past few years, many banks that have embraced responsible innovation to offer embedded financial solutions or engage in fintech partnerships have seen a significant increase in regulatory scrutiny. While oversight is essential, discussions throughout the industry reveal that many frontline examination teams have a fundamental misunderstanding of the risk profiles of these partnerships and the activities they enable. 

Examiners are provided with significant discretion in their assessments and determinations, which underscores the importance of continued education on new business models and innovative products or services. Without such education, examiners will continue to focus on programmatic aspects, such as how a deposit enters the bank, while not focusing on actual risks, such as how many of those deposits are uninsured or are concentrated in the hands of connected depositors. Proper and consistent education, specifically for regional staff and examiners, on the rapidly changing modern banking system is critical to fostering collaboration and modernization. While some agencies have shown encouraging progress towards outfitting their teams with the proper subject matter expertise to ensure an accurate understanding of bank-fintech partnerships and their distinct risk profiles, other agencies have shown a decided obstinance towards modernizing their thinking when it comes to risk management. 

Therefore, in the incoming administration, there will be a new opportunity to engage with relevant agencies on the importance of issuing clear and consistent “rules of the road” that help both banks and fintech partners operate responsibly. Agencies should pursue additional activity-specific guidance designed for banks engaged in bank-fintech partnerships and reengage in concerted evaluations of their examination processes, and when needed, reform their processes to improve the efficiency and effectiveness of their oversight. 

Lastly, through additional engagement with associations like AFC, agencies should craft new training materials for their examiners that ensure a unified, consistent approach to regulating bank-fintech partnerships in a manner that properly assesses the risk profiles within the model. These materials should explain the leading practices conducted by innovative banks and their fintech partners, such as processes and practices these entities use to ensure partnerships are established to operate in a compliant manner that does not introduce any new or additional risks into the financial services industry. With these materials, examiners will understand how properly run bank-fintech partnerships operate and can assess a given bank against those leading practices. Simply put, both the compliance manuals and their applications to banking services must reflect the modern banking system, including bank-fintech partnerships.

Fintech Lending

For too long, there has been a policy conflict to determine who actually originates the loan in a bank-fintech partnership and is therefore the “true lender.”^[1] While AFC has stood with the understanding that banks are the originator and always have been the “true lender” of a loan, there has been significant pushback to this idea in states houses across the country. While so much has changed since the first Trump administration, many years later responsible lenders offering critical access to credit continue to grapple with challenges from this unresolved debate. Clarity is key to ensure a level playing field and continued access to credit offered through bank-fintech partnerships, especially for families in historically underserved communities.

In 2020, the Office of the Comptroller of the Currency (OCC) sought to create clear guidelines by issuing a rule concurring that banks are the true lenders in bank-fintech partnerships. Unfortunately, due to poor timing and partisan politics, the OCC’s rule was invalidated by a joint resolution of Congress and signed by President Biden. In the intervening time, regulatory confusion and a patchwork of state laws have attempted to address this issue. While federal regulators remained silent on this issue despite a push to have them reengage and provide the necessary clarity. 

To make matters worse, states have begun prohibiting state-chartered banks from taking advantage of the federal law – the Depository Institutions Deregulation and Monetary Control Act of 1980 – that permits them to offer their home-state interest rates to consumers nationwide. Such state preemption turns centuries of federal financial services law and policy on its head and, combined with the silence by federal regulators on when a bank is the “true lender,” deprives millions of consumers of financial products they want and use. To combat this effort, we joined with other leading trade associations to bring legal action and challenge the ability of states like Colorado from harming the very consumers they claim they are trying to protect. No industry should have to constantly guess at what the law is or, worse, have the laws they relied on constantly cut down. No business can stand in the constantly changing winds.

This is a textbook example of how a lack of regulatory clarity undermines the foundations on which companies build responsible, innovative products, ultimately putting consumers’ access to fintech products at risk. The Trump administration should nominate leaders for the federal banking agencies who will prioritize establishing the much-needed regulatory clarity we briefly had in 2020, allowing companies to responsibly build tools that serve consumers’ needs knowing that the rug won’t be pulled from under them, and their customers, as political winds shift.     

Earned Wage Access

In 2024, I testified in more than a dozen state houses across the country on the importance of passing a bespoke regulatory framework for Earned Wage Access (EWA) products. For those not familiar with the product, EWA allows employees to voluntarily access wages for hours that they have already worked, prior to their arbitrary payday. 

Responsible EWA emerged because of technological innovations leveraged by providers that represents a new era in workers’ relationship with their wages – the elimination of the need to wait for a pay period to end and serves as an important alternative to historical predatory loans. 

The prudent path forward is to regulate this product through a bespoke framework specific to this new product, one that adequately considers its nuances. However, in a rush to establish regulation for EWA products, some states have attempted to shoehorn the product into existing, ill-fitting lending laws that would essentially make EWA unviable, or change it so substantially that it would not meet its originally intended purpose as a responsible and innovative alternative to payday and predatory loans. 

In Congress, there was an attempt by Representative Bryan Steil (R-WI) to remedy the issue occurring at the state level while also providing a clear, bespoke regulatory framework. The proposed legislation provided a favorable path forward for EWA, because it recognized the important distinction between EWA services and lending products by establishing clear definitions for what constitutes EWA services, creating functional disclosure requirements and consumer protections that fit the parameters of the service, and ensuring that EWA services are not subjected to legacy lending laws. However, yet again partisan politics stood in the way of passing this pragmatic policy in the last Congress. Additionally, the Consumer Financial Protection Bureau (CFPB) further muddied the regulatory landscape by reversing its 2020 Advisory Opinion, which held that certain EWA products were not subject to the Truth-In-Lending Act (TILA) or its implementing regulation.

EWA users have also joined in the fight for continued access to these innovative services. Consumers submitted nearly 150,000 letters in response to the CFPB’s July 2024 proposed rule on EWA. In these responses, consumers raised concerns over how it would limit seamless, affordable, on-demand access to EWA products. As part of AFC’s latest initiative, “Workers for Wage Access,” we highlighted these responses and will continue to empower EWA users to share their stories and make their voices heard by representatives at every level of government.

AFC firmly believes that markets function best with settled expectations. The current patchwork and competing regulatory framework for EWA is not a path forward for encouraging responsible innovation. Therefore, we look forward to working with the CFPB and will be prioritizing the passage of a federal regulatory framework for EWA.

Conclusion

Deregulation may sound promising, and provide reason for optimism, but it is not the solution. While its potential is alluring, it is important that we as responsible actors in this sector work to keep financial regulation as apolitical as possible and always seek to create sound public policy through pragmatic, informed decision making. Seesawing between extremes of heavy regulation and deregulation will never be a sustainable platform for companies or consumers. Instead, the focus in this new administration should be clear and stable rules that enable the financial services industry to build an inclusive and transparent future of finance that gives workers and families rock-solid confidence in the important products they use every day.

The opinions shared in this article are the author’s own and do not reflect the views of any organization they are affiliated with.

^[1]  The Senate and the House of Representatives voted on a Joint Resolution to the rule submitted by the Office of the Comptroller of Currency relating to “National Banks and Federal Savings Associations as Lenders”, colloquially known as the “True Lender Rule”, on May 11, 2021 and June 24, 2021 respectively. The Joint Resolution was passed on almost completely on party lines, see final vote results for Senate Joint Resolution 15, available at https://www.senate.gov/legislative/LIS/roll_call_votes/vote1171/vote_117_1_00183.htm?congress=117&session=1&vote=00183 and https://clerk.house.gov/evs/2021/roll181.xml respectively.

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