Payments and FinTech Update: Looking Ahead for 2019
2018 was a year of adjustment for the financial services industry. We saw changes at key regulators that will have repercussions for years to come with the appointments of Kathy Kraninger and Jelena McWilliams as the respective heads of the Consumer Financial Protection Bureau (“CFPB”) and Federal Deposit Insurance Corporation (“FDIC”). In addition, while the CFPB seemed to take a step back on its enforcement activities in comparison with years past, several states jumped into the fray, vowing to fill any consumer financial enforcement gap left by the CFPB and even forming their own consumer protection bureaus that have the potential to operate as “mini-CFPB’s” around the country. Looking ahead to 2019, the focus will be on how these adjustments impact financial service providers. Provided below are some of the key issues and items to look out for in 2019:
- Kraninger Takes Over at the CFPB, But States Loom Large: Kathy Kraninger was confirmed by the Senate as the replacement for Director Richard Cordray (following Acting Director Mick Mulvaney) on December 6, 2018. While Director Kraninger brings limited experience in financial services regulation, she does have substantial experience in government, including as associate director of general government for the Office of Management and Budget. While it’s too early to tell what Director Kraninger’s priorities will be during her tenure with the CFPB, early indications point to the CFPB taking a more collaborative, and less combative, approach to industry providers. Whether this will result in fewer enforcement actions and investigations by the CFPB moving forward remains to be seen.
If there is reduction, whether real or perceived, in enforcement activity at the CFPB, observers will look to the states to see if they pick up the slack. In 2018, several states took noticeable action to beef-up their regulatory enforcement capabilities in the wake of the changes at the CFPB. Notable among these were the formation of “Mini-CFPBs” in Maryland, Pennsylvania, and New Jersey with authority and responsibilities similar to that of the CFPB. As these state enforcement initiatives become more entrenched, they may result in companies facing additional investigation and regulatory action at the state level.
- FDIC Eyes Changes to its Rules for Brokered Deposits: On December 19, 2018, the FDIC issued an advanced notice of proposed rulemaking concerning its rules brokered deposits (the “ANPR”). The issue of what is or is not a “brokered deposits” has been a hot-button item for FinTech companies and prepaid account providers in particular for the past several years, starting with the FDIC’s release of FAQs in 2015, indicating the universe of products covered by the brokered deposit rules was far broader than anyone had assumed. Characterization of accounts as “brokered” affects, among other things, the expense to a bank in carrying such an account and has led some providers to leave, or refrain from entering, the FinTech and prepaid account space. The comment period for the ANPR appears to close in March and any resulting proposed rules will be closely watched by industry providers hoping for changes from the FDIC.
- CFPB’s Prepaid Account Rule Takes Effect (Finally): Last, but not least, after years of proposed and modified rules and set and extended effective dates, it appears the CFPB’s prepaid account rule will finally take effect on April 1, 2019. The prepaid account rule will have major implications on not just traditional prepaid account providers, but mobile wallets and developing and emerging FinTechs as well. Industry observers will want to pay close attention to how products and services offered by the mobile wallet companies, linked credit services in particular, change in response to the rule.