Enough with D.C.'s Mixed Messaging on Fintech
Originally published by American Banker on September 16, 2016
385 to 4. That was the recorded vote taken on the floor of the House of Representatives on Monday on House Resolution 835.
As offered by Congressmen Tony Cárdenas, D-Calif., and Adam Kinzinger, R-Ill., H. Res. 835 will go down in U.S. fintech lore as the first fintech resolution to be passed by the House. As the first part of the resolution explains, H. Res. 835 expresses "the sense of the House of Representatives that the United States should adopt a national policy for technology to promote consumers' access to financial tools and online commerce to promote economic growth and consumer empowerment."
It has everything a fintech political junkie could possibly want. It's bipartisan — that's right, bipartisan — and achieved overwhelming support in the House. The resolution has fintech written all over it, and we even got to see the members on both sides discuss fintech's potential for 15 minutes! No need for Monday Night Football when all the excitement was on C-SPAN!
It should be noted that those who came to the floor to speak in favor of the resolution included Reps. Michael Burgess, R-Texas, and Janice Schakowsky, D-Ill., the chairman and ranking member, respectively, on the House Energy and Commerce Subcommittee on Commerce, Manufacturing and Trade — the same subcommittee that has held its "Disruptor Series" covering, in particular, mobile payments and digital currencies and blockchain technology. Some highlights from the floor discussion:
Burgess: "While innovation can be frightening, discovery should be encouraged because the public will never see the benefits without assuming some measured risk."
Schakowsky: "And the challenge for federal regulators is to understand and adapt to this new technology.... This resolution recognizes that Congress and federal agencies need to be working on policies that promote the responsible development of fintech."
Kinzinger: "Questions about security, privacy and consumer protection are important and will guide how public and private entities continue to review and assess emerging technologies. However, potential risks and 20th century silos between government agencies should not hamper innovation in this space."
Cárdenas: "If we don't harness this policy, if we don't work with this industry, if we don't do our job as making sure that we set the tone not only for this country, but the world, we may find ourselves missing out on this tremendous opportunity."
But before you pop the champagne bottle to celebrate, just remind yourself that this resolution does not carry the weight of legislation. Nevertheless, the message that resonated from the House chamber on Monday night was clear: we support fintech.
Still, it's much easier for lawmakers to support a resolution than to pass actual fintech legislation. Take, for instance, North Carolina Republican Patrick McHenry's Fix Crowdfunding Act, which would have made equity crowdfunding more viable as an alternative financing source for small businesses. The Milken Institute voiced its support for some of the provisions contained in the act in prior comments to the U.S. Securities and Exchange Commission.
Lawmakers may get behind a certain message, but that often doesn't translate to supporting legislation, or certain provisions of it, that reflect that message. By the time McHenry's legislation passed the House, a number of provisions had either been removed or significantly amended, and it remains to be seen whether the Senate will act on the House-passed bill.
Mixed messaging on fintech doesn't just emanate from the halls of Congress. It can also be found at the regulatory level as well.
Earlier this year, the U.S. Office of the Comptroller of the Currency extended, what felt like at the time, an olive branch to certain fintech platforms when the idea of a "limited federal charter" was first mentioned publicly. This, of course, got our attention as we have supported the need for a national charter tailored to the business models and practices of marketplace lenders. (Other subsets of fintech have also reached out to the OCC on obtaining a charter.) As we noted in a prior comment letter to the U.S. Treasury Department:
"While marketplace lenders could apply for bank charters and become banks, a bank charter is excessive and unnecessary if marketplace lenders want to focus exclusively on lending. A new uniform regulatory regime that allows marketplace lenders to compete in the lending market on a level playing field with banks (and vice-versa), encourages innovation and entry into the market, and calibrates the scope and nature of regulation to the actual risks posed by marketplace lending would allow marketplace lenders to avoid artificial or inefficient structures, provide them with clarity, and allow for effective regulation of the growing field."
And then came Tuesday morning, when Comptroller of the Currency Thomas Curry gave prepared remarks at a marketplace lending summit in Washington, D.C. For all of us fintech policy wonks, here was an opportunity to receive an update from the regulator working behind the scenes on a potential "limited charter" for fintech. Here was the chance for the agency to explain how it has adapted to the prevalence of new technology, its receptivity to new ways of conducting business and its willingness to let the national bank charter adapt to our nation's changing economic needs. Instead, we heard this:
"If we at the OCC do decide to grant limited-purpose charters in this area, the institutions who receive the charters will be held to the same strict standards of safety, soundness, and fairness that other federally chartered institutions must meet."
The Milken Institute has long been supportive of efforts by both regulators and policymakers to develop flexible regulatory frameworks that balance the need for consumer/investor/borrower protections with innovation. We all agree that protection of consumers, investors and borrowers is of utmost importance but - and assuming this is what the OCC has in mind for its limited-purpose charter - applying legacy bank regulations to nonbank fintech firms in an attempt to mitigate risk ends up tilting that balance and potentially stifling innovation.
Risk is inherent in the financial services industry whether you are a traditional financial services provider or a nonbank fintech platform. That said, not every fintech wants to become a bank. Not every fintech wants to be regulated like a bank. And, like any other business, they want certainty. For those of us outside the halls of Congress and the offices of financial regulators, we continue to hear mixed messaging on the willingness of both lawmakers and regulators to support fintech in the U.S.
What one hand giveth, the other taketh away.