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The Biden Administration: What financial institutions can expect from its new regulators
2021 PRINDBRF 0011
• Practitioner Insights Commentaries
• January 22, 2021
(January 22, 2021) - Attorneys Benjamin Saul and Mark Srere of Bryan Cave Leighton Paisner LLP discuss the changes they anticipate the Biden administration will make regarding oversight of the U.S. financial system.
The Biden-Harris electoral platform on financial regulation was starkly different from the deregulation agenda that has marked President Trump's term. Although Joe Biden is not as extreme as, say, Senator Elizabeth Warren (D-Mass.) when it comes to oversight of the U.S. financial system, his views are considerably more pro-regulatory and pro-enforcement than the outgoing Administration's views.
Given that the Democrats now appear in control of the Senate, it will likely be easier for Biden to reverse many Trump Administration policies. We therefore believe financial institutions will face increased supervisory and enforcement scrutiny from regulators and enforcement agencies and that Biden will likely be able to advance some legislative change.
Regulatory outlook
Although several current financial services regulators have terms that extend into 2022, the Biden Administration will still be able to fill many vacancies at the financial regulatory agencies promptly, including at the SEC, OCC and CFPB.
These individuals will be more focused than their Trump counterparts on Biden priorities like increased consumer protection, data privacy, improving the safety and soundness of financial institutions and support for smaller rather than larger financial institutions.
As we write, the Democrats will control Congress, and therefore it seems more likely that some financial services-related legislation may pass, though significant legislation will still require 60 votes in a Senate that Democrats will hold by the slimmest of margins.
As a result, we anticipate Congressional Democrats to focus on legislation that could enjoy bipartisan support, such as providing safe harbor for cannabis banking in states where cannabis is legal and increasing data privacy protections for consumers of financial services. Beyond legislative efforts, it remains possible that Biden, as with President Trump before him, will make use of executive orders and rulemakings.
Consumer protection
We expect the Biden Administration to appoint agency heads that will prioritize consumer protection matters, an area that has not been a priority during the Trump Administration. The timing of such appointments will depend largely on the pace of turnover at the relevant agencies. However, we expect Biden to move quickly to remove the Consumer Financial Protection Bureau (CFPB) Director Kathy Kraninger and replace her with his own selection. Now that Democrats won control of the Senate, Biden is much more likely to nominate someone from the progressive camp of Senator Elizabeth Warren (D-Mass.) as Director.
Regardless of Biden's choice for CFPB Director, we expect that appointee to reverse structural changes implemented in recent years, including:
(1) increasing agency funding,
(2) re-establishing agency advisory boards, and
(3) re-establishing a stand-alone fair lending enforcement unit.
The new Director is also expected to significantly increase the number and pace of investigations. New CFPB enforcement priorities will likely include policing discrimination in lending and servicing, payday lending, fair credit reporting, student loan servicing, and mortgage loan servicing in the wake of COVID-19 and CARES Act deferments and forbearance. In addition, we may see the CFPB investigate fraud, discrimination and compliance deficiencies of lenders participating in the Paycheck Protection Program.
In addition, a Biden bureau seems likely to seek to reverse or amend rulemakings and guidance the Trump bureau used the Congressional Review Act (CRA) to kill or water down, including indirect auto guidance, the arbitration rule, the payday lending rule, the debt collection rule, and amendments to rules on Qualified Mortgages. The Biden bureau will need Democrats to control Congress to restore the indirect auto guidance and arbitration rule as those were struck down under the CRA.
FinTech
A Biden administration, pushed by Democrats in Congress, may resist recent efforts by the Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corporation (FDIC) to open up access to bank charters and partnerships for FinTech companies.
Although the OCC and FDIC has promoted its efforts as a way to nationalize divergent state law standards and requirements, Democrats have claimed such efforts undermine consumer protection and prevent states from protecting their citizens from predatory loans.
We further expect, once Biden effects leadership changes first at the OCC and later at the FDIC, that the OCC's recent "True Lender" rule and the "Valid When Made" rule recently adopted by the OCC and FDIC will be amended or even rescinded. A Biden-led OCC and FDIC may also look to curb the use of "special purpose" charters and industrial loan corporation charters by Fintechs.
Notwithstanding the above, we expect the Biden administration to continue to promote FinTech innovation as a tool to expand access to financial services for Americans. Several members of the Biden transition team have significant FinTech credentials.
The Biden Administration, however, will look carefully at the use of artificial intelligence and the risk of bias. In this regard, we may see rules or guidance designed to provide FinTechs with a rubric for striking the balance between expanded access and bias risk. We may also see a Biden appointed CFPB Director set new regulations for consumers' financial data access.
Housing finance reform
The Biden Administration may try to reinvigorate Congressional efforts to reform how government sponsored enterprises (GSEs) will operate post-conservatorship. Although Congress understands such reform is necessary, lack of agreement and will to pass legislation has stalled progress.
Diversity and inclusion
Congressional Democrats on the House Financial Services Committee have pushed hard for more diversity and inclusion in the financial services private and public sectors. Given that the Democrats control the Senate, they may finally be able to advance their goals.
Department of Justice and Securities and Exchange Commission
In terms of DOJ enforcement, it is highly likely that the still active areas of anti-money laundering (AML) and sanctions enforcement will continue against financial institutions, as well as cases targeting market manipulation. This will also remain true as to the federal banking regulators and the Financial Crimes Enforcement Network (FinCEN).
Such areas will remain priorities in a Biden Administration. And let's not forget the nearly $3 trillion in federal money to help the country survive the pandemic. Financial institutions have played, and will continue to play, a significant role in helping distribute a large amount of that money. DOJ prosecutors, in going after fraud in the relief effort, will not give a free pass to financial institutions.
Finally, we expect to see a reinvigoration of the DOJ Civil Rights Division's Housing and Civil Enforcement Section, which, among other things investigates referrals from the federal banking agencies and CFPB concerning fair lending as well as violations of the Servicemembers Civil Relief Act.
As for the SEC, with Biden appointing its next Chair, the SEC likely will shift more enforcement efforts to "Wall Street" in addition to "Main Street," which has been the focus of the SEC these past four years. This is especially true if the new chair is a former prosecutor like Preet Bharara.
Financial institutions will likely field more inquiries and feel more enforcement heat than they have felt more recently. And the SEC will likely suggest and try to implement stricter regulations over financial institutions.
Conclusion
The Biden-Harris Administration will shift financial regulatory and enforcement priorities significantly. Given that Democrats will control the Senate, the pace and scope of change will greatly accelerate and expand.
Benjamin Saul is a partner with Bryan Cave Leighton Paisner LLP and a member of the firm's Banking Practice Group. He represents fintech, regtech, banking, broker-dealer, exchange, specialty finance and consumer financial services (CFS) companies, as well as their directors, officers and investors, in regulatory, enforcement, litigation and corporate matters. He is based in Washington, D.C., and can be reached at [email protected]. Mark Srere is a partner with Bryan Cave Leighton Paisner and co-leader of the firm's Investigations, Financial Regulation & White Collar Practice Group. He defends individual and corporate clients in a variety of industries, including telecommunications, higher education, energy and manufacturing. He is also based in Washington, D.C., and can be reached at [email protected].
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Mark Srere| End of Document | © 2024 Thomson Reuters. No claim to original U.S. Government Works. |