“Jamie Dimon, the CEO of JPMorgan Chase, recently met with Republican senators of the Senate Banking, Housing, and Urban Affairs Committee to discuss debanking issues, marking an important milestone in the financial sector’s ongoing battle with the Consumer Financial Protection Bureau (CFPB). Over the years, US financial companies have challenged the CFPB in court and media, criticizing the agency for its perceived bias against industry players.
However, the tables have turned. The CFPB, which has been on shaky grounds following a halt in operations ordered by the Trump administration, now finds itself gaining support from the very banks that previously opposed it. This change in dynamics arises from the fact that if the CFPB were to be significantly downsized, banks would be forced to compete directly with nonbank financial entities. These nonbank entities, such as tech giants, fintech firms, and lenders, enjoy much less federal oversight compared to FDIC-backed institutions.
David Silberman, a veteran banking lawyer and lecturer at Yale Law School, explained that the CFPB is the sole federal agency overseeing non-depository institutions. If the CFPB’s authority were to be diminished, payment apps like PayPal and Cash App would face limited federal oversight. This could potentially return the industry to the pre-2008 era, when state officials had to protect consumers from nonbank service providers.
The rise of digital players, such as PayPal and Chime, who offer banking services via mobile apps, has contributed to this shift. According to Cornerstone Advisors, fintechs led by these companies had nearly as many new accounts last year as all large and regional banks combined.
The future of the CFPB remains uncertain after acting Director Russell Vought initiated a series of directives last month, including layoffs and plans to cancel contracts. However, a federal judge has temporarily halted these plans, pending a lawsuit filed by a CFPB union.
Despite their previous grievances, bank executives are now expressing concerns over the potential disappearance of the CFPB. JPMorgan Chase CEO Jamie Dimon, during a recent bankers convention, encouraged his peers to resist regulators. He voiced concerns over the unfairness of regulations and their negative impact on companies, particularly lower-paid individuals.
However, many now agree that completely eliminating the CFPB could be detrimental. While nonbanks could pose increased threats, current CFPB rules would remain, but there would be no one to revise them in response to industry changes. This could lead to small banks and credit unions being even more disadvantaged than their larger counterparts.
As the industry grapples with these challenges, the consensus seems to be that the banks don’t necessarily want the CFPB to disappear. Instead, they desire thoughtful policies that foster economic growth and ensure safety and stability. The irony is, the industry’s alignment with Republicans may have backfired, as they now face the possibility of an unregulated non-bank financial services industry.
