How Will President Trump Affect The Payments & Financial Services Industry?
It may have come as a surprise to everyone who didn’t vote Republican on November 8, but one of the most unlikely scenarios in recent history has become reality — Donald J. Trump will be the 45th President of the United States of America (assuming that the proposed vote recounts do not overturn the election results). The win — which coincided with the Republican Party also holding onto the House and Senate — has people nervously looking to the future to see what changes are in store for the country and the rest of the world. What does his election mean for the U.S. payments and financial services industry?
While opinions vary, one early point of consensus among payments and financial services experts is that change is coming, and it’s most likely in the form of regulatory relief.
“Any time the presidency changes parties, you have to expect some significant realignment in regulatory and enforcement policies, and priorities…. With the Senate, the House and the Presidency under one party, there’s also a reasonable chance some major changes in existing law could be implemented. From a payments perspective, I’d keep an eye on Dodd-Frank and the CFPB, both of which will likely come under fire,” said Judith Rinearson, Partner at K&L Gates LLP.
Since its inception, Republicans have wanted to dismantle or change the Consumer Financial Protection Bureau (CFPB). Spearheaded by Massachusetts Senator and former Harvard bankruptcy professor Elizabeth Warren, the CFPB was created in 2010 as a legislative response to the financial crisis of 2007–08 and the subsequent Great Recession. The CFPB jurisdiction includes banks, credit unions, securities firms, payday lenders, mortgage-servicing operations, foreclosure relief services, debt collectors and other financial companies operating in the United States, including the prepaid industry. Now, after previous attempts at killing the bureau — Senator Ted Cruz tried to introduce the Repeal CFPB Act in 2015 — opponents of the legislation may finally have their wish.
Their biggest issue is the agency’s single director, which they will seek to replace with a bipartisan five-member commission. The agency would also likely be subjected to the Congressional appropriations process.
“Most troubling is the fact that the CFPB is completely unaccountable to Congress and the American people,” Rep. John Ratcliffe (D-Texas) wrote in a letter explaining his sponsorship of a House version of the Repeal CFPB Act. “This unique setup makes the CFPB the least accountable regulatory agency in the federal government; a situation that invites regulatory excess and abuse.”
Trump may pressure CFPB Director Richard Cordray to step down or simply replace him entirely. A recent DC Circuit Court ruling in the PHH case treats the CFPB as an executive agency which, if upheld, would allow President Trump to replace the Director of the CFPB at any time. Even if the court’s decision is reversed and the CFPB Director can’t be removed without cause, Trump can still nominate a new Director of the CFPB in 2018.
“If that happens, I would expect the agency to take a more conservative approach and not be as activist as they have been,” said Morris, who is now a partner in the Washington offices of Hudson Cook.
But what does this mean about the rapidly growing prepaid industry?
“Trump may repeal the CFPB, given his disdain for the Dodd-Frank Wall Street Reform and Consumer Protection Act that created it,” says Lori Breitzke, Founder at E&S Consulting. “If this occurs, the CFPB’s new prepaid card rules will be repealed along with the agency, and another entity will be created to replace it. If Trump cannot repeal the CFPB, he will instruct the agency to ignore, rather than enforce, the existing rule governing prepaid cards. Trump also will lower taxes on small businesses, fostering growth and the need for more merchant accounts and services.”
Change is coming.