With the start of the new year comes new regulatory priorities, regulatory challenges, and regulatory opportunities for fintechs. Below, we lay out considerations for 2025 given the change in administration and accompanying perceived shift in priorities for regulators and fintechs.
1) Outcome of FDIC brokered deposits rule that impact
banking-as-a-service (BaaS).
The Federal Deposit Insurance Corporation (FDIC) issued a proposed rule in June 2024 that would
unwind parts of the FDIC's 2020 final brokered deposits rule.
The brokered deposits rule implements Section 29 of the Federal
Deposit Insurance Act and prohibits certain insured depository
institutions (IDIs) that are not well capitalized from accepting
deposits from a deposit broker (unless the IDI obtains a waiver
from the FDIC). The FDIC's 2020 brokered deposits rule laid out
the types of activities that the FDIC considered broker activities
and exceptions to businesses being considered deposit brokers. The
2020 brokered deposits rule laid the foundation for many fintechs
to engage in partnerships with IDIs to offer banking-as-a-service
(BaaS) products and services, and the June 2024 proposed rule
rolledback of the 2020 final brokered deposits rule would have
impacted these partnerships. However, in October 2024, the FDIC
extended the comment period for the June 2024 proposed rule,
thereby delaying implementation.
The June 2024 proposed rule had the potential to significantly impact how BaaS partnerships between fintechs and IDIs were structured. However, with the change in administration, the fate of the rollback of the 2020 final brokered deposits rule is up in the air as a Trump-appointed FDIC Chairman could elect to modify or withdraw the June 2024 proposed rule and fall back to the 2020 final brokered deposits rule. In fact, Acting FDIC Chairman Travis Hill has publicly stated that he plans to "adopt a more open-minded approach to innovation and technology adoption" and to "conduct a wholesale review of regulations...to ensure [the FDIC's] rules and approach promote a vibrant, growing economy."
2) Will the enforcement actions against banks with
bank-fintech partnerships subside or ramp up?
In the 18-month period between June 2023 and December 2024, the
federal banking agencies entered into numerous consent orders
and/or cease and desist orders against banks with fintech
relationships. These orders were in addition to joint statements
from the federal banking agencies highlighting the risks related to
arrangements between banks and third parties that deliver bank
deposit products and services.
While it seems the trend may continue, historically during similar changes in administrations, enforcement actions tend to ramp down. However, whether the federal banking agencies continue the trend of enforcement actions against banks in bank-fintech partnerships will largely depend on who is appointed to lead the federal banking agencies, including the Consumer Financial Protection Bureau (CFPB).
3) Will the CFPB continuing to lean in on payments and
"Big Tech" players?
The CFPB has incrementally focused on fintechs in the payments
sector, including "Big Tech." Beginning (publicly) in
2021, the CFPB issued a series of orders targeting tech
companies that operate payments systems. The orders sought
information about the tech companies' payment products, data
harvesting practices, and specific use of information obtained by
the tech companies. Since 2021, the CFPB has issued a series of
reports and "spotlights" targeting payments companies,
including a spotlight and consumer advisory on use of
payments apps.
The CFPB has also pursued enforcement actions against tech companies operating payment systems, credit cards and other payment applications, including imposing an multiple million dollar fine against Apple related to the Apple Card and a over hundred million dollar fine against Cash App related to its peer-to-peer payments app. The new administration may not pursue these kinds of enforcement actions; however, as a new CFPB director has not been nominated, it is too early to tell whether similar enforcement actions will be pursued.
And on December 10, 2024, the CFPB issued a final rule on defining "larger participants of a market for general-use digital consumer payment applications." The final rule covers larger participants in the market for providers of digital payment applications for consumers' general use in making payments or transferring funds to other persons. Those that meet the definition of a "larger participant" will be subject to the CFPB's supervisory authority. Before the CFPB published its final rule, the CFPB also published a contested supervisory designation order over Google Payment Corporation (GPC) holding that is subject to CFPB supervision and oversight. Google promptly filed suit to challenge the designation.
As noted above with respect to the FDIC brokered deposits rule, a Republican-appointed director of the CFPB could elect to withdraw or modify any final rules issued by the CFPB, including this rule governing exerting supervision over non-banks in the digital payments sector, and the CFPB under a new director could also choose not to enforce the supervisory designation order against GPC.
4) Will there be more fintechs applying for bank
charters?
The rush for fintechs to apply for bank charters and operate beyond
the control of state licensing laws and under bank sponsorships has
yet to materialize. Given the new administration's stated
desire for less regulatory burden and more innovation, we may see
more fintechs applying for bank charters, and perhaps a renewed
openness to a fintech charter, or special purpose national bank
charter for fintechs, in an effort to get out from under the myriad
of state licensing requirements (e.g., money transmission, loan
brokering, and lending) and oversight of state regulators. The
Acting FDIC Chairman has also stated his desire to "[e]ncourage more de
novo activity so there is a healthy pipeline of new entrants in the
banking sector." Whether more fintechs will take the leap to
undergo the arduous process of applying for a bank charter is
something to look out for in 2025.
To stay informed on the key trends and developments that shaped the industry over the past year, keep an eye out for our Consumer Financial Services 2024 Year in Review, coming in February.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
