Axios market editor Dion Rabouin provides insight into the winners and losers in the ‘Biden market’.
WASHINGTON – After the 2008 financial crisis, regulatory reform efforts sought to make the system more secure. This time, the goal will be to make it more fair.
According to President Biden’s focus on helping minorities and people with low and moderate incomes – groups most affected by the coronavirus-induced crisis – financial regulators must emphasize racial equity as they focus on consumer protection and expanding the access to financial services.
That would mark a departure from the last time Democrats controlled the White House and Congress at the start of the Obama administration. Initial efforts then focused on fighting the crisis, followed by an impulse to ensure that it would never happen again with the 2010 Dodd-Frank Act, the most comprehensive financial legislation in a generation.
“Obama has studied how to make the financial system stable,” said Karen Petrou, head of Federal Financial Analytics, a regulatory consultancy. “Biden is thinking about ‘how to make the banking system fair?’ This is very different. “
President Joe Biden signs a series of executive orders on health at the White House Oval Office on Thursday, January 28, 2021, in Washington. (AP Photo / Evan Vucci)
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In practice, this will translate into tougher rules for payday creditors – who charge high interest rates on short-term loans – and more stringent compliance with fair credit requirements, said a government official. The Biden team will also push to establish a government-backed consumer credit company as an alternative to companies that create credit reports, the official said.
Biden’s choices for key regulatory positions highlight his pressure to protect consumers from what some Democrats regard as predatory behavior by financial companies.
Rohit Chopra, currently with the Federal Trade Commission, is the head of the Consumer Financial Protection Bureau. Michael Barr, a former Treasury Department employee who helped create Dodd-Frank and the CFPB, is considered the top candidate to head the Office of the Currency Controller, which oversees national banks like JPMorgan Chase & Co. and Bank of America Corp.
“Although Trump-era regulators were not blind to areas like consumer protection, they were not at the top of their list of priorities,” said Daniel Stipano, a former lawyer with the Coin Controlling Office. “They are going to get back to the top of the list now.”
At the FTC, Mr. Chopra has repeatedly defended bolder enforcement actions. In 2019, he and another Democratic commissioner opposed an agreement in which Facebook Inc. agreed to pay $ 5 billion after an investigation into the tech giant’s privacy mistakes, claiming it was not difficult enough.
Financial regulators must emphasize racial equity as they focus on consumer protection and expanding access to financial services. (AP / photo file)
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Mr. Chopra is seen as prone to intensify coercive actions in the CFPB, with a focus on higher monetary penalties and repression of repeat offenders. Shares fell sharply at the start of the Trump administration before rising again last year.
It can also revise a clause, repealed under the Trump administration, requiring payday creditors to check borrowers’ income to ensure they can pay short-term loans at high interest rates. It should also increase the power of the bureau’s arm focused on fair loans.
Republicans in Congress and bankers, who criticized the CFPB as an instrument of government exaggeration, are concerned about the prospect of yet another swing of the regulatory pendulum.
“The banking industry needs written regulations for years, not election cycles,” said Richard Hunt, president and CEO of the Consumer Bankers Association. “The more regulators from both parties can put policy aside, write regulations with contributions from all parties and explain their positions, the more Americans can benefit from a well-regulated banking sector.”
Consumer advocates are hoping the Biden government will ease lending standards that became more rigid during the pandemic, which they say disproportionately hurt minorities who tend to have lower credit scores and less money for initial payments, said Mike Calhoun, president Center for Responsible Lending.
President Joe Biden’s team will also push to establish a government-backed consumer credit company as an alternative to companies that create credit reports. (AP Photo / Evan Vucci)
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The Biden government’s focus on racial equity also means that banks are likely to be required to lend and invest more in low- and moderate-income communities according to the reformulated rules of the Community Reinvestment Act. The OCC and other regulators can block mergers and new branches if banks fail to meet these requirements.
Banks should not see any more flexible rules. During the Trump administration, banks saw some Dodd-Frank requirements being lowered through legislation that raised an important regulatory threshold in which larger companies are subject to stricter rules.
On the other hand, Treasury Secretary Janet Yellen could undo changes in the Trump administration that have made it more difficult to subject non-bank financial companies, such as Wall Street money managers, to heightened oversight.
On climate change, Ms. Yellen could work with other regulators to require banks to better assess the risks posed by the impact of climate change.
“I think we need to seriously assess the risk of climate change for the financial system,” Yellen told a Senate panel this month.