You Can't Have Your Non-Regulation and Eat It, Too

If fintech has a downside, it's in the name. I get it that we are a “let's combine words to make a cooler word” type of nation. But really, “fintech” is just technology that can breathe underwater. At least that's what I visualize. And maybe that's part of the allure to the fintech world; it's not just a thing on dry land that walks among us, it can also be an amphibious creature lurking below the surface doing God-knows-what to create the features we benefit from on our phones and in our techy financial lives.

Love it or hate it, fintech organizations are pushing us into some terrifyingly fantastic financial freedom places. They are pushing the boundaries and exploring new consumer financial options. And, some want to become banks.

The cries are coming from financial leaders: “Regulate them!” Many argue that fintech firms should stay out of the banking space and simply provide the awesome third-party technology for financial organizations to use. Ah, regulations. We love them when they serve us and hate them when we feel like they impede our purpose (and revenue goals).

Square, for instance, is a somewhat successful fintech organization that wants to become a bank. According to a recent article in The New York Times, Square is on the verge of becoming more valuable than its sister company Twitter. It just so happens that the same person founded both companies. To be clear, Square “was worth $12.55 billion, or just $120 million less than Twitter,” according to the article.

And now the digital payments company wants to expand “out from payments to lending and online deposits.”

But, the regulations? There are rules to follow! Scream all you want, because Square Capital, an off-shoot lending arm of Square, is making significant headway by providing small loans to businesses – roughly $2 billion in loans so far.

William Magnuson of Texas A&M Law School recently wrote in the Harvard Law School Forum on Corporate Governance and Financial Regulation that “financial technology has revolutionized the way that finance works.” He continued in his article by stating “that existing financial regulation fails to take into account the rise of fintech and the fundamental changes it has ushered in on a variety of fronts.”

That lack of forward-thinking regulation has given rise and opportunity to at least three other fintech firms. Regulate them!

But the one company that's part fintech, part online store, part creator of “The Man in the High Castle,” Amazon, could cause the loudest cry for financial regulation reform. According to a report from Bloomberg News, experts believed “fintechs would provide the chief digital threat” and now “it's become clear that e-commerce companies such as Amazon … are reshaping one industry after another, blurring sector boundaries as they seek to be all things to all people.”

Regulate them! The screams continue, to try and keep the competition out.

And then there's the CFPB. Ah, the CFPB, the agency that credit union leaders and many politicians love to hate. Why? Not to go full history lesson on you, but it began in 2011 when House Republicans began claiming, with no basis in fact, that the CFPB is “the most powerful agency that's ever been created in Washington.” This was said by then Financial Services Chairman Spencer Bachus. And those claims grew bolder through the years. Now, we rarely go a day without the current House Financial Services Chairman Jeb Hensarling (R-Texas) from calling the CFPB Director Richard Cordray a “dictator.”

Don't regulate me! And leaders from CUNA, NAFCU and the NCUA are doing their jobs by looking out for what's best for credit unions and the industry as a whole when it comes to the political side of regulations. That's their job.

When I step back and look at all of these issues combined, I'm seeing one significant gap – the members. It appears what's getting lost, in doing the business of a credit union and for the industry as a whole, are meeting the needs and the demands of the credit union membership.

It's a tricky path, I get it.

I also understand the pitfalls of the Dodd-Frank Act in which the CFPB was born, along with other financial regulations. It's not a perfect system, but it is a system that helped rein in what was an out-of-control financial sector.

My question is, did credit union leaders and lobbyists ask credit union members what they wanted? Because, as a credit union member, if I'm wronged (and I fully expect to be wronged by Equifax), I'd like to have the ability to join together with others who are wronged by the system to fight back. Now, credit union members cannot do that after Congress voted to kill off the CFPB's arbitration rule and President Trump is expected to sign this change into law (as of this writing).

Fintech firms – I love what they're doing for our credit unions and if they want to try to become banks, then go ahead. Those are the rules. And, yes, rules can change.

It just seems at this point that credit unions are playing both sides naturally screaming “Regulate them!” when it's a threat to the bottom line. And “Don't regulate us!” when it's another threat to the bottom line.

I'd just ask, in this political environment that credit unions have an honest conversation with members and take that feedback to CUNA and NAFCU. Would that change anything? We're in a strange time when it appears that those in power aren't listening to those who are impacted by these decisions on a personal financial level.

Want to stand out and stand for something more than revenue? It's possible. And I think these two regulatory worlds of fintech and consumer rights are going to collide in a dramatic and potentially disastrous way for credit unions. So, what's it going to be? Because you can't choke down this regulatory meal and then complain when members realize credit unions are turning into banks. Oh, except the fees are better.

Michael Ogden is the Executive Editor at Credit Union Times. He can be contacted at [email protected].

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Editor-in-Chief at CU Times. To connect, email at [email protected]. As Editor-in-Chief of CU Times since 2016, Michael Ogden has led the editorial team in all aspects of content strategy and execution, including the creation of the publication’s exclusive and proprietary research database of the credit union industry’s economic landscape. Under Michael’s leadership, CU Times has successfully shifted to an all-digital editorial product with new focuses on the payments, fraud, lending and regulatory beats. Most recently, he introduced a data-focused editorial product for subscribers that breaks down credit union issues into hard data, allowing for a deeper and more factual narrative for readers. In 2024, he launched the "Shared Accounts With CU Times" podcast, which offers a fresh, inside-the-newsroom perspective through interviews with leaders from the credit union industry and the regulatory world. He dives into pressing credit union issues, while revealing the personalities working behind-the-scenes to push the credit union world forward. His background includes years as a radio and TV anchor/reporter and a public relations and digital/social media manager, where he covered the food and music industries, as well as cooperatives and credit unions. Over the years, he has launched numerous exclusive video and podcast series, including a successful series of interactive backstage interviews with musicians at music festivals, showcasing his social media and live streaming production skills.