Monthly Fintech 5 Newsletter - February 2025
1) Jonathan McKernan Nominated To CFPB
On February 11, President Trump nominated Jonathan McKernan to be CFPB Director. If confirmed, McKernan would replace the current Acting Director, Russell Vought, who on February 7 had replaced Treasury Secretary Scott Bessent who had been designated the Acting Director on January 31. During his week-long tenure as Acting Director, Bessent had directed Bureau staff to take no new actions “unless expressly approved by the acting director or required by law”; this freeze included the filing of enforcement actions, issuance of public communications, publication of research papers, promulgation or amendment of rules, and suspension of all final rules that had not yet become effective. This prompted the Bureau to seek stays in all lawsuits to which it is a party so that the new leadership can evaluate the litigation. Upon taking over for Bessent, Acting Director Vought then ordered Bureau staff to stop working on proposed rules, suspend effective dates, halt initiating new investigations, and stop working on all open investigations. He also directed staff not to engage in any work activity and temporarily closed the CFPB’s office. During this time, 70 probationary employees have been released from the bureau. While it is difficult to predict what the future will look like for the Bureau, McKernan is generally viewed as a serious and seasoned bank regulator who previously served as a board member of the FDIC, where he at times would join with his more liberal colleagues such as former CFPB Director Rohit Chopra on certain issues.
2) FDIC Acting Chairman Hill on Fintechs
On January 20, Acting Chairman of the FDIC, Vice Chairman Travis Hill released a statement outlining his priorities for the FDIC in the coming months if he is selected to lead the agency. Specifically, the statement highlighted his desire to “adopt a more open-minded approach to innovation and technology adoption, including (1) a more transparent approach to fintech partnerships and to digital assets and tokenization, and (2) engagement to address growing technology costs for community banks.” Further, Acting Chairman Hill highlighted the desire to take a more “transparent” approach to fintech partnerships by issuing clear guidance and expectations rather than relying on regulation by enforcement. He has also expressed a desire to give banks and fintechs a greater degree of flexibility in how they manage risk, and has proposed withdrawing from certain recent rulemaking efforts designed to prescribe specific requirements for bank partnerships. This would include, among other things, withdrawing the 2024 proposed rulemaking on custodial deposit accounts, known colloquially as the “Synapse Rule,” that would place increased recordkeeping requirements on banks that participate in banking-as-a-service programs. He also gave support for the withdrawal of the 2024 proposed rule which would revise brokered deposit regulations intended to reclassify many fintech and bank partnership models as brokered deposit relationships subject to heightened scrutiny. An article discussing Hill’s agenda and the potential impacts on financial technology in greater detail will be published in Law360 in the next few days.
3) President Trump Initiates Regulatory Freeze
On January 20, the president issued an executive order freezing all regulatory actions pending review. The freeze appears to affect all executive departments and agencies. Mandating withdrawal of all unpublished rules, this order additionally delays the date which already published rules will be enacted by sixty days. Specifically, this prohibits any proposing or issuing of rules, allows for commenting on rules which are withdrawn, and will require some rules which raise “substantial questions of fact, law, or policy” to be further reviewed with the Office of Management and Budget. This directive combined with Bessent’s actions during his short stint as Acting Director of CFPB has resulted in confusion concerning the status of certain proposed rules and guidance, such as the Bureau’s proposed interpretive rule that would expand Regulation E to cover digital assets. However, the competing directives appear to allow comment periods already underway to continue, which would mean comments would still be accepted on the Regulation E proposal through March 31, 2025. Meanwhile, the long anticipated final interpretive rule on Earned Wage Access products appears to have been halted entirely.
4) Beneficial Ownership Registration
On January 1, the Corporate Transparency Act went into effect, in theory requiring many businesses to begin reporting beneficial ownership information. However, due to lawsuits about the rule’s application, compliance with the law remains on pause. Although the requirements of the law are currently paused, FinCEN is accepting voluntary reporting in anticipation of the stays being lifted. The Supreme Court has already lifted an injunction in one of the cases challenging the law, and it is expected that the injunction in the other pending case will eventually be lifted, as well. If all injunctions are lifted and the law goes into effect, it is unclear whether FinCEN will have the authority to extend the compliance dates for the law to allow companies more time to file reports given the Trump Administration’s freezing of all new rulemaking by agencies. This may result in companies unexpectedly becoming subject to the law and already in violation of its requirements.
5) CFPB Consent Orders Challenge Fintech Payments Companies
On January 30, the CFPB entered into a consent order against Wise US Inc. for disclosure failures, inaccurate advertising, Electronic Fund Transfer Act violations, and other alleged illegal actions. Specifically, the CFPB ordered Wise to pay $450,000 in consumer redress and a $2.025 million civil money penalty. Previously on January 16, the CFPB entered into a consent order against Block Inc., the operator of Cash App, for unauthorized transfers, failure to provide refunds, and customer service failures which locked users out of their accounts. The consent order requires Block to pay $120 million in consumer redress, and a $55 million civil money penalty. Together, these consent orders demonstrate the continuation of the Bureau’s focus on the payments space, especially with fintechs. While it is unclear whether this trend will continue once the fate of the CFPB is determined, the FTC and state agencies such as New York’s Department of Financial Services may jump into the fray to fill any void.
This article is for general information purposes and is not intended to be and should not be taken as legal advice.
Download a PDF copy of our monthly Fintech 5 Newsletter here.
Questions?
If you’d like to discuss any of these issues or have any questions, please reach out to Partner and head of the Fintech group, Chris Napier.
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