What Does a Trump Administration Mean for the Payments Industry?

5 min

As the Trump Administration takes office, there are a number of questions about the potential regulatory impact on the payments industry. Should we expect a de-regulated environment that helps usher in a period of financial innovation and new business? How will incoming leaders of key regulatory agencies change policy positions that affect payments businesses? Will we see the end of Operation Chokepoint? Will the Consumer Financial Protection Bureau (CFPB) survive, and if so, in what form?

According to most Washington pundits, the key takeaway is that no one should expect immediate, across-the-board changes. Regulation and government scrutiny in the payments industry will not disappear. However, there may be opportunities for payments companies to advance business and innovation and push for improvements in the regulatory environment. This article highlights recent developments and potential opportunities for the payments industry under a Trump Administration.

Trump Cabinet Picks Support Industry

Mr. Trump has picked a number of cabinet members and advisors from the financial services industry, many of whom have a history of supporting a de-regulated environment. Among them, Goldman Sachs alum Steve Mnuchin is expected to be confirmed as Secretary of the Treasury and has been applauded by payments groups as understanding the money marketplace. Former SEC Commissioner Paul Atkins, who has expressed strong positions on regulatory relief, has taken lead on the transition effort for a number of the financial regulators.

Opportunities with New Political Appointees

The Trump transition team must fill 4,000 positions across the federal government – a task that will take time to complete. The Federal Trade Commission (FTC), which has flexed its law enforcement muscle against payments companies, is already short two commissioners on its five-person panel, and FTC Chairwoman Edith Ramirez announced she was stepping down effective February 10. The Office of the Comptroller of the Currency (OCC), which has taken a lead on FinTech issues by promoting a regulatory framework that supports financial innovation, will also need to replace Comptroller Thomas Curry in April 2017. As for the CFPB, there remains speculation about the future employment of Director Richard Cordray and whether the CFPB will be restyled as a commission, along the lines of the FTC.

Rolling Back of Existing Regulations and Policy Initiatives

Analysts predict that a Trump Administration will scrutinize existing regulations and pursue aggressive efforts to unravel regulations that do not further the President's policies. The "first 100 days" plan set forth by Mr. Trump includes a promise that for every new regulation introduced, two old regulations must be eliminated. These efforts are likely to impact the payments industry in a number of ways.

For the payments industry, the most significant target of this sentiment is the Dodd-Frank Act, created to establish financial reform after the last recession, and various regulations passed by the CFPB and other banking regulators. One example is the CFPB's prepaid rule, which many in the payments industry have criticized as overly-broad, expensive, and potentially harmful to innovation.

One way the Trump Administration may attack Dodd-Frank is through the proposed Financial CHOICE Act, introduced in September 2016 by House Financial Services Committee Chairman Jeb Hensarling (R-TX), who has close ties to the Trump Administration. Among other things, the current draft of the CHOICE Act seeks to repeal the Durbin Amendment to the Dodd-Frank Act, which imposed limits on debit card swipe fees charged to merchants. The proposed CHOICE Act also makes significant changes to the CFPB by converting it to a five person board, subject to appropriations, and removing the CFPB's ability to prevent "abusive" acts under its UDAAP authority (unfair, deceptive and abusive practices). Moreover, the bill grants the CFPB the role of maintaining competition in the marketplace, which supplements the otherwise single-purpose consumer protection mission of the CFPB's current charter.

What about Operation Choke Point?

Also included in the CHOICE Act is a provision that would undermine Operation Choke Point by prohibiting a financial regulator from suggesting termination of a customer relationship based on reputational risk alone. If enacted, would the CHOICE Act spell the end of law enforcement against payments companies that act as arms-length service providers to merchant businesses?

This is one question that we can answer with a resounding "no," even in a Trump Administration. It has been a long-standing law enforcement priority – even before Operation Choke Point – to pursue third party service providers for consumer redress and injunctive relief when the government deems the servicer to have assisted and facilitated the unlawful acts of merchants. There is no reason to believe that consumer protection agencies, such as the FTC, will abandon their consumer protection mandates. Even if law enforcement priorities at the federal agencies shift in favor of payments businesses, a number of factors suggest that payments companies should not let down their guard.

For one thing, state regulators and law enforcers may be waiting in the wings to pick up where federal agencies left off. We have already seen a number of states and their consumer protection regulators enter the fray against payments companies, either individually or joining forces with the FTC. Moreover, we could be facing a new Congress in two years, and another administrative change in as little as four years. If that were to occur, and the next administration were to revive Operation Choke Point or similar initiatives, there is nothing to stop the government from bringing cases that look back several years, including activities that took place during the Trump Administration.

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In conclusion, while a Trump Administration may offer a number of opportunities for the payments industry, those expecting radical changes should temper their expectations, at least in the short term while the Administration gets up and running. That said, it seems reasonable to expect a period of de-regulation, which may provide an opening for the payments industry to increase self-regulatory measures and impose its own checks and balances on risk management practices so that a government administration – now or in the future – does not have to. This may be one of many opportunities that industry can seize in the months and years ahead.