Chopra’s legacy: The future of money

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Jan 10, 2024 View in browser   By Zachary Warmbrodt Presented by Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. QUICK FIX The most powerful companies in finance and tech are engaging in a high-stakes lobbying clash that has major implications for industry, consumers and President Joe Biden’s regulatory legacy. Instigating the cross-industry warfare is CFPB Director Rohit Chopra. He’s pushing to ratchet up oversight of tech giants, including Apple and Alphabet, that have come to dominate the services that Americans use to pay for goods and services. It’s the latest battleground in one of Washington’s oldest policy quandaries: Where should the government draw the line between banking and commerce? In a 2024 twist, it’s also forcing policymakers to consider fundamental questions of what money is, thanks to the rise of cryptocurrency. MM today is your quick guide for the battle lines being drawn as the CFPB rolls out a plan that could upend how Washington polices finance and tech for years to come. Big tech to the CFPB: Stop — The largest U.S. tech firms, largely through their trade groups, are urging the bureau to halt and re-do its proposal. They argue the agency is overreaching, failing to demonstrate what risks need to be addressed and not abiding by rulemaking requirements. It’s language that makes any reasonable reader sense there’s a potential legal challenge brewing. “Digital payment apps and nonbank entities differ from banking institutions in their function, characteristics, and capabilities,” the Computer & Communications Industry Association, which represents Apple, Google and Amazon, told the bureau in a letter. “Hence, they should not be subject to the same supervisory authority as banks and credit unions.” Banks back Chopra but it’s messy (blame crypto) — Groups speaking for banks large and small say they generally support the CFPB’s efforts to ratchet up supervision of big payment apps. They’ve been fighting for years to ensure that banking’s big tech competitors aren’t getting away with lighter regulatory requirements than traditional lenders. Banks are supposed to face some of the most strenuous government oversight of any business. “A failure to examine fintechs does not only contribute to an uneven playing field between fintechs and supervised entities, but more importantly results in a continuous and growing potential for consumer harm,” the Consumer Bankers Association told the CFPB. In a twist, banks are divided over another fintech concern: the CFPB’s pitch to include crypto in the scope of the rule. The Independent Community Bankers of America, which exclusively represents the smallest lenders, backs the CFPB approach. It says “entities that enable consumers to move virtual assets should be regulated in the same way as those that deal with fiat currency.” Consumer groups, including Americans for Financial Reform and the Consumer Federation of America, are also urging the CFPB to cover crypto. Other lenders want the bureau to hold back. The CBA and the American Bankers Association say the matter shouldn’t be “shoehorned” into the rule and deserves a separate rulemaking with other agencies. The Bank Policy Institute and the Clearing House Association, which represent large banks, said the CFPB should limit the scope to fiat currency and legal tender to provide certainty and avoid unintended consequences. (They do want the CFPB to extend the rule to cover buy now, pay later services.) Congress and the states — A bipartisan group of lawmakers is questioning the proposal and pressing the agency to take more time. Twenty House Republicans, including Financial Services Chair Patrick McHenry, are warning about the prospect of roping in crypto and merchants. Seven Financial Services Democrats led by Reps. Jim Himes and Josh Gottheimer say the agency needs to be more specific about each product market it plans to cover and spell out the potential risks. But Chopra has the backing of 19 attorneys general, including those of New York, California and the District of Columbia. Their support matters as some in the tech industry argue that existing state supervision is sufficient. “The proposed rule closes regulatory loopholes that put vulnerable populations’ financial security at risk, while simultaneously strengthening the enforcement of state consumer protection laws,” they said in a joint letter. It’s Wednesday — A quick plug: Check out our sister newsletter Global Playbook for in-depth coverage of next week’s World Economic Forum. Your MM host will be there, too. Want to chat in Davos? Send a note to zwarmbrodt@politico.com.   A message from Electronic Payments Coalition: CREDIT UNIONS & COMMUNITY BANKS IN All 50 STATES OPPOSE THE DURBIN-MARSHALL CREDIT CARD BILL: Local credit unions and community banks serve an essential role in supporting Main Street. So, when 9,600+ credit unions and community banks throughout the country oppose the Durbin-Marshall credit card bill, Congress should pay attention. Durbin-Marshall lines the pockets of corporate mega-stores by shifting costs and risks to credit unions, community banks, and their 135 million customers. Click here to learn more.   Driving the day House Financial Services holds hearings on the DOL fiduciary rule at 10 a.m. and FSOC’s designation framework at 2 p.m. The crypto tweet that will live in infamy — The extreme hype around the SEC’s expected approval of bitcoin investment funds is entering a new phase of high drama and political peril for the agency. As you know, the SEC’s X account rocked Wall Street and Washington Tuesday afternoon when it said that the agency had approved exchange-traded funds tied to bitcoin. SEC Chair Gary Gensler said afterward that the account was “compromised” and that none of the applications had gotten the agency’s blessing. The price of bitcoin, which had been rising in anticipation of the decision, hit a 19-month high of $47,900 on the false information before dropping to around $46,000. Per Declan Harty, an SEC spokesperson said an unknown party had unauthorized access to the agency’s X account for a brief period around 4 p.m. Tuesday. The agency plans to work with law enforcement to investigate, and X is also looking into it. The alleged breach of the SEC’s social media account — one of the most dramatic that MM can think of at any federal agency — is poised to complicate the regulator’s already fraught relationship with the crypto world and make it an even bigger target for critics of its approach to digital assets. A growing number of lawmakers are calling for further scrutiny. Sens. J.D. Vance and Thom Tillis, Republicans who sit on Senate Banking, sent a letter to Gensler late Tuesday seeking information. "The United States is home to the world’s deepest and most liquid capital markets and stability and soundness are imperative if investors are to maintain their trust in our markets,” they said. “It is unacceptable that the agency entrusted with regulating the epicenter of the world’s capital markets would make such a colossal error." Rep. Ann Wagner, the Missouri Republican who chairs the subcommittee overseeing the SEC, said it was “clear market manipulation that impacted millions of investors.” She said she plans to get more answers from Gensler. “Imagine what would happen if this was a public company that allowed such a market-moving event to occur,” Sen. Bill Hagerty, a Tennessee Republican on the Banking Committee, said in a statement. “I knew it was too good to be true,” Rep. Ritchie Torres, a New York Democrat who has clashed with Gensler on the SEC’s crypto crackdown, told our Eleanor Mueller. To be sure, the bitcoin ETF decision was already a damned-if-you-do, damned-if-you-don’t political choice for Gensler. Sen. Elizabeth Warren told MM in a statement just minutes before the SEC’s X post that if the agency approved the funds, “millions of ordinary investors will be at risk of financial ruin in the next crypto crash.”   A message from Electronic Payments Coalition:   On the Hill Credit card drama — Eleanor reports that Senate Judiciary will likely hold a hearing on credit card fees in February, according to an interview with Sen. Roger Marshall. Marshall said he and Senate Judiciary Chair Dick Durbin have not yet had a discussion on witnesses, but that he anticipates a focus on convenience stores. Durbin and Marshall are leading legislation to crack down on credit card fees — a push that has triggered a huge lobbying battle between banks and retailers. Sherrod Brown’s appropriations play — Eleanor reports that the Senate Banking chair said he wants to pass his committee's bank executive accountability bill as part of government funding legislation. Brown doesn’t expect crypto to be part of an appropriations deal. First in MM: House panel to scrutinize China investments — House Foreign Affairs is set to hold a hearing next Wednesday examining U.S. investments in China, Jasper Goodman reports. The hearing comes as GOP China hawks are at odds with senior Financial Services Republicans over legislation that would crack down on outbound U.S. funds. Foreign Affairs spokesperson Leslie Shedd said the hearing “will spotlight U.S. investments that support China’s development of military technology,” including “authorities that exist, and gaps that must be filled by statute.” Witnesses will include RAND CEO Jason Matheny, former White House deputy national security advisor Matthew Pottinger and White House NSC staffer Peter Harrell. Barr’s big move — Jasper reports that Rep. Andy Barr, a potential candidate to be the next top Republican on House Financial Services, said he is "in listening mode" as he weighs whether or not to go for the role. "I'm talking to leadership, I'm talking to members of the steering committee, and, most importantly, I'm talking to my colleagues on the committee — and I want their advice," he said in an interview. In addition to Barr, the race is expected to include Rep. French Hill and Rep. Bill Huizenga, though Hill has not yet said he is running. Let’s go away for a while — House Financial Services members have set dates for retreats in the coming weeks, where they’ll map out their plans for the year. Eleanor reports that Republicans will gather Jan. 16 followed by Democrats on Feb. 13. Economy The World Bank’s warning — Per the Washington Post, the World Bank said the global economy will slow for the third straight year and appears headed for its weakest half-decade since the early 1990s. The view from Nasdaq — Nasdaq CEO Adena Friedman said in her annual outlook this morning that “the table could be set for a vibrant economy in 2024” despite geopolitical conflicts and political division at an all-time high. “[M]arkets and business have proven remarkably resilient,” she said in a LinkedIn post. “And — barring any new, major unforeseen disruption — the economic environment appears to be normalizing. If inflation continues to trend towards its target, rates should settle lower at a normalized, sustainable level while continuing to drive modest GDP growth.”   A message from Electronic Payments Coalition: CREDIT UNIONS & COMMUNITY BANKS IN All 50 STATES OPPOSE THE DURBIN-MARSHALL CREDIT CARD BILL: The Durbin-Marshall credit card bill would create new government mandates on credit cards that would put consumer data and access to credit at risk. The bill would benefit corporate mega-stores, like Walmart and Target, at the expense of Main Street and the 135 million Americans who rely on credit unions and community banks. The threat of Durbin-Marshall to small financial institutions is so clear that 9,600+ credit unions and community banks in America are opposed to the bill. They also see through the so-called “carve out” for smaller banks which is a hoax to try and buy their support. Their message to Congress is simple: on behalf of credit unions and community banks in all 50 states, commit to actively opposing the Durbin-Marshall credit card bill. Click here to learn more.   Lobby Watch First in MM: Hedge funds rebrand — The Managed Funds Association is no more, Declan reports. The hedge fund trade group is rebranding itself as “MFA” with a new logo and website. CEO Bryan Corbett told Declan that the former brand and logo had grown “old and tired” and was in need of an update to better reflect the organization’s growing membership across the alternative asset management industry.   Follow us on Twitter Mark McQuillan @mcqdc Zachary Warmbrodt @Zachary Victoria Guida @vtg2 Declan Harty @ @declanharty Eleanor Mueller @eleanor_mueller Katy O'Donnell @katyodonnell_ Sam Sutton @samjsutton   Follow us

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