The Top Five Reforms in Financial Regulation Needed in 2018


With the Consumer Financial Protection Bureau at last pulling back from its regulatory assault on the financial services industry, conditions are right for major reform of financial regulation next year. Here are five things we’d like to see in the New Year.

  1. Congress needs to disapprove the CFPB’s small dollar lending rule

The CFPB’s last major rule under its old leadership would be disastrous for the small dollar lending industry, potentially wiping out 80 percent of existing players in the industry. Small dollar loans are vital for many people on a tight budget and they cannot afford to lose access to this market. Congress should disapprove the CFPB’s rule using the Congressional Review Act to save the industry and the relief it offers.

  1. Congress needs to solve the CFPB’s constitutional problems

The CFPB’s problems are so big because of its unconstitutional design. Congress needs to fix that by abolishing the agency or at the very least bringing it back into the constitutional system. That would require making the head of the Bureau accountable to the president, making its budget subject to the appropriations process, and reducing the amount of deference to its decisions required by the courts.

  1. The Securities and Exchange Commission should step back from regulating cryptocurrency

Innovation thrives when it is permissionless. This is particularly the case with brand new areas of technology, such as cryptocurrency. The Securities and Exchange Commission has, however, shown signs of using powers designed for regulating traditional securities to regulate cryptocurrency innovations like Initial Coin Offerings. The SEC should show restraint in this area and announce that it will not regulate cryptocurrency and associated technologies until Congress explicitly instructs it to do so.

  1. The Comptroller of the Currency should allow Special Purpose National Bank Charters for Fintech Companies

As explained in its discussion paper last year, the Office of the Comptroller of the Currency is considering a new federal charter for fintech companies. If structured appropriately, this would allow these innovative companies to operate in a defined legal framework without having to become fully-fledged banks (although that path would be available to them). Some revision will be needed to the structure proposed in the discussion paper, but the general principle is sound. The OCC should also advance its thinking on replicating the UK’s “regulatory sandbox” for FinTech firms.

  1. The Department of Labor should begin to repeal the fiduciary rule, and minimize its effects in the meantime

While the Department of Labor has delayed significant aspects of its “fiduciary rule,” it is still onerous on modest savers and the companies that would like to advise them. By the government’s own estimates, the Department of Labor’s rule was the most expensive regulation of 2016. It threatens loss of access to investment advice and choices for millions of middle-class savers, as well and the livelihoods of thousands of brokers and insurance agents. The Department should use the rulemaking process to begin repealing the rule outright and minimize its harmful effects until this repeal is completed.