Fintech Takes

Bank Nerd Corner: CFPB, De Novos, and The Crypto-BaaS Reckoning

Feb 19, 2025

Dive into the tension surrounding the Consumer Financial Protection Bureau and its impact on consumer safety. Learn why de novo banks are facing immense challenges and how fintechs are pushing for change. The podcast also highlights the role of reputation in bank evaluations and questions around crypto regulation's transparency. Plus, discover the emergence of fraud consortiums in tackling identity theft amid the evolving landscape of financial crime. This enlightening discussion sheds light on the future of banking and innovation.

01:22:17

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Episode notes

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Quick takeaways

The effectiveness of the CFPB is under threat due to leadership changes, raising concerns over consumer protection and regulatory compliance.

New bank formations have drastically declined due to regulatory challenges, impacting competition and diversity in the banking industry.

Crypto-related services face growing regulatory scrutiny, necessitating clearer policies that balance risk management with innovation in the digital asset sector.

Deep dives

CFPB Leadership Changes and Impacts

Recent leadership changes at the Consumer Financial Protection Bureau (CFPB) have raised significant concerns regarding its future operations and effectiveness. Rohit Chopra was removed by Donald Trump and replaced by Scott Besant, who subsequently stalled numerous ongoing initiatives within the bureau. This stagnation has caused internal discontent, with key personnel leaving due to the inability to conduct their normal duties, suggesting a potential collapse of essential functions like consumer protection and regulatory compliance. The ongoing battle for the CFPB's relevance illustrates broader tensions in the regulatory landscape as political shifts influence consumer financial protections.

Intro

2min

Navigating the CFPB: Challenges and Changes

22min

The Challenges of De Novo Banks

19min

The Future of Banking: De Novo Charters and Market Innovations

4min

Navigating Crypto Regulation

14min

Evaluating the Effectiveness of Financial Crimes Enforcement

4min

The Rise of Fraud Consortiums

14min

Exploring FinCEN's Role in Fraud Prevention and Fintech Regulations

2min

Welcome back to Bank Nerd Corner, featuring yours truly and #1 among all bank nerds, Kiah Haslett, Banking and Fintech Editor at Bank Director.

By the time you’re reading this, we’ve had ~3 weeks of “fun” updates from the CFPB, and we have a lot to unpack!

First up, who actually wants the CFPB gone? Gutting the CFPB won’t end consumer protection; it just shifts the burden. Funny how the loudest CFPB critics are the ones who profit most from consumer confusion. Even some bank execs admit the CFPB keeps markets fair. Referees are annoying, but you don’t want a game without them.

Next, it seems like regulators care again about de novo banks (a topic we touched on 18 months ago but hey, who’s counting?). Post-crisis regulations, slow approvals, and a weaker market for bank sales have made starting a new bank a very tough sell. Plus, new banks are facing VC-style growth pressure, often relying on risky funding just to stay afloat. But it’s not just community banks pushing for change—fintechs want in, too. So, why are fintechs suddenly advocating for more de novo charters? And did fintech and BaaS make them obsolete by offering a faster, more efficient path to scaling and returns?

Switching gears: debanking raises serious questions about how reputation factors into bank risk evaluations. If reputation matters, can’t it be weaponized? Crypto wasn’t changing the world, but regulators fumbled debanking. Transparency is key—if it’s a “no,” just say it, don’t dodge FOIA requests. Kiah nails it with this analogy: Crypto is like BaaS. Both used middleware to scale quickly, but while crypto’s risks were obvious, BaaS flew under the radar—until Synapse and cease-and-desists made it impossible to ignore.

And finally, the unanswerable question of the week: what’s FinCEN actually doing? Banks still can’t warn each other about fraud. FinCEN hoards data for law enforcement but isn’t required to use it. So, what’s the point?

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