Aug. 7, 2024

The CFPB, Financial Regulation and Generative AI… Oh My!

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Although the US Supreme Court recently upheld the CFPB’s funding system—and removed a major threat to the agency’s ability to regulate financial products and services—the future of financial regulation is far from settled or certain.

On today’s episode, host Matt Snow speaks with Armen Meyer, Co-Founder of the American Fintech Council, about the implications of the CFPB ruling on the financial industry and other regulatory and government institutions. Matt and Armen also explore the growth of the FinTech industry, the role of regulatory technology, and the potential risks and benefits of generative AI.

Discussed in this episode:

  • Why finding a middle ground between pragmatism and aspiration is essential for regulatory stability
  • The relationship between rising interest rates and the decline in bond prices
  • How open banking rules facilitate the free flow of data and enhance competition in the banking sector
  • The disparity in tech investment between big banks and small regional banks
WEBVTT

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You're listening to Leaders in Lending from Upstart, a podcast

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dedicated to helping consumer lenders grow their programs and improve

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their product offerings. Each week, here, decision makers in the

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finance industry offer insights into the future of the lending industry,

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best practices around digital transformation, and more.

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Let's get into the show, all.

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Right, welcome to another episode of Leaders in Lending. This episode,

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I'm joined by Arman Meyer. Arman, welcome to the show.

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Thank you for having me. It's great to see you

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again and chat live. I know we've had a little

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bit of.

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Time getting on each other's calendars. We've been chatting a

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little bit about the recent CFPB ruling and the Supreme

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Court's take on you know, it's funding and legality of that.

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So I'm interested to hear your perspective on that even

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a few weeks after that, if anything's changed, or maybe

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we should start by just going in to the case

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a little bit.

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And you know, who brought the suit, why did they

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have reason to bring in? What happened? Well?

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Sure, the good news on this topic is no matter

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when we discuss it, it's a gift that keeps giving.

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There will always be challenges at CFPB.

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Like since we last spoke, two new arguments against the

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CFPB have arisen in public forums.

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Will probably see them make their way into litigation.

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So just because we're talking about something that was ruled

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on a couple of weeks ago doesn't mean it's not

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gonna be relevant for in my view, unfortunately, many more years.

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But this particular case was an extension of other efforts

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to kind of, i'm gonna say, almost blow up the CFPB.

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This was the latest version came from a trade association

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of higher price shorter term lenders who did not like

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a particular rule which affects payday lenders defined as those

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who make loans with the duration that's a full repayment

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under forty five days, and higher price long term lenders

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those whose loans extend over forty five days but their

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rate exceeds thirty six percent. You can imagine why some

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in industry would be okay with this. You can also

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imagine why some in some sets of industry would hate this.

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So that was the origin was taking on this rule

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and making one of many claims. The typical claims you

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make in these cases, are you exceeded your satutory authority,

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You didn't follow the Administrative Procedures Act.

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You were arbitrarying and rule making. But this one in

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past we've seen and your.

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Structure is horrible because you should be a board and

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not an individual leader. We've seen those in the past

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and that's been decided. We'll get back to that later perhaps,

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but in this case, the argument was and the CFPD

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shouldn't be getting money anyway because it's unconstituently funded, despite

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the fact that Congress laid out the law for how

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it should get funded. The idea is that that's unconstitutional

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because of violate the appropriations caused the Constitution. And I'll

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spare getting into the legalities of that, but that was

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the thrust of it. And what we saw, of course,

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was the Supreme Court rejected that argument pretty heavily. I

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think Clarence Thomas wrote the opinion, and I think a

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reason it was rejected, and I think it's good at

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what's rejected.

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But a reason was rejected is.

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Because the implications of such a finding that Congress is

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not going to interpret its own appropriations clause and we're

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going to decide that the structure of the CFPD, where

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it's funded through the federal Reserve rather than directly from Treasury,

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therefore makes the whole thing not constitutional and essentially gone.

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I can go to more details on what that means.

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It's a pretty uncomfortable position to be in because you

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can it's not even a slippery slope, just right adjacent

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to that. It's almost hard to distinguish is blowing up

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many many other agencies who are funded not through appropriation.

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There's a thing called the Federal Reserve.

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A lot of people hate it, but a lot of

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people recognize, wow, COVID could have been a lot worse,

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and we got out of the potential serious depression because

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the facility is the FED created. Or Wow, that thing

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called the financial crisis could have been a lot worse.

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We thought it was potentially the end of financial capitalism

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if you talk to bankers back in two thousand and

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nine and how bad that was.

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But the Federal Reserve was a huge part of getting

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out of it.

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So you can see why a court might be uncomfortable

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ruling in favor of the plaintiffs here at CFPB. The

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slippery slope is not very slippery, nor much of a slope.

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It's right there to other agencies, and I could list

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many more.

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I don't want to bore your audience.

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Yeah, well, you're right, there are lots of rabbit holes

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we could go down. And I started in preparation for

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our conversation doing a little research. And like you said,

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on the appropriations clause, it's interesting how some of these

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suits can you know, you're trying to find like any foothole.

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Maybe it's tangential to your real beef with with someone

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in a case that you find any reason to try

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to bring a suit to bring them down. But it

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was I think ruled seven to two, so pretty pretty

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unanimous almost you know, considering the court's makeup, might think

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you're right.

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Most most people found.

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Reason for for affirming the CFPBS funding in this case,

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which which is good.

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And I think it is. It is important.

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I think maybe hit on a little bit on the

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appropriations calls because they're the Fed does have oversight, they

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are I think maybe some of the argument was about

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the independence of the CFPB or could they just run wild,

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But it seems that it fit within the appropriation's clause

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that there was clear delineation around, you know, how how.

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They could use their funds or how they could operate.

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Yeah, I think it's also important, though, to be pragmatic

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here as well. Besides the legal arguments, I think those

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of us who had businesses to run have to do

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things and serve customers and make big decisions and invest

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in very big decisions what our productal look like if

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we listen. I mean, just like taking like now three

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steps back, like do we really want to be in

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a world and frankly, we're entering this world and it's

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a scary place to be. Do we really want to

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be in a world where we're constantly taking institutions on

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and blowing them up? Where I mean, if you're if

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you believe that you need government for capitalism to work,

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because we've seen a world where there's unregulated capitalism before

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there was regulation, we.

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Saw what that did to people.

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But if you go to the other extreme, we've also

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seen command economy say you know, we don't trust you capitalists,

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so we're gonna do it ourselves. It's super boring, but like,

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let's be a little moderate. I mean, I know it's

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not cool. I know my position is not cool here,

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but the idea that I'm going to keep trying to

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blow up agencies.

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Or we're gonna we're gonna.

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Look for the next selection for to get our way

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leads to an unlasting piece where we can win victories

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today as an industry, but they're going to be lost

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as tomorrow. And there are plenty examples of winning a

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rule and then seeing it get repealed on both sides.

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And if we could work a little more together and

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focus less on blowing up the agency and focus more

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on what's the rule of the road that protects consumers

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and allows growth and creates continuity and allows us to invest,

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we've been a lot better place and there's a lot

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of brain damage if you ask me on how the

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CFB is ruining our lives when in fact, there are

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ways in which it has been aggressive and we should

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talk about that, But there are ways is which has

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been quite moderate and it's been helpful to the market

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and to consumers. We can talk about those two. Not

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all regulation is bad and we kind of should get

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out of our corners and the cf you come like

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the lightning rod of this macro argument regulation and we

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should stop post China CFB and we should kind of

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be a little more adult. I think about regulation and

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what it can do for our bitsiness to grow and

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not just how is the source of imposition.

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Yeah, that's a great point, and I think sometimes regulation

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is viewed maybe in this adversarial lens, but I think

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you bring up great points around you know, balance or

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stability and let's find the middle ground here, because I

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think in any system there's going to be bad actors

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and people trying to exploit weaknesses or for their own

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gain or take advantage of consumers. But you know, I

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think there are also groups out there trying to lay

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that common groundwork or find fair rules for everyone to

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play by, and there's still spots for innovation within that

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if everyone agrees to what's best.

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One example, if I could, I mean, I was chiefest

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staff of New York's bank regulator and during that time

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we were diagnosing the France crisis. I went over there

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during the crisis to see if I could be of

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some help and that was kind of my entry point

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from broad economic policy with some franch services into full

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blown and financial service policy about fifteen years ago. And

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a thing that came out of Dot Frank that we

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could all agree to was regulation that was not just

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good for the consumer, but was good for the economy

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and good for the banks and good for the lenders.

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So that the.

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One example I'll make of this, which I think is

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probably best for a lending audience, but I believe is

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our audience, and there are many, is of course, the

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qualified mortgage rule, which basically says we need regulation that

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ends this idea of opacity and non transparency to consumers

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because it's not just bad for a consumer.

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We end up having to have a race to the bottom.

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We have to compete on grounds we in industry don't

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want to compete on because someone else is going to

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obfuscate or mislead. So let's just create a mortgage product

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that is qualified to get out of this liar loan

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scenario and other scenarios that ended up being erased to

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the bottom increase sales. But it was all short term,

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and it's one of many reasons, but it is an

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important reason why the French has happened, that we were

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selling loans p that they couldn't afford industry with doing that,

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and it didn't have to be. And I think that

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what came out of the crisis was, Wow, we do

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need rules that stop these races at the bottom and

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that then allow investment in a more firm landscape so

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that you don't have to change your investment over time

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because others are cutting corners. You can actually stick to

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that good product and then products actually get better. So

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those are two reasons if you ask me why we

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want regulation and why if the CFV was if this

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rule went down under this theory, in this case with

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the petty lending rule, you would have seen all sorts

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of other rules go down. And I can make the

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same argument for why the pety lending rule itself is

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a good thing. But the mortgage one, I think is

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a bigger one that really I saw firsthand when I

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was at the New York Banking Department now called the

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Partner Fan Services.

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Yeah great, and you read my mind kind of tying

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the connection to maybe some of your other earlier experience

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in your career. What about as a co founder of

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the American Fintech Council up starts a member of that

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as well, what was some of the need you saw

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that arose to bring that to life?

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You no, thanks, thanks for raising that.

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And Upstart is a member and and and an important member.

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It's you know, it's a similar theme in matter respects.

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I think the American fit a council when a few

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us got together and created it.

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We were thinking about how.

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You can exploit regulatory gaps, which we've seen some businesses do,

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or you can fill them yourself with higher standards than

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what currently exists, so that you're paving the regulatory road

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for the regulators, for the enforcement agencies. And that's a

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good thing to do as you grow up as an

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industry because if you don't and you don't paint it

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for them, it will get painted for you one way

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or another. And if it's not the CFPB because it

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magically blows up because of litigation, it's going to be

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in a trade general, it's going to be the FTC.

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So there's no avoiding it. You are much better off

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figuring out for yourself what's good for consumers and good

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for your business. To delay that foundation for your investment

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to prevent those races to the bottom, then you are

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leaving it up to an agency that is now reacting

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to customer harm. So we want to get on our

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front foot, and that was a major reason to start

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the American Fintech Council. It was also a great way

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of bringing companies together who really believed in doing good

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for customers, not just through rhetoric, but through actions and data.

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And I think actions and data is the way you

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distinguish yourselves from those who just say things. And I

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think the American Fintech Council members, including the board members,

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like I've started, I've done a great job walking the

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walk on some issues. I'm sure the regulators would disagree

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with AFC on several things, but they certainly have to

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concede that we've walked the walk on several issues and

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have pushed regulatory landscape forward and have ourselves obviated some

253
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risks of bad role making because we got on our

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front foot with some good rolemaking.

255
00:13:04.759 --> 00:13:07.960
Yeah, that's great. Did you find it was easier bringing

256
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a disparate group of companies together under an umbrella or

257
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getting regulator's attention or did you find maybe describe some

258
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of the challenges or opportunities in that experience.

259
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No?

260
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Sure, I think at first, when you tell people what

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you're trying to do, they think you're crazy. To be honest,

262
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why are you going to raise standards?

263
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Are you nuts? And then what I.

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Found was maybe we didn't get everyone we wanted in

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the beginning, back in twenty early twenty twenty one. But

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as the Biden administration came in and they started creating

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the standards by enforcment actions that weren't always visible or

268
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by behind the scenes supervision. I always said, if we

269
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build the umbrella of people who are pushing yambot and

270
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crazy standards together, others will join us as opposed to

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be repulsed by us, because they're going to see the

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value of being in a group that is forward thinking

273
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and they're going to be a part of us. So

274
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as twenty twenty one went on, we did find our

275
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membership increase by folks who were feeling the impact of

276
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the new administration and needed help getting on their front

277
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foot and telling their product story because it's too easy

278
00:14:15.360 --> 00:14:18.279
without some help to leave value on the table in

279
00:14:18.360 --> 00:14:21.200
terms of the good you're doing and to just allow

280
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the regulators to see the bad. So I think we

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00:14:23.720 --> 00:14:26.279
were able to bring folks in. And then we also

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00:14:26.320 --> 00:14:28.159
wanted I mean Lending Club where I was at at

283
00:14:28.200 --> 00:14:31.320
the time, we didn't want to just create an umbrella

284
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of actors who wanted to push the envelope. We wanted

285
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to create an ecosystem. We started very very early on

286
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in the Legacy organization one of the legacy groups of

287
00:14:40.399 --> 00:14:44.399
the AFC as just lenders, non bank lenders. But as

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fintech evolved and fintech started doing more and more different things,

289
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Lending Club, for instance, bought a bank. We saw and

290
00:14:51.320 --> 00:14:53.399
banks were now part of the fintech in a lot

291
00:14:53.440 --> 00:14:55.960
of new ways that weren't just focused on landing. So

292
00:14:56.080 --> 00:15:00.360
this whole bass banking thing that unfortunately some there have

293
00:15:00.399 --> 00:15:02.519
been some there's been some negative headline, but some not

294
00:15:03.039 --> 00:15:06.279
awesome conduct which is now staining those that are actually

295
00:15:06.279 --> 00:15:09.240
doing greed for consumers and doing great partnerships. Anyway, we

296
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wanted to bring some of those folks together because the

297
00:15:11.440 --> 00:15:15.679
ecosystem was evolving and we wanted to create the synergies

298
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between folks who work together to advance better policy and

299
00:15:19.559 --> 00:15:22.559
work with partners who are more responsible and to kind

300
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of help create that ecosystem.

301
00:15:24.039 --> 00:15:25.720
And I think we succeeded there. And I want to

302
00:15:25.759 --> 00:15:28.559
really command our management, our current management for what we're doing.

303
00:15:28.919 --> 00:15:33.279
Yeah, absolutely, definitely important work. And so you mentioned London Club. Yeah,

304
00:15:33.279 --> 00:15:36.720
a lot has changed since the Great Financial Crisis, the

305
00:15:36.759 --> 00:15:40.559
CFPB that we've talked about, American Fintech Council, the introduction

306
00:15:40.639 --> 00:15:44.679
to more FinTechs and partnerships, or fintech's becoming banks, any

307
00:15:44.720 --> 00:15:48.639
other major trends that you've noticed and that.

308
00:15:48.799 --> 00:15:52.519
I mean to me, what's so exciting is the regulatory

309
00:15:52.639 --> 00:15:56.480
technology trend hastened by generative AI.

310
00:15:57.240 --> 00:16:00.960
And I know you know, AI a very big word.

311
00:16:01.120 --> 00:16:03.559
And just like fintech, everyone wanted to be a fintech

312
00:16:03.600 --> 00:16:07.399
seven eight years ago when when fintech started, suddenly everyone

313
00:16:07.559 --> 00:16:10.039
was a fintech. Right now we're seeing everyone wants to

314
00:16:10.039 --> 00:16:14.559
be AI. But regardless, I don't mean to jump into hype.

315
00:16:14.960 --> 00:16:20.039
Generative AI creating content or analyzing on structured data and

316
00:16:20.080 --> 00:16:23.559
structuring it in ways that humans have not really been

317
00:16:23.559 --> 00:16:25.639
good at and in ways that machines have been horrible at.

318
00:16:25.720 --> 00:16:29.679
This new technology is the basis of a huge regulatory

319
00:16:29.720 --> 00:16:34.799
technology and supervisor technology framework, if you ask me, and

320
00:16:34.840 --> 00:16:37.960
we're going to see really interesting companies emerge more and

321
00:16:38.000 --> 00:16:40.960
more that are going to figure out how to meet

322
00:16:41.039 --> 00:16:44.399
regulatory standards. And I know it's scary, it sounds scary

323
00:16:44.399 --> 00:16:49.559
in the beginning, but think of AI as your junior

324
00:16:49.679 --> 00:16:52.600
compliance officer to take that first cut. It has to

325
00:16:52.600 --> 00:16:55.120
all be supervised, but we're really going to be able

326
00:16:55.120 --> 00:17:00.519
to automate and improve and a lot of compliance heard

327
00:17:00.679 --> 00:17:02.879
which are going to better for consumers, going to do

328
00:17:02.879 --> 00:17:05.200
it better, and it's going to be better for smaller

329
00:17:05.319 --> 00:17:07.839
entities who can now compete more and create a more

330
00:17:07.880 --> 00:17:10.559
competitive market because they're not throwing.

331
00:17:10.240 --> 00:17:13.839
So much at compliance costs. So I am super excited by.

332
00:17:13.720 --> 00:17:17.240
Regulatory technology and the use genera AI, and I hope

333
00:17:17.279 --> 00:17:19.960
we don't ruin it by having folks be a little

334
00:17:19.960 --> 00:17:23.839
cavalier and use generator AI a little avant garde without

335
00:17:23.839 --> 00:17:25.880
the proper controls in place. It is on us in

336
00:17:25.880 --> 00:17:29.359
industry often to see the value of our work by

337
00:17:29.359 --> 00:17:32.640
being incremental and by communicating the regulators what we're doing

338
00:17:33.240 --> 00:17:36.240
and not starting with the most risky area. So I

339
00:17:36.279 --> 00:17:39.519
hope we're not going to take our GENI and start underwriting.

340
00:17:39.880 --> 00:17:42.880
I don't think people will do that, or start or

341
00:17:43.519 --> 00:17:47.319
engaging with customers directly and leading to bad outcomes. This

342
00:17:47.440 --> 00:17:49.640
is risky stuff that people are too smart to do.

343
00:17:49.960 --> 00:17:53.119
And I think we educate regulators and policy makers on

344
00:17:53.319 --> 00:17:55.720
the great use case of GENI which are not going

345
00:17:55.720 --> 00:17:58.319
to be customer facing, which can be heavily supervised, which

346
00:17:58.319 --> 00:18:01.319
we have great model wors and and over what you're

347
00:18:01.359 --> 00:18:03.599
actually going to make ecoremy a lot better and empower

348
00:18:03.640 --> 00:18:04.799
small banks and small.

349
00:18:04.640 --> 00:18:05.720
Entities who grow.

350
00:18:06.480 --> 00:18:09.039
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351
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364
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Thanks and now back to the show. Yeah.

365
00:18:49.839 --> 00:18:52.880
I totally agree, and I think again like the themes

366
00:18:52.960 --> 00:18:57.480
around transparency or explainability and using these keeping the human and.

367
00:18:57.440 --> 00:18:59.680
The loop so to speak, I think are really important.

368
00:18:59.680 --> 00:19:02.480
And these are early days, super exciting times and lots

369
00:19:02.480 --> 00:19:06.839
of use cases and technology and companies coming up right now.

370
00:19:06.880 --> 00:19:07.680
But I think you're right.

371
00:19:07.680 --> 00:19:10.559
I think it could be used a lot proactively doing

372
00:19:10.599 --> 00:19:14.200
research or the way it's enriched and helped search anytime

373
00:19:14.279 --> 00:19:16.759
there's a huge body of work you're trying to sort through.

374
00:19:16.880 --> 00:19:20.119
It can accelerate the degree of which we can comprehend

375
00:19:20.240 --> 00:19:24.079
or just get a handle on something as complex as regulation.

376
00:19:24.240 --> 00:19:26.599
So definitely excited to see what comes out of that.

377
00:19:28.000 --> 00:19:29.400
You know, a lot of work to do, but a

378
00:19:29.400 --> 00:19:30.319
lot of opportunity.

379
00:19:30.359 --> 00:19:32.799
And I'm normally one of these people who is skeptical

380
00:19:32.920 --> 00:19:37.039
on these things. And I think you put your head

381
00:19:37.039 --> 00:19:39.799
in your sand if you're overly skeptical on the potential here,

382
00:19:39.880 --> 00:19:41.559
But you're putting your head of sand if you're not

383
00:19:42.079 --> 00:19:44.000
looking at the risks that you just laid out that

384
00:19:44.039 --> 00:19:45.440
we have to get a grasp both.

385
00:19:46.000 --> 00:19:47.640
So I guess we've talked about this a little bit.

386
00:19:47.640 --> 00:19:50.079
But would you say the CFPP has been successful in

387
00:19:50.119 --> 00:19:52.400
the decade and a half since it's been around, like

388
00:19:52.640 --> 00:19:54.279
overall all things considered.

389
00:19:55.079 --> 00:19:56.119
I was reading some stats.

390
00:19:56.119 --> 00:19:58.119
It looks like they know they've taken in maybe four

391
00:19:58.160 --> 00:20:01.359
million complaints the last figure I end of last year,

392
00:20:02.759 --> 00:20:05.240
billions of dollars in funds back to consumers.

393
00:20:05.279 --> 00:20:07.880
Like, how would you judge its success?

394
00:20:09.000 --> 00:20:12.200
Yeah, I mean, I think those are important metrics, they're

395
00:20:12.200 --> 00:20:14.200
not the ones that I would focus on first. I

396
00:20:14.240 --> 00:20:16.519
guess I like to look at how as a CFPB

397
00:20:17.200 --> 00:20:19.119
made the market more stable.

398
00:20:19.680 --> 00:20:24.240
And improved almost the thing you can't see. Have we

399
00:20:24.359 --> 00:20:27.519
seen companies.

400
00:20:26.960 --> 00:20:30.920
Emerge and grow up because of a more stable environment

401
00:20:31.839 --> 00:20:33.599
that protected consumers.

402
00:20:33.640 --> 00:20:36.640
That these companies weren't age out.

403
00:20:36.519 --> 00:20:39.599
Of existence or force out of existence, but there were

404
00:20:39.720 --> 00:20:42.000
rules of the world that allowed them to thrive that

405
00:20:42.079 --> 00:20:46.400
were reasonable enough and out of consumers so that the

406
00:20:46.480 --> 00:20:51.319
product was long lasting. And I think, like that metric boy,

407
00:20:51.359 --> 00:20:52.920
hasn't a lot of great stuff happened in the last

408
00:20:52.960 --> 00:20:56.160
fifteen years. I mean, I take issue with something that

409
00:20:56.240 --> 00:21:00.559
CFP has done. And I think any one that like

410
00:21:00.680 --> 00:21:06.119
loves the CFPB every action is going to UH. I

411
00:21:06.119 --> 00:21:08.559
think it's hard to pick any agency, including the cfp

412
00:21:08.599 --> 00:21:11.519
B and love everything they've done. But I'll actually let's

413
00:21:11.559 --> 00:21:14.839
lament on two things I think are not the greatest

414
00:21:15.039 --> 00:21:17.759
and that we should UH ask for more from a

415
00:21:17.839 --> 00:21:21.480
cfp B and from government on. One is going back

416
00:21:21.519 --> 00:21:26.839
to the seesaw. You know, I like the initial five

417
00:21:27.079 --> 00:21:31.799
year structure where the where the there's independence of the

418
00:21:31.799 --> 00:21:36.599
cfp B, where the director was in for five years. Unfortunately,

419
00:21:36.640 --> 00:21:38.359
some in industry in an effort to blow up the

420
00:21:38.400 --> 00:21:40.640
CFP be similar to this case, we started all talking

421
00:21:40.640 --> 00:21:43.400
about with the PATI lending rule when at the CFB

422
00:21:43.480 --> 00:21:45.920
hoping to blow it up, and what they got was

423
00:21:46.119 --> 00:21:49.160
the end of the five year structure and instead serve

424
00:21:49.240 --> 00:21:51.039
at the pleasure to president.

425
00:21:51.440 --> 00:21:52.279
Why is this bad?

426
00:21:52.319 --> 00:21:56.759
Because we just reinforced the idea of short termism and

427
00:21:56.839 --> 00:22:00.960
partisanship in regulatory bodies. And that's bad because now we

428
00:22:01.079 --> 00:22:04.960
are seeing people who just want to survive the next

429
00:22:05.000 --> 00:22:08.640
election in terms of a certain regulatory regime and not

430
00:22:08.680 --> 00:22:11.440
actually pushing for law and lasting regulation. And I think

431
00:22:11.599 --> 00:22:14.880
we're going to see more and more partsnership and our regulators,

432
00:22:15.000 --> 00:22:16.519
and we are seeing it and to see if it

433
00:22:16.559 --> 00:22:19.079
be as unfortunately in that lightning rod. So I really

434
00:22:19.079 --> 00:22:22.680
do lament that we have lost that five year structure.

435
00:22:22.720 --> 00:22:24.680
I think it creates more parts of it than necessary

436
00:22:24.759 --> 00:22:28.079
and it's a rotten apple on all of our regulators.

437
00:22:28.319 --> 00:22:32.000
The other thing I lament is I thought i'd see.

438
00:22:31.880 --> 00:22:37.039
If you did under quadarie to allow companies not to

439
00:22:37.200 --> 00:22:39.519
get out of regulation, which is how some critics who

440
00:22:39.519 --> 00:22:42.160
I disagree with but call it these no action letters

441
00:22:42.200 --> 00:22:46.640
or these sandboxes. But let's be honest, regulation can be vague,

442
00:22:46.839 --> 00:22:51.839
and sometimes that clarity is needed to.

443
00:22:51.000 --> 00:22:54.680
Invest and grow and serve customers.

444
00:22:55.000 --> 00:22:59.599
And I don't think ending a program that created clarity

445
00:23:00.680 --> 00:23:04.799
to allow companies to grow was the best idea, but

446
00:23:04.920 --> 00:23:08.880
then replacing it saying and saying frankly rhetoric, we don't

447
00:23:08.880 --> 00:23:10.640
pick winners on losers, so we're not going to do

448
00:23:10.680 --> 00:23:12.559
that with some of the rhetoric got to CFP at

449
00:23:12.559 --> 00:23:15.160
that time ending it's no action letter prior programs ending

450
00:23:15.160 --> 00:23:19.519
its sandbox programs. I think then to replace that with

451
00:23:19.720 --> 00:23:22.400
but we're going to pick winners and losers for risk

452
00:23:22.440 --> 00:23:23.279
based supervision.

453
00:23:24.200 --> 00:23:25.240
That's a little alarming.

454
00:23:25.319 --> 00:23:28.680
I wish to see I FPB would rethink those approaches,

455
00:23:28.759 --> 00:23:31.359
because you can't say you're not picking winners and losers,

456
00:23:31.359 --> 00:23:33.119
but then pick winners and losers.

457
00:23:33.480 --> 00:23:34.160
And I think it's.

458
00:23:34.000 --> 00:23:39.519
Important to focus on how the economy can grow and

459
00:23:39.920 --> 00:23:43.480
regulation of that nature rather than just saying, oh, we

460
00:23:43.480 --> 00:23:45.799
want to learn more about this company or this industry,

461
00:23:45.839 --> 00:23:47.119
so we're taking for supervision.

462
00:23:47.119 --> 00:23:48.079
That's a little scary to me.

463
00:23:48.440 --> 00:23:50.839
And we've seen that movie with the financial stability Overside

464
00:23:50.880 --> 00:23:53.480
Council when Dot Frank created a body to do just that,

465
00:23:54.559 --> 00:23:58.000
and I think there was a lot more reason to

466
00:23:58.039 --> 00:24:00.000
do it then, because we're talking a very, very large

467
00:24:00.119 --> 00:24:02.599
organizations that could bring the whole system down, and there

468
00:24:02.599 --> 00:24:05.440
were many, many votes involved, not just one agency. I'm

469
00:24:05.440 --> 00:24:07.920
a little uncomfortable with the current regime on that. But

470
00:24:08.039 --> 00:24:09.880
other than some of those examples where I do think

471
00:24:09.880 --> 00:24:13.720
the cfp's overreached, overall, I would say it's been quite successful.

472
00:24:14.079 --> 00:24:16.720
We haven't seen anything like a crisis. We've seen the

473
00:24:16.720 --> 00:24:21.200
alignment of consumer protection and safety and soundness. We prevented

474
00:24:21.240 --> 00:24:22.559
some of those races at the bottom that I was

475
00:24:22.599 --> 00:24:25.720
talking about. But yeah, we have an overreach issue, and

476
00:24:25.759 --> 00:24:28.119
that's just life, right. We need to push background and

477
00:24:28.119 --> 00:24:31.119
seepeople relentlessly when we think they're overreaching, But we also

478
00:24:31.160 --> 00:24:34.839
need to not be potshotters on the sidelines criticizing everything.

479
00:24:35.279 --> 00:24:38.839
Absolutely, yeah, I think fair to criticize, but also important

480
00:24:38.839 --> 00:24:40.119
to be a part of the solution as well.

481
00:24:40.160 --> 00:24:42.240
So again it comes back to the balance and.

482
00:24:42.960 --> 00:24:45.279
Like you said, you know, painting the picture before someone

483
00:24:45.279 --> 00:24:47.000
else paints it for you, it's important to be a

484
00:24:47.000 --> 00:24:47.359
part of that.

485
00:24:49.279 --> 00:24:50.559
Any other trends you're seeing.

486
00:24:50.559 --> 00:24:53.759
I think one of the things I'm anxious about lately

487
00:24:53.839 --> 00:24:56.359
is kind of the regional banks and how they're faring

488
00:24:56.400 --> 00:25:00.759
through some of the collapses recently capital requirements, and how

489
00:25:00.799 --> 00:25:04.079
they maintained competitiveness in their space.

490
00:25:05.000 --> 00:25:06.799
Yeah. Well, two thoughts there.

491
00:25:06.960 --> 00:25:10.839
One is it's such a tragy that Silicon Valley Bank

492
00:25:10.920 --> 00:25:14.480
went down. Yes, we can say they were poorly risk managed,

493
00:25:14.480 --> 00:25:17.920
and we wouldn't be wrong. What's interesting by Silicon Valley Bank, though,

494
00:25:18.279 --> 00:25:20.720
is what brought them down wasn't the thing you would

495
00:25:20.720 --> 00:25:23.720
have thought would have brought them down. And banks and

496
00:25:23.759 --> 00:25:27.079
banks similar to it. In other words, you're making loans

497
00:25:27.119 --> 00:25:32.440
to risky businesses, but the underwriting worked out. It wasn't

498
00:25:32.440 --> 00:25:36.799
that the loans scaled to the startup culture in San Francisco.

499
00:25:36.880 --> 00:25:43.000
Who failed was the connectivity of the deposits to venture capitalists.

500
00:25:43.000 --> 00:25:43.880
That's what failed.

501
00:25:44.400 --> 00:25:47.920
You know, some people will want to blame their risk management,

502
00:25:48.000 --> 00:25:51.200
But if any of us had a bunch of depositors

503
00:25:51.240 --> 00:25:54.240
connected to a dozen or a few dozen people who

504
00:25:54.240 --> 00:25:56.119
could get on the phone to talk and decide to

505
00:25:56.119 --> 00:25:58.319
pull our money, any bank would be in a lot

506
00:25:58.359 --> 00:26:01.640
of trouble. You don't and you don't need these arguments

507
00:26:01.680 --> 00:26:03.799
of oh it's because of the Internet.

508
00:26:03.960 --> 00:26:07.079
Oh it's because of like able to pull your money quickly.

509
00:26:08.200 --> 00:26:12.200
This was unfortunately a shot in the foot of the

510
00:26:12.240 --> 00:26:16.119
venture capital industry to the venture capital industry, and that

511
00:26:16.519 --> 00:26:21.680
then exposed, of course, the decline these bond prices. And

512
00:26:21.759 --> 00:26:24.279
so now we have banks that are working their way

513
00:26:24.319 --> 00:26:26.519
out of the decline of bond prices because of rising

514
00:26:26.559 --> 00:26:31.079
interest rates. But they're different from Silicon Valley Bank because

515
00:26:31.119 --> 00:26:33.200
of the deposit base, and that is I think one

516
00:26:33.200 --> 00:26:35.519
of the major stingcation features that we don't focus on enough.

517
00:26:36.319 --> 00:26:38.960
So the crisis is it is somewhat contained, but there

518
00:26:39.000 --> 00:26:41.279
is trouble. But I'll go back to where we started.

519
00:26:41.279 --> 00:26:44.279
I think that the mark of success for regulators and

520
00:26:44.319 --> 00:26:49.160
the CFPB and US as an industry will be can

521
00:26:49.319 --> 00:26:52.079
smaller entities thrive or do we keep having to consolidate

522
00:26:52.160 --> 00:26:54.839
To your point in our regional banks. We want these

523
00:26:54.839 --> 00:26:58.720
smaller banks to be able to invest in technology, whether

524
00:26:58.759 --> 00:27:02.400
it's the right tech conversation already had, or an ability

525
00:27:02.400 --> 00:27:06.960
to reach consumers partnering with and upstart partnering with other providers,

526
00:27:07.880 --> 00:27:10.359
because if they can't then they got to buy the

527
00:27:10.440 --> 00:27:14.160
tech or building in the house themselves, these smaller regional players,

528
00:27:14.440 --> 00:27:15.680
and it's just not realistic.

529
00:27:15.720 --> 00:27:16.400
In this world.

530
00:27:16.440 --> 00:27:20.279
The big banks have gotten so big they have an

531
00:27:20.319 --> 00:27:23.480
infinite tech budget compared to I don't know, the bottom

532
00:27:23.559 --> 00:27:28.160
one thousand, two thousand banks one versus two thousand. Of course,

533
00:27:28.200 --> 00:27:31.680
they're going to need to outsource some tech because if

534
00:27:31.720 --> 00:27:32.759
they don't.

535
00:27:32.440 --> 00:27:34.440
They're going to lose and keep losing the big banks.

536
00:27:34.480 --> 00:27:36.039
So we can't, on one hand say they got out

537
00:27:36.039 --> 00:27:38.400
to preserve the small banks and the regional bank, so

538
00:27:38.400 --> 00:27:41.480
we don't want to take solide about regionals. But then say,

539
00:27:41.880 --> 00:27:44.680
but if you partner, we're going to look really dis

540
00:27:44.720 --> 00:27:47.759
favorably on that with technology companies. But then let the

541
00:27:47.759 --> 00:27:51.119
big tech companies go ahead, and if that's all they

542
00:27:51.160 --> 00:27:54.839
wanted technology, it's just it's an obvious cycle, and I

543
00:27:54.880 --> 00:27:56.799
want the big tech companies invest, but I want the

544
00:27:56.839 --> 00:27:58.799
smaller company. They're sorry, the big banks daily to the

545
00:27:58.880 --> 00:28:01.720
vast attach one of the smaller banks and the regional

546
00:28:01.720 --> 00:28:04.440
banks we invest as well, and you can't all investment

547
00:28:04.480 --> 00:28:06.279
is an equal in a world where one has a

548
00:28:06.319 --> 00:28:08.920
ton of money and one doesn't after years and years

549
00:28:08.920 --> 00:28:11.759
and years in consolidation. So that's kind of my worry

550
00:28:11.759 --> 00:28:15.359
for the regional banks and in the more medium long term,

551
00:28:15.400 --> 00:28:17.160
but we do have to get through the present situation,

552
00:28:17.359 --> 00:28:17.440
you know.

553
00:28:17.440 --> 00:28:18.400
It's like add one more thought.

554
00:28:18.440 --> 00:28:20.519
This brings us kind of the Open Banking Rule, which

555
00:28:20.559 --> 00:28:23.279
is the same idea, and it's another source where I

556
00:28:23.319 --> 00:28:25.920
hope the CFV gets it right and I'm glad they

557
00:28:26.079 --> 00:28:30.480
finally issued it. And basically what it does is if

558
00:28:30.519 --> 00:28:35.799
the economy has highways that allow infrastructure allows.

559
00:28:35.559 --> 00:28:36.559
Companies to grow.

560
00:28:36.759 --> 00:28:39.519
One of those, of course a financial system and money

561
00:28:39.559 --> 00:28:41.920
in finance, but the and there are others and the

562
00:28:41.920 --> 00:28:44.400
other of his data. And what the CFPV is doing

563
00:28:44.519 --> 00:28:47.079
with its Open Banking Rule, which is pending right now,

564
00:28:47.400 --> 00:28:51.039
hopefully is allowing data to flow more. How does this

565
00:28:51.119 --> 00:28:54.119
relate to the conversation on big banks and medium sized banks,

566
00:28:54.440 --> 00:28:57.160
because again, we've allowed big banks to get so big

567
00:28:58.319 --> 00:29:01.440
that they have monopoly on this data. So either we

568
00:29:01.759 --> 00:29:04.480
use regulation. There's another example, I have good regulation I

569
00:29:04.519 --> 00:29:07.839
mentioned too earlier, ability to invest and not have to

570
00:29:07.920 --> 00:29:10.519
raise the bottom. A third one, which I'm glad to

571
00:29:10.519 --> 00:29:13.960
see if he's doing, is creating an infrastructure that allows competition.

572
00:29:14.559 --> 00:29:17.720
And in this case, the infrastructure is not payment rails,

573
00:29:17.839 --> 00:29:21.079
but it's data rails and free flow of data, because

574
00:29:21.079 --> 00:29:23.119
if we don't have this free flow of data and

575
00:29:23.160 --> 00:29:26.160
the customer can't own its own data, then all we're

576
00:29:26.160 --> 00:29:29.039
doing is reinforcing was the trend for decades, which is

577
00:29:29.119 --> 00:29:32.279
big banks using their power in this case data power,

578
00:29:32.400 --> 00:29:37.000
not market power, to grow faster and hoard and put

579
00:29:37.079 --> 00:29:39.480
us at a disadvantage. So we need the open Data

580
00:29:39.720 --> 00:29:44.039
Banking rule to allow other entities access that data to

581
00:29:44.160 --> 00:29:48.359
underwrite better, to provide better products, to transfer funds sorry,

582
00:29:48.400 --> 00:29:51.960
to transfer accounts from customer customer easily, and that's going

583
00:29:52.000 --> 00:29:55.240
to really open up competition. So going back toward start

584
00:29:55.279 --> 00:29:57.559
on success a CFPB, if this rule comes out the

585
00:29:57.559 --> 00:30:00.759
way it should, I would get the CFPB huge credit

586
00:30:01.000 --> 00:30:02.960
for doing what a regulator should do, which is create

587
00:30:03.000 --> 00:30:05.240
a foundation for great you can on a prosperity while

588
00:30:05.400 --> 00:30:07.319
kind the customers, and I really hope they can be

589
00:30:07.319 --> 00:30:08.759
balanced right here as they finalize this.

590
00:30:09.759 --> 00:30:12.880
Yeah, great point, and maybe we'll have to put a

591
00:30:12.880 --> 00:30:15.680
pin in that and come back and talk after that's

592
00:30:15.680 --> 00:30:18.640
been settled on a future episode and see see how

593
00:30:18.640 --> 00:30:22.160
that's landed. I guess selfishly, one of the things I

594
00:30:22.200 --> 00:30:25.480
like to ask guests, especially as this continues to increase

595
00:30:25.480 --> 00:30:28.440
in complexity. Is there a thought leader you follow, a

596
00:30:28.519 --> 00:30:31.440
source of information, maybe a recent book you've read, or

597
00:30:31.440 --> 00:30:34.960
a podcast, like how do you stay abreast of everything

598
00:30:35.000 --> 00:30:36.160
going on in this space?

599
00:30:36.960 --> 00:30:41.160
Well besides Upstarts podcast, of course. You know, if you

600
00:30:41.200 --> 00:30:43.599
haven't read him, I think he's really making a name

601
00:30:43.599 --> 00:30:45.880
for himself, and he's been really deep on a lot

602
00:30:45.880 --> 00:30:48.039
of the issues in ways that almost no one else is.

603
00:30:48.119 --> 00:30:52.880
Jason mccoolaugh who issues Fintech Business Weekly. It is subscription only,

604
00:30:53.359 --> 00:30:55.279
but he does give you tidbits to get a sense

605
00:30:55.319 --> 00:30:58.839
of what he covers for free. But I do recommend

606
00:30:58.880 --> 00:31:01.200
a subscription, don't. I'm not like his agent or anything,

607
00:31:01.200 --> 00:31:03.480
but I've been so impressed. I want to give credit

608
00:31:03.480 --> 00:31:05.640
where credit is due on someone who can really dig

609
00:31:06.039 --> 00:31:08.799
on some of the big fintech issues in a way

610
00:31:08.839 --> 00:31:10.960
that I haven't seen others be able to do.

611
00:31:11.160 --> 00:31:11.839
There's a lot of.

612
00:31:11.799 --> 00:31:15.319
Credit, and you know, broadly, I just want to credit

613
00:31:15.960 --> 00:31:20.559
the reporters. I mean, you know, we trash reports a

614
00:31:20.559 --> 00:31:23.160
lot in the public media and in government, but maybe

615
00:31:23.200 --> 00:31:27.440
we in industry can pay some respect to the way

616
00:31:27.480 --> 00:31:30.759
we just so quickly learn about Road Schoprah's latest speech

617
00:31:31.079 --> 00:31:34.079
or whatever from a really amazing reporter network in the

618
00:31:34.359 --> 00:31:38.039
business and finance space that I'm constantly impressed by. But Jason,

619
00:31:38.039 --> 00:31:39.480
I don't think we'll call him some reporter is more

620
00:31:39.519 --> 00:31:42.160
of a deep diver and I'll keep I'll make those

621
00:31:42.200 --> 00:31:43.039
two points here.

622
00:31:43.400 --> 00:31:43.759
Awesome.

623
00:31:43.839 --> 00:31:45.240
Yeah, that's new to me, so I'll have to add

624
00:31:45.359 --> 00:31:49.440
him to my regular reading. I think you're right, Like

625
00:31:50.039 --> 00:31:52.240
it seems like journalism isn't dead in this age of

626
00:31:52.400 --> 00:31:55.079
social media and everyone kind of pretends to be a

627
00:31:55.160 --> 00:31:57.200
journalist or can get their opinion out there. It's good

628
00:31:57.200 --> 00:31:59.759
that we have people still out there searching for the

629
00:31:59.799 --> 00:32:03.200
true and researching it.

630
00:32:03.680 --> 00:32:03.880
Yeah.

631
00:32:03.920 --> 00:32:06.759
I've been a big fan lately of the podcast Acquired

632
00:32:06.799 --> 00:32:08.680
if you haven't found that one, But they take you

633
00:32:08.799 --> 00:32:13.160
a three to four hour deep dive into company's foundings

634
00:32:13.240 --> 00:32:17.720
or acquisitions, and you know, largely to subscribe to the

635
00:32:17.720 --> 00:32:19.880
theory there's nothing new under the sun, so it's always

636
00:32:19.880 --> 00:32:22.799
good to go back and hear how companies have faced

637
00:32:22.880 --> 00:32:25.599
similar challenges to we're seeing today at different times, or

638
00:32:25.839 --> 00:32:26.680
how they've gotten through.

639
00:32:27.039 --> 00:32:27.960
Well, I'll check that out.

640
00:32:28.039 --> 00:32:29.880
Thanks, I've heard of it, and I think I might

641
00:32:29.880 --> 00:32:31.599
listen to once, but I'm not connecting it, so I'm

642
00:32:31.640 --> 00:32:32.400
gonna double check that.

643
00:32:32.440 --> 00:32:34.960
Thanks for mentioning acquired awesome.

644
00:32:35.079 --> 00:32:37.240
Well thanks for the time, Armin. Always great to catch up,

645
00:32:37.279 --> 00:32:38.759
but appreciate it.

646
00:32:39.200 --> 00:32:40.599
No, thank you, great talking again.

647
00:32:40.960 --> 00:32:43.440
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648
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