Enjoying the podcast? Don’t miss out on future episodes! Please hit that subscribe button on Apple, Spotify, or your favorite podcast platform to stay updated with our latest content. Thank you for your support!
To say it has been a busy year for fintech policy folks would be a gross understatement. With the change in administration to Trump 2.0, we have a 180-degree different perspective on most fintech issues than the previous administration. And there have already been many actions taken by the Trump White House that will have far-reaching implications for fintech.
To help us unpack all these issues, I invited back to the show, Penny Lee, the CEO of the Financial Technology Association (FTA) and one of the leading voices in Washington for our industry. In addition to navigating all the complex regulatory changes, the FTA is also putting on their annual CEO Summit this month and, as of this writing, tickets are still available.
In this podcast you will learn:
- The state of play in Washington today and its implications for fintech.
- Why rescinding the 1033 rule would be such a big deal.
- How they will be fighting this in court.
- Why this will be in the court system for a while, whoever wins the initial decision.
- Where the FTA stands on payments modernization.
- Penny’s thoughts on the remittance tax provision of the Big Beautiful Bill.
- The BNPL bill that was passed in New York and its impact on the industry.
- What the FTA is doing with Earned Wage Access initiatives in the states.
- The state of play for AI regulation in the states as well as the federal level.
- The prospect for a federal AI bill this year.
- Details of the annual FTA CEO Summit in Washington happening on June 25.
- Who is going to be on stage from industry and government.
- What else FTA members are doing while they are in DC.
Read a transcription of our conversation below.
FINTECH ONE-ON-ONE PODCAST NO. 538 – PENNY LEE
Penny Lee: Going forward, we have jurisdictions around the world that are engaged in open banking. Consumers should be able to control their data. They should be able to ask for it, receive from the data provider, and be able to permission it as they see fit. It shouldn’t be adherent to one or two large banking institutions to say, we control all aspects of your financial life. I mean, that’s just, and you know, that’s against the American way. It is your data. You should be able to ask for it, receive it, and permission it as you please.
Peter Renton: This is the Fintech One-on-One Podcast, the show for fintech enthusiasts looking to better understand the leaders shaping fintech and banking today. My name is Peter Renton, and since 2013, I’ve been conducting in-depth interviews with fintech founders and banking executives. Today on the show, I am delighted to welcome back Penny Lee, the CEO of the Financial Technology Association, one of the leading trade associations in the fintech space.
We cover a lot of territory in this interview, starting with the evolving landscape for fintech under the new Trump administration. We delve into the challenge to the open banking rule, why that is such a big deal for fintech and how the FTA is fighting it. We also discuss payments modernization, remittance taxes, and the role of AI in fintech, as well as several state level legislative activities. We close with a discussion of the upcoming FTA CEO Summit happening in DC on June 25th. Now let’s get on with the show.
Welcome back to the podcast, Penny.
PL: Peter, thanks for always having me on. It’s a real pleasure to be with you today.
PR: Pleasure is all mine. It’s been two and a half years since I last had you on. Boy, that seems like the time has flown. Obviously, we’ve had a lot of changes in the fintech space, not least of which is driven by a new administration, which has a very different perspective than the previous administration. So maybe we can start off by just giving the listeners a little bit of how you find the state of play in Washington, DC today. How is it different under Trump 2.0?
PL: Yeah, you know, I wasn’t in this role or we weren’t even, FTA wasn’t even created during the last Trump administration. So there are some, you know, getting familiar with the administration, with the president’s style. Obviously had watched it and observed it from outside, but now living in it in this new, in this role is, you know, is very different, obviously, in contrast to the Biden administration. You know, it’s only been a hundred-plus days. I do think that we joke here in Washington that we’re, we feel like we’re living a little bit in dog years, where the volume is so great and needing to respond to so many different things all at once does feel like you’re living or treading a little bit on a treadmill a little bit fast. So I would say, you know, but there’s just, you know, in my conversations with officials at the Trump administration, there’s just, I would say, a foundational shift in approach, in attitude, in thinking through how to put the US forward as far as what we need to do more on innovation. How do we need to think about positioning the US kind of to future proof, not only from a financial sector, but on a variety of different topics and products and subjects and regulations and other matters. You know, just having, you know, the ability to converse more frequently, the ability to have open conversations about a variety of different things is a marked contrast. I joked recently, you know, I’ve probably been, I’ve probably met with more officials at this White House or, you know, in the agencies more in the first hundred days than I did all of Biden. So it’s just a little bit of kind of the curiosity to know, to learn from those that are active players in the various different spaces. You know, what are some concerns? What are they getting right? What are they getting wrong? Ways in which we can continue, ways in which the government can continue to iterate to kind of, again, put that best foot forward. So, it’s just a different, you know, when under the Biden administration, it always felt like, especially in our industry, which is innovative, and we’re always going to outpace regulations and, you know, we’re adherent to the rules that are on the books, but we’re probably going to get ahead things such as AI, machine learning, and other things, and thinking through how do we make sure there’s a proper reining in, or the proper controls and the proper regulations on that. But oftentimes, it felt like, you look like this, you act like this, and so therefore, let’s put a 1933 rule on your product, when in fact, it had nothing to do with what the product is, how it functions, how consumers interact with it. And it was just oftentimes, oh, you’re growing, you’re in a marketplace, let’s shut it down first and then figure out how regulations can stop the activity. Versus I think Trump’s approach is how can we use regulations or remove regulations that are stopping this progress and innovation in the space.
PR: Right. Well, and the reality is, think most or a lot of people in fintech are happy that the CFPB has lost its teeth. A lot of the challenges that fintech companies had, whether it’s directly or through some of the bank partners, were receiving different enforcement actions and what have you. There certainly have been a lot of people who are very optimistic about this administration and how it’s going to be. But there’s one thing that I wanna delve into fairly deeply here because it’s the Open Banking Rule, the Section 1033, that is something that came out of the Biden administration that many viewed in fintech as a positive. One might say one of the few positives to come out. But there has been obviously talk about the rule just being, I don’t know how you say, dissolved or, you know, somehow just eliminated. And I know that the FTA has been very active here. You have been granted the right to intervene, which we’ll talk about in a second. But before I do that, there’s been a lot of things written, hundreds of articles, it seems like, that have been written that sort of talk about the sky is falling down. And I want to start by taking a devil’s advocate approach here. You have both Plaid and MX as members of the FTA, two of the leading open banking fintechs, shall we say. They have come of age, I mean, in an era where this rule wasn’t in place, they’ve done very well. So why is this such a big deal?
PL: I would say the statute was in place, or the definition and that is in 1033, it was that banks are required to permission their data to consumers and on behalf of consumers, the consumers then can permission their data to other entities such as third-party apps and otherwise. That and thinking through how to codify that rule. So that rule was there from when Dodd-Frank, it wasn’t promulgated towards the end; there was rulemaking that needed to go around it of how to implement that rule. But that was there. And starting back with the Trump 1.0 administration, they recognized that this is one of the many, different rules within the Dodd-Frank Act that needed to be promulgated and put into a final rule or into final law. And so this was started back actually with the Trump administration, and they recognized the innovation that was occurring and what the rule was saying, which is that yes, financial providers or data providers are obligated to make that information, their financial data, available to consumers. And so that’s what we, that has been in place, that rulemaking has started back in 2017. So there is a lot of innovation that has occurred knowing that this rule was in the process, was taking the steps, working to make it codified. And so there’s a lot of activities, banks, fintechs, others have all been actively working in an open, what we would call an open banking era to make sure that consumers have that choice, that they can permission their data to be able to get the financial services and the digital tools and the other tools in which they want to be able to live their best financial life. And so that, I would say, is part of now to have this reversal take place or the redefinition of certain aspects of 1033 is challenging, is difficult. We would obviously disagree and will disagree in our own motion about some of the definitional places or some of the implications of this, of what they’re asking the court to rule on because, going forward, we have jurisdictions around the world that are engaged in open banking. Consumers should be able to control their data. They should be able to ask for it, receive from the data provider, and be able to permission it as they see fit. It shouldn’t be adherent to one or two large banking institutions to say, we control all aspects of your financial life. I mean, that’s just, and you know, that’s against the American way. It is your data. You should be able to ask for it, receive it, and permission it as you please.
PR: So how are you going to fight this? I mean, what, obviously the Bank Policy Institute, powerful organization, you’ve got the, the CFPB that agrees with them. How are you going to fight it?
PL: Well, we will be fighting it in court. As you mentioned, we are now, we were granted the ability, on a motion to intervene. So we are now the intervening party to defend this rule. And we think it’s important. We think the arguments that we will make will be compelling. We’ll align with kind of not only the historical interpretation of the rule but precedent-setting as well. And so, you know, this is now going to be in the courts now.
PR: Okay. And what’s the timing on that?
PL: Our, as noted, BPI and CFPB submitted their motions for summary judgment on Friday, May 30. We will have 30 days to respond until, so our next, our filing is due on June 29th. And then there’s, you know, cross-motions that can occur as well. So, a few more legal procedures that will go into place before us, before the judge for a ruling.
PR: Right, okay. And I don’t want to spend too much time on open banking, but it is such an important piece. What do you think is the worst-case scenario if you lose and this rule is vacated, and there’s just, and they go back to scratch? I’ve seen it’s going to take three to five years to create a new rule in this, which case there’ll be a new administration, and you know, it could be, it could last a long time. So what, if you lose, what’s the worst-case scenario?
PL: Well, I would say there’s likely to be an appeal either way. If we lose, we’ll likely appeal. If we win, we assume the banks will likely appeal. So it will probably be in the court system for a while, either way, determining what exactly on some of these definitional issues or four or five of the other counts that are before the court right now. So, likely, this will be before the courts for a while. But what we want to ensure is that the activity is able to continue, that there isn’t this all of a sudden that consumers aren’t able to access the third-party apps, the products and services in which they do enjoy, that there’s not all of a sudden anti-competitive behavior kind of harnessing where that data goes and not that ability to capture it and be able to, again, share it with the third parties in which you, or the apps in which you, enjoy today. So that’s the worst case scenario is that it sets the US back several years, seven, eight, 10 years from consumers being able to enjoy all of the innovation that is in this marketplace right now, that they won’t have access to these apps, services, and products in which they live their daily lives. So that would be the real tragedy.
PR: Well, we could spend the rest of this podcast just talking about this topic, but I want to move on. I want to talk about an op-ed I saw that you wrote in Open Banker earlier this year, where you were talking about payments modernization, and you even floated the idea of, you call it an optional federal payments charter. Tell us a little bit about what you were getting at there.
PL: You know, yes. You know, we, I would say, here in the United States, we still continue to lag behind other jurisdictions as far as faster payments and the ability to get that instant payment. We do have systems now in the U.S. with real-time, you know, with the Clearing House and with FedNow, but that is only accessible to those, banks, to depository banks. And so what we’re saying is there is a need for small businesses to be able to settle invoices or to receive funding from invoices faster for workers to be able to get their work, to get their wages in real-time, to be able to, you know, being able to have access to their funds when and if they need them. And so what we have said, you know, there’s been during the last four years in particular, one pathway was through either a bank charter or an ILC or other type of charters, and that for the last four years has almost been non-existent. And so what we want to think through and bring forth, what we were proposing, or I am proposing, is that payments charter, those companies that do not want to be depository banks, that do not want to engage in the various different services in which it requires you to be a bank, but yet have the same robust safety soundness and other requirements, supervision, examination, all of those aspects that a bank is required, minus the being the depository tanking institution, to be able to have, you know, explore the possibility of having access into the Fed services, to be able to clear faster, to be able to not incur the costs that are incurred right now. Fintech companies right now are having to pay a lot of different tolls along the way to be able to clear their settlements. So, having that access to cheaper, faster, more instantaneous payments is the idea behind the payments charter.
PR: Right, gotcha. Okay, so I want to talk about something that is working its way through Congress right now. I should mention we’re recording this on June 3rd and it’s, I believe, the One Big Beautiful Bill Act is in the Senate as we speak. And one of the things that it has in there that I thought was terribly problematic is this remittance tax where if you’re someone living here legally sending money back to your homeland, there’s a proposed tax that is going to happen. So what can you tell us about the status of that and its likelihood of success?
PL: Yeah, it was a last-minute addition into the House’s version of the Big Beautiful Bill, and now it is in the Senate. And so what we’re trying to do, I think it caught a lot of people off guard, a lot of congressmen, congresswomen, congresspersons, you know, off guard, and now it’s in the Senate. And so we’re trying to educate them because there’s some, there’s not only, I would say, you know, increasing taxes on everyday Americans. It’s more than just those sending overseas who happen to, you know, immigrants who happen to be a family overseas as well, but it’s everyday Americans. This tax will now occur on military families sending funds, you know, to their brother, sister, mother, father who are serving overseas. It is, you know, just anybody serving money out, sending money outside of the United States will now be taxed. There’s a provision in there that says, you know, if you’re a verified American, you can get a tax rebate, but you have to send in your information to the IRS. You have to then provide all kinds of documentation to then possibly get that rebate. So, automatically you’re assessed a tax, and then you have to verify with the IRS and others kind of where you’re sending the money, to whom you’re sending, who you are as a person. It’s a compliance nightmare, but it’s also kind of, you know, it’s against what we’ve always known, you know, Republicans to be for, which is, you know, lower taxes, anti-tax, anti, you know, invasion of privacy, government shouldn’t be controlling all this information on the individual, and it’s hitting all of those marks. So it’s, you know, it’s bad on several different levels. And what we’re trying to do is educate the senators now on not only the bad policy this is, but the implications this has for everyday Americans. It was billed as a way to pay for the wall, paying for the wall on the border. But what it is is it’s impacting everybody that sends $1 overseas.
PR: Right. Yeah, I mean, it sounds like it’s an immigration policy. It’s not a tax policy, but it’s in the reconciliation bill, which is really a financial bill.
PL: Yup.
PR: Anyway, okay. Well, we’ll see how, hopefully that will not make it into the final version. I know they’re going through it with a fine-tooth comb right now. Okay, so I want to switch to, we’ve talked about the federal for the most part of this interview. I want to switch to the states. I know you work actively in many of the states. There’s a BNPL bill in New York that is a little problematic, shall we say, for the industry. What are you doing there and what can you tell us about that?
PL: Yeah, and that one passed. So now, unfortunately, we worked. We understand the merits behind it, that this is a fast-growing industry and one in which they want to make sure they have insights and make sure that consumers aren’t harmed with it. But I would say it was inelegant in its passage. Even I think some of the authors recognize the flaws within it. It is very broad in its definition of what a buy now pay later you know, captures in this broad language. If you’re just simply a payment processor, just moving, you know, money across your rails, you’re now going to have to be a licensed BNPL lender. It asks for certain things, you know, to do just like a credit card, but yet doesn’t take into consideration that these are closed-end products and not open-end credit products. It also treats federal banks versus state banks very differently. It exempts national banks from this law, from the licensing regulations around this, but yet requires state banks to follow, which is completely, you know, anti any of the history of New York banking law that goes, you know, potentially goes afoul of the dormant commerce clause. There are a lot of different problems. So, we want to work with the legislature on potentially a fix-it bill on ways in which we can improve it. And then also work through when they go through rulemaking to be able to make sure that there’s a full understanding of what this product does, what it is, and why some of the language within this bill is just ill-fitting. We want to make sure that the BNPL industry is adherent to, you know, consumer protection that has it built in there and that there are rules and regulations that fit for it. But right now, this bill in particular, or this law now in particular, misses it on several different levels.
PR: Yeah, cause a lot of the BNPL providers, they are partnering with state-chartered banks. You know, a lot of them are in that. So that’s going to cause, you know, I mean, what are they doing right now? If they’re partnering with a state-chartered bank, is there a grace period they could continue operations?
PL: Yeah, you do. There is an implementation period. It doesn’t go into effect until after rulemaking, 180 days after rulemaking. So, there is still a rulemaking process. There are, we’re going through, and there are certain things that are mandated by statute, other things that are asking the supervisor to make a rule on, but the whole entity in and of itself is not in effect until 180 days after rulemaking.
PR: Okay, another thing that’s really active in the States right now is Earned Wage Access. There are several states now that have laws on the books. There are more that are pending. What are you doing there?
PL: Yeah, it’s been very active in this space. Louisiana today just also passed an EWA bill. Maryland last week signed into law an EWA bill. So there is a lot of activity. And again, that’s absent any type of federal rule. And so you do have to go to all 50 states, District of Columbia, and territories as well. And so you are starting to see kind of the same treatment through a lot of different states is kind of, you know, the determination that this is not a loan, but in fact, the access to somebody’s already earned wages and being able to, you know, have the protections around about the disclosures, about making sure that consumers understand, you know, the product and kind of what the fees or, I mean, what the fees or expedited fees might be or whatever the case might be. So, you know, that’s kind of putting those parameters and making sure that all people that consider themselves an EWA provider adhere to those same kind of standards as well. So, that’s the activity that you’re seeing. Also, it’s been difficult in the sense that with the CFPB, in that they issued a proposed interim rule kind of fundamentally changing the definition of this product. Now that has been rescinded and also the 2020 guidance that kind of defined what EWA is, which is it’s not a loan and a couple of other things that you have to adhere to if, you know, no fee is mandatory, no recourse, a variety of different things than you are considered an Earned Wage Access product. Now that has been rescinded as well in kind of the sweeping of what they’re doing and of kind of pulling back on all regulations. So, you know, that’s why there is the need for the variety of different states to be active on this issue, because there is not only absent a federal rule, but now there is a lot of uncertainty on the regulatory front.
PR: Right, right. Gotcha. So, I want to talk about AI for a minute because there’s a lot happening. I imagine pretty much all your members are using AI in some shape or form. What are your members telling you about what they want and what’s the state of play in the States as well as on the federal efforts when it comes to regulating AI?
PL: Yeah, most of our, being digitally native companies, they have used AI, machine learning, some type of AI almost from day one, whether that be in credit underwriting, use of algorithms for credit decisions, whether that be in backend and making their own companies more efficient. You know, this has been something that many of our companies, all of our companies, have been engaged with almost from the start of their companies. You know, we are starting to see that new phase, the agentic AI, generative AI, open source AI, the ability to use it in ways probably somewhat imagined in sci-fi, but a lot of probably not imagined, and even the amount that the machine is iterating on a daily and hourly basis, as I don’t know that anybody understood the pace of which it was going to take hold. So, you know, would like Federal, clear rules of the road, how AI can be used, what it can be used for. The president recently signed a bill that had limitations, especially on using deepfakes or other negative use of AI in social media and being able to create images, you know, in a negative way. And so there’s, you know, I think that was the first one that kind of put, you know, guide rails around the use of this technology. And so, continue to believe that the US needs to think through a Federal; it is difficult as too difficult as many of these products are borderless. It’s…they should be treated the same, and making all different states, you know, kind of treat this product or this, you know, technology in a way that is different from just a neighboring state is incredibly difficult to run a company. And so would hope that the federal, you know, does take, I know there was an effort last year, a bipartisan effort in the House and the Senate to think through kind of the use of AI, the guardrails, the necessity, how does it form? And so we continue to both educate lawmakers on how we use it in our own companies, how it can be used well, but what are some of the things that we are seeing coming down? You know, one of the good uses that we use it for oftentimes is on fraud prevention, fraud controls, you know, using it for a way in which we can, you know, see patterns and see things and prevent them from stopping as best we can. I mean, fraud is very, very difficult and, you know, they’re always, you know, the fraudsters are always kind of iterating faster than we can, but we’re seeing a lot of good use case scenarios and being able to use AI and fraud detection.
PR: Right, right. Is the AI task force, does that still exist, I don’t know if it was the house task force, I can’t remember which one. There was a task force in the last Congress. Is that still in existence?
PL: There is an AI subcommittee, and I know, I don’t know if the actual task force is still around, but I do know that there is an effort. Senator Rounds and others, there is an effort to think through what the AI strategy needs to be. And obviously, the White House appointed an AI Czar, Crypto Czar. So, the attention, I know they’re working through stablecoins. It’s kind of maybe one of the first priorities that they have right now, hoping to get through the Stable-GENIUS bills and then work through, I know that they’re simultaneously working on AI as well.
PR: So, do you think that there may be an AI federal bill next year?
PL: You know, I hope, hope, you know, hope eternally. But, you know, similar to kind of what we’ve asked, you know, hope for on data privacy, as well. It’s been 10-plus years before we’ve seen that one. And it always gets hung up on some things unexpected. And, you know, it does take a lot to move things through Congress. It does require a lot of hand-holding and getting everybody on the same page. But I do think that there is awareness that our laws are behind the times and so how we get, how we think about it. There’s a commitment from, like I said, Leader Thune, Leader Schumer, you know, the House leadership as well to tackle this, but it is quite cumbersome.
PR: Okay, so before we close, I want to talk about your event that is coming up here quickly later this month, the FTA CEO Summit. Maybe just give the listeners a little bit of an overview of what this event’s all about.
PL: Yeah, this is our annual event that we do every year in Washington and which we bring in, we are fortunate to have some incredibly exciting fintech companies as part of our membership. And with that, we have some very dynamic founders and CEOs. And so, it’s our opportunity to kind of tell that fintech story and that fintech story from the founders and CEOs who I think are much more adequate and much more dynamic to be able to speak about kind of what the innovation not only are they doing as a company, but also kind of what they’re building for and kind of what the promise of this incredible technology is and kind of how we can continue to lead not only the US but lead globally as well in financial services. So this is our annual event. It’s on June 25th. You can go on our website and register to attend, and it’s a way for us to showcase and highlight not only our CEOs but also engage with the policymakers and regulators that are really at the forefront of today in trying to determine kind of what our rules and regulations around this space are.
PR: Right, right. And I will link to the registration page in the show notes here, but maybe you could tell us, like, who are some of the speakers that you have? Like, maybe who from government do we have? I mean, I know that there are still some that are in process. I know cause we’ve been working on this together, but what can you tell us about who’s going to be on stage?
PL: So we have, from the government side, we have House Financial Services Chairman, French Hill. We also have Adrienne Harris from New York DFS, one of the key regulators in the states and in the country. And then we also get to hear from our CEOs, such as Sarah Levy from Betterment. We have the CEO of Mercury, co-founder and CEO of Chime and US CEO of Revolut. So some really incredible people that are going to be able to talk about the future of finance and how really how the fintech industry is kind of leading its way in shaping financial services.
PR: Yeah, I’m really looking forward to some of these sessions. I think it’s going to be fantastic. But it’s not the CEO of Chime, it’s the CTO of Chime, just to be clear.
PL: Co-founder and CTO.
PR: Okay, well, I’m looking forward to that event tremendously. I think it’s a great way. Your members, this is just part of the CEO Fly-In. I mean, what else are the members doing while they’re in DC?
PL: Yeah, so it’s our annual, it’s the annual location for many of our founders. It’s their annual, annual day in a suit. So it’s always funny to see them take the selfies and like, yes, I actually own a tie. So, that’s always fun to get to see the CEOs in a different element. And so we’ll be meeting at the White House. We are meeting at Treasury, meeting OCC, FDIC. So, we will also be meeting with the regulators one-on-one to kind of again, not only provide insights into our industry, but also to hear for their visions of where they’re heading in the next year or so.
PR: Okay, well, we’ll have to leave it there, Penny. It was so great to chat with you again. Thanks for coming on the show and best of luck with the CEO Summit and I will see you in DC in a few weeks.
PL: Can’t wait. Thank you again, Peter. Appreciate it.
PR: I want to emphasize one thing that Penny said earlier about the open banking rule. I believe it is critical that consumers have control over their financial data, allowing them to permission it to third-party apps and services. So much of what we have built in the last decade in fintech has been directly or indirectly a result of this permission. And Penny makes a great point that while the rule had not been finalized until recently, it has been part of the regulatory landscape since 2010. So, every fintech company assumed that this type of permission would eventually become the law of the land. Finally, I just want to remind everyone that you can attend the FTA CEO Summit in person or online. It is only half a day, and it will be time well spent, I promise you.
Anyway, that’s it for today’s show. If you enjoy these episodes, please go ahead and subscribe, tell a friend, or leave a review. And thank you so much for listening.