August 6, 2024

By John Donnelly, Head of Capstone’s Financial Services Team

Capstone believes Vice President Harris’ views closely align with those of President Biden and that she, as president, would do little to change the regulatory outlook for financial services. We believe Democrats would persist with current rulemaking including maintaining the roadmap on bank reform efforts, despite the potential for more negative campaign rhetoric. Harris would likely be more open to technological innovation, benefitting fintechs.

What Vice President Harris Has Said About Financial Services Policy

As vice president, Kamala Harris has been closely aligned with President Joe Biden’s views on financial services policy, including as the face of many of the administration’s efforts on affordable housing. We expect that Harris would continue to promote policies to increase the supply of affordable housing and encourage initiatives that reduce costs for borrowers and renters. For example, we expect a continuation of support for Fannie Mae’s (FNMA) title insurance pilot program and Freddie Mac’s (FMCC) second lien pilot program, the Consumer Financial Protection Bureau’s (CFPB) scrutiny of closing costs (origination fees, credit reporting fees, and title insurance), and antitrust regulators’ ongoing scrutiny of algorithm-based rent-setting platforms.

Similarly, Harris has supported the administration’s junk fee initiatives, which has been a particular focus of the CFPB. We expect that if Director Rohit Chopra (D) leaves his current role, future agency leadership will be closely aligned with his view and will seek to finalize or implement the credit card late fee safe harbor rule, overdraft regulations, and maintain an enforcement focus on products the administration believes provide relatively little value for the cost.

Where Harris Differs from Biden

We anticipate there would be little difference in administrative priorities in a Harris administration. However, we expect that large banks could be the target of increased negative campaign rhetoric. Since President Biden’s announcement that he will not seek reelection, Harris and her supporters have pointed to her experience as the California attorney general (AG) as evidence of her readiness to be president. A key part of her experience as AG was litigation against large banks following the mortgage crisis.

Despite the potential for negative headlines for large banks, we do not expect it to significantly impact the policy outcomes. Federal Reserve Board (Fed) Chair Jerome Powell suggested in recent testimony to Congress that the Fed would repropose at least part of its Basel III endgame program, which will likely push a final rule into 2025. We do not expect the Fed to maintain its current proposal, even if Harris takes a “tough on banks” approach. While leadership at the Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corporation (FDIC) under Harris might favor the current proposal, the Fed is an independent agency whose leadership has not reached consensus on the Basel proposal and is unlikely to be influenced by presidential politics. However, we believe a Harris administration would seek to finalize other strict bank regulations, including limits on fees for overdrafts, late credit card payments, and debit interchange. We also expect a Democratic administration would consider regulations on liquidity, particularly risks from uninsured deposits.

We also believe that Harris’ more accommodating views towards technology would benefit fintech providers. While the CFPB would likely finalize its interpretive rule on finance charges related to earned wage access, we think Harris, longer-term, would be open to innovation in financial services technology, including greater adoption of artificial intelligence with adequate guardrails to avoid discriminatory outcomes.

Key Priorities for any Democratic Administration

­­­We anticipate that any Democratic administration would prioritize finalizing proposed regulations and defending regulations that have been challenged in court, including the credit card late fee safe harbor rule, new overdraft regulations, the Retirement Security Rule, the Combatting Auto Retail Scams rule, Basel III endgame, and lowering the debit interchange fee limit for large financial institutions.

A Harris administration would seek to prioritize equitable credit access, credit affordability—including in the housing market, and consumer protection. We anticipate bank regulators will continue to prioritize concerns that emerged from the 2023 bank failures and maintain stricter enforcement of third-party partnerships

While a challenger to Harris running on a centrist platform (similar to Sen. Joe Manchin [I-WV]) would be unlikely to wrest the Democratic nomination from Harris, the victory of such a candidate would result in significant changes. Sen. Manchin has vocally opposed parts of the Biden agenda, including voting to repeal the CFPB’s small business lending disclosure rule and co-sponsoring legislation to repeal the Department of Labor’s Retirement Security Rule. If such a campaign emerges, and captures the Democratic nomination, we expect the outlook for the Financial Services sector would align closer with our view for a Republican administration with a more permissible approach to M&A, less scrutiny of state-regulated consumer finance fees, and a supply-side view of expanding housing access rather than seeking to limit costs through regulation.

We anticipate that financial services legislation will remain difficult in the next Congress, putting more importance on administrative agency action. With neither party likely to establish a filibuster-proof majority in the Senate, we believe lawmakers will struggle to advance any significant financial services bills, although tax reform legislation or a potential reconciliation bill could provide opportunities to negotiate some compromise.

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