Podcast: Deep Dive into the Regulatory Landscape of Bank Partnerships Featuring American Fintech Council CEO, Phil Goldfeder

In this installment of McGlinchey’s Deep Dive into Bank Partnerships, attorneys Robert Savoie and Rachael Aspery are joined by Phil Goldfeder, CEO of the American Fintech Council (AFC), for a podcast on dealing with legislation and regulatory change management, the process, and what FinTech companies should be mindful of.

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Robert Savoie: Hello, everyone; thanks so much for listening. We’re here to do a podcast for the Deep Dive series on bank partner programs. For those who may not have been able to listen or join in on any prior ones, the Deep Dive Series is a series that we at McGlinchey do to focus on a particular topic in consumer financial services and do a deep dive where we dig through: we look at the topic, we take a look at different issues that come up on the topic, do presentations, some written work product and articles, and some podcasts just like this one.

Today, I’m here with Phil Goldfeder, the CEO of the American Fintech Council, and my colleague Rachael Aspery, a FinTech attorney with McGlinchey Stafford. I’m Robert Savoie, another FinTech attorney and chair of the FinTech practice here at McGlinchey. Today, the focus of the podcast is primarily on how we deal with legislation and regulatory change management, what the process is like, and what FinTech companies should be mindful of. And so with that, Rachael, I’ll turn it over to you and run us through some common questions and different things that come up. I’ll join Phil in digging in.

When I shifted away from public service, the question was, where can I now take those skills to really make a meaningful impact on behalf of more than just a specific district or New York state, but really across the country? And financial technology seemed like the most obvious choice, as financial services was shifting in more innovative ways, with the hope of trying to serve as many consumers as possible, and has not necessarily been met with the open arms that you would expect it to be.

Rachael Aspery: Yes, certainly. Thanks, Robert. It’s great to be here with you and Phil as part of this series. And Phil, thanks so much for joining us. Can you start by talking about your experiences interfacing with different legislatures and dealing with the legislation popping up in various states? How intense is that, and what does it look like?

Phil Goldfeder: Thank you for the question. And thank you for having me here. It’s always a pleasure to deal with you, Rachael, Aaron, and, of course, Robert, who has been almost a mentor to me since I took this new role at the American Fintech Council in terms of constant guidance and advice. I very much appreciate the expertise that Robert brings, and all the lawyers at McGlinchey bring to the FinTech ecosystem.

So I spent a full career in politics and government before I got to FinTech, really kind of honing my knowledge base and expertise at the city, state, and federal level of government, working for mayors in New York City, working for Senator Chuck Schumer in DC, and then ultimately serving in the state legislature in New York myself.

When I shifted away from public service, the question was, where can I now take those skills to really make a meaningful impact on behalf of more than just a specific district or New York state, but really across the country? And financial technology seemed like the most obvious choice, as financial services was shifting in more innovative ways, and with the hope of trying to serve as many consumers as possible, and has not necessarily been met with the open arms that you would expect it to be. In terms of FinTechs, responsible innovators are actually meeting the demands of consumers who need access to credit and access to financial services. Unfortunately, the way the government is situated is not always doing the best it can to help those companies further their mission. The American Fintech Council has nearly a hundred members to bring the industry together to collectively fight or combat misconceptions and educate policymakers and regulators on the nuances of the various FinTech models and various FinTech products to ensure that, number one, we are creating standards and responsible regulation. We embrace responsible regulation and regulation as a whole. And number two is to make sure that we’re differentiating between the nuanced approaches to the very different FinTech models.

Not every legislation has a delayed effective date. And so we have seen legislation take effect where, on June 30th, you’re in compliance, and on July 1st, you’re in violation of the statute on a technical basis.

Rachael Aspery: So, Robert, can you talk about the experience of companies grappling with this legislation? For example, how difficult is it for companies to think through the impacts of legislation and monitor them on a 50-state and jurisdictional basis?

Robert Savoie: Yeah, I’m glad to. It’s pretty difficult. We spend a lot of time looking at and digesting newly enacted laws and regulations to figure out how this impacts particular programs, what you do to change your process to comply, and what the effective dates and sort of time are to come into compliance. The one thing I would say to piggyback off of Phil’s comments and talk through how valuable what the AFC does with its interfacing of legislatures before the laws are final is that often legislation comes in because it’s perceived to solve one specific issue. There’s just not an awareness of the breadth and the complexity of different business models. And so there can be a lot of common ground where you can actually work with a legislature to accomplish their policy goal but significantly ease the process of compliance for companies, right?

Where you dig in and understand, well, what is it you’re actually trying to do and target? And that process is one that I don’t get involved with generally in terms of the sausage-making of the lobbying process and working with the legislatures, but there’s a lot of education and work there that comes in. Now, once the legislation is enacted, it’s very interesting. Some legislatures and state regulatory agencies have a very clearly defined process where statutes are typically enacted at the same timeframe in the summer. There’s a 90-day delayed effective date when they come in; there’s an interim period where the agencies are comfortable doing guidance to answer questions after the legislations come in, trying to fill the gaps of what the legislation did. Then, you get that before the effective date, which allows for a pretty orderly process.

Not every state does that, and not every legislation has a delayed effective date. And so we have seen legislation take effect where, on June 30th, you’re in compliance, and on July 1st, you’re in violation of the statute on a technical basis. One of the things I’ll say is that, fortunately, most of the regulatory agencies that we deal with on the state level are pretty sophisticated and aware of those issues. They understand that companies need time to digest and address that. And so they will typically give if there’s a new license coming and a delayed effective date in terms of when that applies. So the companies can process it and have it come in because until legislation is signed by the governor or the other executive, you know, it’s not law, so you don’t need to comply with it.

You can have months where it’s very quiet and then months where you’ve got 20 or 30 different state laws that are being amended at the same time with similar effective dates … most companies don’t have employees who work for three months and then don’t work for the next nine months. So, your staffing is not designed to match the uneven cadence of legislation.

And so providing delayed effective dates, even if it’s just 60 to 90 days, is critical because it gives the company some time to say, “Okay, the law has changed. What does it say? What does it mean?” And sometimes, that’s very easy, and they don’t need to reach out to law firms like us. Sometimes, it’s very complex, and the applicability of the law can either swing on a particular feature of a model or change based upon what certain models do. In terms of monitoring, it’s pretty complex. We spend a lot of time dealing with regulatory requirements and statutes; even for us, it’s a lot to handle. It varies tremendously, and it’s based on when the legislatures are in session.

And so you can have months where it’s very quiet and then months where you’ve got 20 or 30 different state laws that are being amended at the same time with similar effective dates. You know, and the problem is that, maybe I’m mistaken, but most companies don’t have employees who work for three months and then don’t work for the next nine months. So, your staffing is not designed to match the uneven cadence of legislation. And I think the staggering of effective dates and building in time is really important, but that process, there’s no substitute for being on top of that and monitoring it. But what I’ll say is the benefit of an organization like the AFC is that they will consolidate the experiences and the knowledge of their different companies for the good of the trade group, circulate materials around, and give a forum for the industry to communicate with each other. And that does a really good job of helping companies have just a bonus of their membership to become aware of legislation in that context. And Phil, do you have anything you want to add on to that?

Phil Goldfeder: Yeah, that was very, very well said. This is the Deep Dive podcast, and I think it’s important that we take a little bit of a deeper dive; I think for many people, when I used to be in government, the question that I used to ask constituents was, well, do you vote? Of course, we vote, every four years we vote, right? This idea that government only exists sort of within the federal level, within the federal confines, is what the vast majority of people think, unfortunately. I remember just telling someone at a conference I was at a few weeks ago, I said, well, you know, the legislative session has ended in most states across the country, right? As you said, there are 50 different state governments, and each one ends and has its own processes and schedules. And I got this kind of quizzical look.

Most state legislatures are part-time. They’re only meeting in some states. It’s January through March in New York. It’s January through June, I believe, in Texas.

What do you mean it ended? I said, well, most state legislatures are part-time. They’re only meeting in some states. It’s January through March in New York. It’s January through June, I believe, in Texas. It’s every other year. I know that in Maryland, the schedule changes from year to year. Like in odd years, it’s x, and even years, it’s y. Every single state is different. So now think about what that actually means. Most state legislatures are doing or considering as many bills as the federal government is considering every one of their sessions. Which means the federal government convenes, you know, on and off, but for the vast majority of the full year, if you have to take on the exact same amount of bills, right? And it’s not just financial services. I know we sometimes get stuck in our world of financial services in FinTech, but there’s education, public safety, and numerous issues that they have to take up. They only get to do it in two months or three months or four months, or as long as New York is six months.

I think there are only two states in the country, I want to say Massachusetts and New Jersey, that meet all year long. They’re covering the exact same amount of subject matter that, let’s say, a federal government, in theory, is doing in a full year. And so I want everybody who’s listening to understand what that means. It’s less lobbying. I think oftentimes, when people see bills come out of the legislature, bills that I drafted when I served in office, people would come in kind of with this aggressive mindset like, well, that bill is going to do X, Y, and Z. We’re against it because of X, Y, and Z. I was like, it’s not necessarily lobbying. When you’re doing so many bills, and you understand the context of what a state legislator is dealing with, it’s more often than not education, especially when it comes to the nuances of FinTech, right?

Robert, on any given day, we’re talking about buy now pay later, earned wage access, banking as a service, embedded finance, right? Payment and crypto if you want to go that far, right? There is the nuance within every one of these verticals, which is so complex. And now you take that into a legislature, and they’re dealing with, you know, 50 different subject matters. I used to say that in government, it’s called puddle politics. It’s puddle-wide but puddle-deep in terms of its knowledge base. Our job as the association and for our membership is to get in there and, as simply as you can, educate members of the legislature about the real impacts. One of the things we do all the time is try to connect the consumers being served with the constituencies that those legislatures represent.

And I think that is critical, right? That is the most important piece from our perspective right now. The nuances of the laws and implementation and all of those things require intricate strategy. But when you go to a member of the legislature and try to explain the various payment rails, why one is better than the other, how interchange works, and all of those things, it gets complicated.

What we try to do is sometimes oversimplify for the benefit of explaining that there’s a consumer on the end and whatever happens between here and here, right? Our goal is to make sure they’re protected within that, from point A to point B. But we are enabling that consumer to access their funds quicker, safer, faster, and more reliably. We’re enabling an Uber or Lyft driver to access the money they earned the second the ride is finished. It enables an employee to access his wages, not just on the 15th of the month but on the third of the month. It enables someone to avoid credit cards and utilize a safe buy now pay later product. And oftentimes, we get lost in the headlines, like this state wants to regulate, buy now pay later.

There’s a tremendous amount of nuance, but I think there is a visceral reaction to change. There’s a visceral reaction from a regulatory and a legislative perspective that change is bad, particularly in financial services. And our job is to, I think, educate, to make sure there’s a recognition of the consumer on the end who’s actually today utilizing the product that this law is going to impact. And here’s how the law is going to change it.

On any given day, we’re talking about buy now pay later, earned wage access, banking as a service, embedded finance, right? Payment and crypto if you want to go that far, right? There is the nuance within every one of these verticals, which is so complex … Our job as the association and for our membership is to get in there and, as simply as you can, educate members of the legislature about the real impacts.

And then I think that was kind of a precursor to what you said; everything that you said was exactly right. Now we think about number one, the consequences, and number two is the unintended consequences. What the law’s going to do, what the implications are, what the downstream effects are, what the ripple effects are. I’ll use Colorado as an example. In 2023, we were able to delay the implementation in Colorado of a law that related to interest rates. And it wasn’t just about delaying the inevitable. So I think at the time of the delay, a lot of people said, “Oh, big deal. So you delayed the inevitable for one year.” Ultimately, that gave us time to regroup as an industry to number one, to reassess what our options were, ultimately to sue the state, and bring a case against the state. And now we’ve gotten a preliminary injunction and what we thought was a simple delay; we’ve now been able to hopefully not delay forever and ever, but at least in the short term with the injunction.

And so I think there’s nuance to all the strategy, but that requires a specific understanding of Colorado law, specifically in that one example. That means nothing in any one of the other 49 states across the country. And so you finally think you understand how it works, and a lot of my member companies say all the time, “Oh, I get this, Phil, I understand.” And we’ll go to the next state, and they’re like, “Wait, wait, but that’s not how they did it over there.” I was like, yeah, it’s 50 different states, and it requires a real, I don’t want to say expertise, but a working knowledge of state by state how things are working and, ultimately, why firms like yours are so important to this process.

Rachael Aspery: Yes. It’s apparent that the legislatures differ on their views and regulations and dealing with these types of programs. Whether it’s a different product type or complexity of the program, whether it’s super complex or vanilla, can you give us more insight on how legislatures view bank partner programs like FinTech programs, whether they’re pro, neutral, or anti, if there’s just general unfamiliarity with the unknown, or if these types of business models and nuances of the program are the hiccup?

Phil Goldfeder: It’s a great question. I think there’s been an evolution. I’ve been in FinTech now for almost ten years. And I have seen kind of that evolution from when I got here in 2015 to where I am today in that there is sort of more of a recognition from the rank and file members of legislatures, and now sort of bubbling up to the leadership of the various committees within their legislatures, that innovation is inevitable.

I do this all the time. I’ll go to a class, or I’ll go to a meeting, and I’ll ask by a show of hands, how many people could pull out a $20 bill? I’ve been doing this for a long time now. I’ve been doing this since I was in office, and that’s obviously declined.

I’ll go into some rooms now where nobody could pull a $20 bill out of their pocket. It’s hard to ignore that. Well, the goal here is to make it real. And so I think historically there was a visceral, “I don’t like change and don’t trust finances on the internet or via an app.” And you have seen that evolution happen more and more. Everybody says, oh, great, so we’re good, they’re going to get it. No, I think now you’ve explained why responsible innovation is a good thing, now that is starting to take. The challenge we have now is, how do you define what responsible is? How do you actually define and make sure that the consumers are safe when they’re accessing their financial services? And that’s kind of where the job tends to get a bit harder.

Here’s the hardest part. Because as quickly and as well as I think we’re doing, innovation is moving at a lightning pace, particularly in financial services. And five or six years ago, you couldn’t even imagine the concept of earned wage access, where I can access my wages whenever I want on my own terms. Today, it’s utilized by millions of consumers. And arguably, many states don’t have any regulations about it, right? Unfortunately, many states don’t know how to deal with it. It’s sort of items like that. I can’t tell you what we’ll be educating around two years from now. I guarantee you it’s none of the items that we’re probably working on today.

You’ve done the basic educating, now you’ve got to go, we all went to high school. You take math one just so you can get to math two, so you can get to, you know, inevitably get to trig. You can’t go straight to trig because you’re not going to understand any part of it. And so it’s going to continue to evolve. But I’ll go back to the 1950s when the biggest bank did what I think was called the credit card drop. All of a sudden, there was this, my God, people are just going to be able to have credit whenever they want it with this little card. And yeah, obviously, there were challenges with it, but ultimately, it became completely acceptable. Same thing with the internet in the late nineties, right?

Banks were prohibited from partnering with internet companies and offering financial services. It wasn’t the question of whether it was safe. I dare ask this question, but how often do you go online to buy something versus going into a store? It’s like everything else in financial services, there will be an evolution, mostly because consumers are demanding it. I think we’re doing a pretty good job. The American Fintech Council was in 23 states this year. We’re doing a really good job of getting the industries to talk with a unified voice, explaining who we are and what we’re doing. And now, again, it comes back down to the devils in the details related to the various products that are being utilized. And then here’s the hardest part. Because as quickly and as well as I think we’re doing, innovation is moving at a lightning pace, particularly in financial services. And five or six years ago, you couldn’t even imagine the concept of earned wage access, where I can access my wages whenever I want on my own terms. Today, it’s utilized by millions of consumers. And arguably, many states don’t have any regulations about it, right? Unfortunately, many states don’t know how to deal with it. It’s sort of items like that. I can’t tell you what we’ll be educating around two years from now. I guarantee you it’s none of the items that we’re probably working on today.

Rachael Aspery: So now, for a joint question for you and Robert, can you give us your insights on how companies can succeed when dealing with state legislation targeting FinTech business models? Phil, you’re our guest; perhaps you can start us off.

Phil Goldfeder: I mean, I just spoke so much. I’ll talk about it from the legislative perspective, but I think Robert is probably a bit more positioned to talk about the individual company versus, I tend to focus on the industry as a whole.

Robert Savoie: And I’m glad to jump in, Phil; you can have a short break before we come back to you, but yes, it’s really interesting. Over the years, you’ve seen a change in how, at least, the regulatory agencies that I deal with a lot have approached FinTech, right? Before, it was not a lack of awareness or lack of interest in the models. And then there’s been a shift in how the legislation has approached them. I think, at first, it was more about, well, let’s expand the scope of our licensing laws to capture in the same way that people licensed debt collectors that had always collected on credit card accounts and other accounts. And then there’s been a shift more recently towards the legislation that seeks to substantively impact the terms of the credit offered, or the products being offered via the bank partner programs.

I think, at least in the minds of some of the legislatures, there’s an evasion concern and an evasion perception. In my experience, there has been that, at least when you’re dealing with regulatory agencies and a rulemaking process, or whether they are evaluating legislation or looking at it from the regulatory perspective, that educating those agencies on what the companies do and that their products are similar in form and feature and consumer protection to many other products currently in the market. And that there’s not some macro evasion from a consumer perspective, and dig into the actual focus of the laws. My experience has been that, at least from the regulatory agencies, if your goal is consumer protection and you want to protect your citizens, this innovation is a good thing.

The consumers are speaking with their wallets, or I should say their eWallets, since there are no $20 bills anymore, to your point, Phil. But they’re speaking with it, and they’re interested, and they want the products. I think the role of the regulators is to dig in and make a world where your consumers can get the products that they want.

It gives consumers what they want, and the consumers are speaking with their wallets, or I should say their eWallets, since there are no $20 bills anymore, to your point, Phil. But they’re speaking with it, and they’re interested, and they want the products. And so I think the role of the regulators is to dig in and make a world where your consumers can get the products that they want. You can do consumer protection, but don’t put a bunch of roadblocks in by saying you have to send this notice via paper and send it to their mailbox, and it’ll arrive in two weeks when that doesn’t make sense in today’s world. I think focusing on that and company-specific interaction is a part of that. Where you go in and say, look, this is what we do. Here’s how we’re structured. We’re not trying to hide anything, and if you want a license, great; you want a substantive review, great, but here are the things that we’re doing, and here’s why this thing is going to impact the model in a problematic way and in a way that doesn’t actually further consumer protection.

Most of the agencies are pretty receptive to that. And sometimes, their hands are tied by the legislation itself. Still, interfacing with them and focusing on the consumer citizenry and their product desires while showing how responsible innovation does support consumer protection, which generally is pretty productive in terms of letting those regulatory agencies get a comfort level with the products. Then things go much more smoothly after that. I think the legislative portion is sometimes when legislation goes through, and there’s not a ton of opportunity to interface, then you’re stuck. Even if you’re only stuck for a year before there can be an amendment, then you have to gin up the whole apparatus. And getting amendments through Congress is much more difficult than coming in and saying, “Hey, look, you want to do this big regulatory regime? Go for it. But can you change a few of these things that don’t really impact your goal but really impact us in a big way in terms of letting us continue to do what we want to do? You know, now under greater or different supervision based on the nature of the legislation.”

Phil Goldfeder: You said a few things that I want to touch on. Number one is, and I say this all the time, and we’re in election season, so it’s probably the most appropriate time to say this: the best candidate doesn’t always win, right? The most qualified candidate, I should say, doesn’t always win. Meaning it doesn’t matter if you have the best resume. It’s not a traditional job interview. If you run for office, you could be the best-looking and most eloquent person. It doesn’t mean you are the best subject matter expert. And so the most qualified candidate doesn’t always win. And I say that just because certain companies offer fair, responsible, safe products doesn’t mean that a regulator will be looking at, well, that’s a safe product, how do I make sure that we enable it?

And what we’re finding is in the name of consumer protection, right? In the interest, mandate, and moral high ground of protecting my constituents and consumers, I’ve got to pass this bill. Robert, you and I have seen this time and time again, where that bill will do more harm to the consumer and the constituent than not passing the bill. We see that all the time. And so what we hope for is pragmatic regulators. Pragmatic policymakers are looking at it in its totality and taking a moderate approach in terms of, okay, so how do we refine the product? How do we put in those guardrails?

Build that foundation of regulatory clarity so your company can survive in the long term. There are significant opportunities from both sides to improve how they look at the ecosystem and, more importantly, how they engage with each other.

And that’s what we fight for all the time. We’re looking for that exact clarity. Because when you have, and I say this a lot, responsible innovators are trying to do it the right way. Give them the rules of the road, give them sort of the parameters of which to operate, and they will. I think from the company’s perspectives, the individual company’s perspectives, and I’ll say this from the industry as well, because I see it all the time, there’s an inherent fear of what we don’t understand, right? And that’s human nature. And oftentimes, particularly with people who have not been engaged with government and have not spent time working with regulators or policymakers, unfortunately, they see it as a foreign entity. They see it as something they don’t understand, they’re not meant to engage with, they’re not meant to interact with.

And nothing can be farther from the truth. Let’s say you invent this new product for financial services. If you are not talking about it, not just to the VCs and not just to potential partners, but to regulators and policymakers in a very highly regulated industry, you’re doing yourself a disservice. In some way, you think you’re saving yourself. And so the phenomenon works on both sides with the regulators and with the founders and the CEOs. You think you’re helping yourself by avoiding the government and the regulators and not engaging in those conversations. Robert, I know a company will call you, and you’ll say, “Hey, you should think about this regulation or that regulation or this state nuance or that state nuance.” And they’ll be like, “No, I don’t want to engage, or like, it’s too soon for me to engage on that front.”

I would argue you do that first. Build that foundation of regulatory clarity so your company can survive in the long term. There are significant opportunities from both sides to improve how they look at the ecosystem and, more importantly, how they engage with each other. I’ll say this now and shift quickly into the federal space and the federal government. You see it with the Fed and what they created with the Novel Activity Supervisory Program, the NAS program. They could have come up with a better acronym, but they’re engaging. The Office of the Comptroller of Currency (OCC) has had an office of innovation for years. Anybody in FinTech will know and has already met with Beth Knickerbocker probably a dozen times; I’ve met with her three or four dozen times. That office is evolving, and they’re hiring again.

But not every agency engages the same way. I’ll say that the Consumer Financial Protection Bureau (CFPB) is very heavily engaged. I meet with the CFPB on an issue once or twice a week. And then you have agencies like the Federal Deposit Insurance Corporation (FDIC) that don’t. That defunded their innovation efforts and put their heads in the sand. They’re just as wrong as the company that is purposely running afoul of the rules of the road. Both have a responsibility to each other, and it’s critically important that we all do what we’re supposed to do.

Robert Savoie: Absolutely. Well, we’ve filled up our allotment for our podcast, so we will call it here. But Phil, thank you so much. This was informative and excellent, and I love catching up with you anytime I get the chance to do it. So thank you so much. And Rachael, thank you so much for the great questions and for leading the panel; we’ll talk to everybody soon and hopefully see you in the next Deep Dive missive we shoot out. Thanks so much.

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