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Progressives critical of Biden's expected OCC nominee over fintech ties

U.S. President Joe Biden's expected pick to lead a key bank regulator is facing scrutiny from progressives for his ties to a digital lender and a cryptocurrency company, setting up an early battle with the left on banking policy.

Michael Barr, who was a top Treasury Department official under the Obama administration, is reportedly Biden's likely pick to be the next head of the Office of the Comptroller of the Currency. The OCC is a regulator of national banks, including JPMorgan Chase & Co. and Wells Fargo & Co., but also plays a key role in determining the framework for newer financial technology entrants looking to either partner with big banks or compete with them.

Barr's supporters say his fintech knowledge could be useful as regulators look for ways to use technology to help those who have long been shut out of the banking system — all while ensuring that lenders are subject to strict consumer protections. His academic research has focused on the financial health of low-income Americans, and he was a major proponent of the Consumer Financial Protection Bureau as he and other policymakers sought to strengthen safeguards after the 2007-09 crash.

"His heart and his mind were always focused on … how the banking system is going to work for consumers to make sure they get fair access to equitable products," said Aaron Klein, who worked with Barr at the Treasury and is now a senior fellow at the Brookings Institution.

But critics, such as the Revolving Door Project's Timi Iwayemi, worry Barr became too "cozy" with fintech firms after leaving the Obama administration. Barr was on the advisory boards for the fintech firm LendingClub Corp. from 2013 until 2020 and the crypto payments company Ripple Labs Inc. from 2015 until 2017.

"Those are not the people that we should be bringing back into government," said Vasudha Desikan, political director of the Action Center on Race and the Economy.

Desikan and others have pressed Biden to appoint University of California, Irvine law professor Mehrsa Baradaran, Biden's other rumored finalist for the OCC post. Baradaran is the author of the books "The Color of Money: Black Banks and the Racial Wealth Gap" and "How the Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy," where she proposed the re-institution of bank accounts through the U.S. Postal Service.

Biden has not formally announced his pick, and a spokesperson for the transition declined to comment. Barr also declined to comment.

Barr has gotten support from the Opportunity Finance Network, which represents community development financial institutions. In a blog post, President and CEO Lisa Mensah wrote he has been a "consistent advocate for the most vulnerable" and that "we need him as Comptroller of the Currency."

The National Community Reinvestment Coalition, a group that consistently battled with the Trump administration's OCC leaders, believes that both Barr and Baradaran are "phenomenal candidates with excellent financial reform credentials," said Gerron Levi, senior director of government affairs at the NCRC.

OCC at center of fintech debates

Barr, currently the dean of the University of Michigan's Gerald R. Ford School of Public Policy, has a lengthy history in policymaking. He worked at the Clinton-era Treasury Department, where he helped build a new fund for community development financial institutions, and he returned to the agency in 2009 to help the Obama administration respond to the financial crisis.

But his experience advising fintech firms has drawn attention, partly due to the ongoing work at the OCC and other agencies to write new rules surrounding financial technology.

The OCC has been at the forefront of fintech policy issues, particularly under former acting Comptroller Brian Brooks, who was previously chief legal officer at Coinbase Inc. Brooks opened up new avenues for banks to offer certain cryptocurrency services and conditionally approved a national trust bank charter for a crypto-focused bank. The agency has also sought to create a new "fintech charter" that would essentially grant national banking powers to eligible fintech firms, drawing concerns from state regulators who worry those companies would be able to evade state consumer protection laws.

Iwayemi, of the Revolving Door Project, said Barr's experience at fintech firms presents a conflict given the OCC's role in figuring out how to regulate the industry.

Barr has also advised the Alliance for Innovative Regulation, a group that has sought to develop a new and more efficient regulatory framework that deals with emerging digital issues. Jo Ann Barefoot, its founder and CEO, said Barr is "well-equipped" to take on such issues given that he recognizes both the benefits and drawbacks of new technologies. Regulators, for example, have grappled with whether banks could use artificial intelligence to develop alternative credit metrics for consumers who have long been shut out of traditional credit options.

"That could make the system much more inclusive, but it also could make it much more biased if you don't regulate it right," said Barefoot, who is also a former top OCC official.

Avoiding a 'race to the bottom' in lending

Barr shared his thoughts on fintech and borrower protections in a 2019 paper, highlighting promising advances in payments and credit scoring that are "shaking up finance" but also noting that other innovations are "frankly over-hyped."

"As fintech expands, we need to keep the financial sector accountable to serving all communities," Barr wrote, stressing the need for strong oversight at the federal and state level to avoid a "race to the bottom in sales practices and products" between banks and nonbanks.

In recent years, he has focused on the lack of safeguards for small business loans, whose protections are far more limited than those in consumer law. Barr, along with LendingClub, was part of a group that developed a Small Business Borrowers' Bill of Rights. The group has pushed for policy changes to make the terms of business loans more transparent, eliminate hidden fees and ensure lenders do not trap businesses in a debt cycle.

"This is an exciting time in which technology and innovation is driving down costs and improving access, but we need to have the right kind of regulatory environment so that we help people and not end up driving them into business failure," Barr said in a 2016 interview for Barefoot's fintech podcast.

Predatory lending practices and a lack of regulatory oversight were key contributors to the 2007-09 financial crisis. As a Treasury official in 2000, Barr was part of a task force that raised red flags over abusive practices months before the Clinton administration left office.

When he rejoined the Treasury in 2009, he helped design the Obama administration's response to the crisis that progressives have long criticized as far too tepid. Critics often point to programs like the Home Affordable Modification Program, or HAMP, a foreclosure prevention program Barr helped design that reached far fewer homeowners than originally intended.

In a book looking back at the crisis response, Barr and two Bush-era Treasury officials wrote that HAMP and other programs helped millions of homeowners keep their houses and contributed to the recovery. But they wrote the two administrations should have "acted more forcefully from the start," suggesting future policymakers should consider more aggressive options and worry less about political trade-offs.

Barr also helped negotiate the new financial regulatory framework under the Dodd-Frank Act, which progressive critics say did not go far enough but others note barely passed Congress and required some compromises.

'Anything but easy'

During the Dodd-Frank negotiations, Barr was a major advocate for the creation of the Consumer Financial Protection Bureau, and he helped ensure the new agency had a broad reach.

Camden Fine, who was a top lobbyist for community banks at the time, said Barr "stuck to his guns" and refused to budge on exempting banks with less than $10 billion in assets from CFPB rules. The final compromise with lawmakers stipulated that the CFPB does not have direct supervisory powers over those banks, but small banks could still get in trouble with their existing regulators for breaking CFPB rules.

"He'll be anything but easy on all the institutions under his purview," said Fine, adding that Barr would be the "toughest comptroller" in living memory.

Much of Barr's academic focus has been on researching financial inclusion and how to improve the financial well-being of low-income Americans. Richard Cordray, the first CFPB director, said in an interview he was a "pioneer" in the field and that he has always been a strong advocate for the CFPB.

Barr, for example, wrote a 2004 paper called "Banking the Poor" where he suggested that regulators examine whether banks were offering accounts with no overdraft fees. The idea has recently gotten some traction from the industry through a movement toward offering "Bank On-certified" accounts. In all, overdraft fees at U.S. banks and thrifts totaled $2.03 billion in the third quarter of 2020, according to an S&P Global Market Intelligence review.

He also has focused on researching the Community Reinvestment Act, writing a paper in 2005 that pushed back against CRA critics who argued it was ineffective and unnecessary.

The law "should be strengthened moving forward, not radically overhauled, undermined or restricted," Barr wrote in his 2019 paper for a CRA research symposium. Among his suggestions for strengthening the CRA were cracking down on "gotcha fees" for bank consumers, eliminating any loopholes for institutions and ensuring banks' loans in underserved communities are helping lower-income residents rather than fueling gentrification.

"He will put the 'community' back into Community Reinvestment Act," said Susan Wachter, a University of Pennsylvania finance and real estate professor who co-organized the CRA event.