issue: Financial Services

What’s Going on with Credit Scoring Rules?

Posted on by Alyssa Brown

Newly released documents from a Freedom of Information Act (FOIA) filing by the Housing Policy Council show that in 2022, Fannie Mae and Freddie Mac were resistant to adding VantageScore 4.0 and skeptical about shifting to a single credit report (because it is less predictive of creditworthiness than requiring two or three). 

PPI has long argued that competition in credit scoring is a good thing. But because VantageScore is owned by the three credit reporting agencies, there is potential for a conflict of interest, and these agencies could use their collective influence to the use of a less accurate credit score.

The FOIA requested documents highlight that Fannie and Freddie recommended that the Federal Housing Finance Agency (FHFA) only approve FICO 10T for use. They also asked that three other FICO scores, as well as VantageScore 4.0, be rejected. Furthermore, the documents indicate that Fannie Mae and Freddie Mac reported that a single-file report was less accurate than a tri- or bi- merge report. 

Despite these objections, President Biden’s director of the FFHA chose to ignore the GSE’s recommendation. The Trump administration temporarily halted the rule, but after a delay, FHFA Director Bill Pulte pushed forward with a plan that also contradicts the GSE’s advice — to allow VantageScore 4.0 as an approved model for Fannie Mae and Freddie Mac loans.

If true, the FHFA’s decision is reckless and potentially costly to consumers and should therefore be revisited by the agency. Furthermore, Congress should hold hearings on why the agency would ignore Fannie and Freddie’s warnings.

Lewis for RealClearMarkets: Don’t Turn Deposit Insurance Into Another Middle Class Tax

Posted on by Max Sherrill

The perennial challenge in the realm of banking regulation is to strike the proper balance between two worthy goals. Those of us on the left and center-left want to make financing more readily available to working-class applicants looking to earn their way up the socio-economic ladder. To that end, we want to give banks and other lending institutions greater security in knowing that they can responsibly take risks on those who might not otherwise qualify for a loan. At the same time, we don’t want to undermine those same potential working-class borrowers by steering lenders into the ditch known to insiders as a “moral hazard”—that is, by inducing lenders to make bad loans. Washington’s job is to help financial firms strike the right balance.

Read more in RealClearMarkets.

Stablecoins Will Lessen Community Lending

Posted on by Alyssa Brown

After the recent passage of the GENIUS Act, stablecoins — digital assets used for transactions and pegged to the value of the dollar — are expected to become a more common financial tool. The stablecoin market has grown from about $12 million in 2020 to just over $250 billion today.[1] After the Genius Act, JP Morgan projects that it could hit $500 to $750 billion in the next few years.[2]

The law includes many guardrails on stablecoins, with the non-ironic intention of protecting the stability of today’s financial structure. One important issue is whether deposits will flow out of existing banks into stablecoins. That could have significant consequences, including fewer community lending obligations and less credit and investment for small businesses, farmers, and homeowners across the country.

In August, the GENIUS Act became the first major U.S. law focused on the regulation of “payment stablecoins.” The bill is designed to enhance consumer protection, promote innovation, create confidence in the stablecoin marketplace, and protect the financial system.

Payment stablecoins have the following characteristics:

  • Means of Payment/Settlement: Its primary purpose is to function as a medium of exchange for settling transactions.
  • Stable Value: The issuer is obligated to convert, redeem, or repurchase the stablecoin for a fixed amount of monetary value (e.g., U.S. dollar).
  • Reserve Requirements: Issuers are typically required to maintain reserves backing outstanding payment stablecoins on at least a 1:1 basis. Stablecoins can also be pegged to other international currencies, such as the Euro, the Yen, or the Yuan.

In addition to the above, payment stablecoins are prohibited from paying interest/yield solely for holding or using the coins or tokens. There are a number of rationales for this ban.

First, payment stablecoins are by law not securities, commodities, or traditional deposits, and as such face far lighter regulation. If they were allowed to accrue interest, they would more closely resemble the above, but without the financial regulation that protects consumers and the broader financial system. For example, deposit accounts at banks are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC), while stablecoins are not. This means that if used by customers to store their savings, those customers would not be insured against loss should the stablecoin issuer go bankrupt or default.

Second, policymakers were concerned about oversaturation of supply.  There is already considerable competition in the depository marketplace — almost 9,000 banks and credit unions are currently in operation in the U.S. In recent years, that number has declined significantly due to consolidation and, in part, because of a decline in demand. The growing number of nonbank financial institutions has also diminished the demand for insured depository institutions.

Third, the authors of the law wanted to prevent financial instability and the outflow of deposits from insured depository institutions that are more highly regulated and an essential source of lending to communities, small businesses, and homeowners. Technology that allows consumers to bypass banks — otherwise known as disintermediation — could threaten lending to key business sectors that, in turn, could hurt economic growth and innovation.

Yet despite efforts to protect commercial banks and credit unions from the significantly less regulated stablecoin sector, it is not difficult for crypto companies and others to skirt around the prohibition.

For example, some companies, like Coinbase, are exploring ways to offer rewards to stablecoin holders, emphasizing that such rewards are not technically “interest” and are offered for reasons other than merely holding the stablecoin itself. The company already offers a 4.10% reward rate for customers who hold the popular stablecoin USD Coin, also known as USDC. The coin’s issuer, Circle, shares interest revenue from the assets that back USDC with Coinbase. Because of the potential to circumvent the new law, a significant amount of the $18.5 trillion in deposits at U.S. banks and credit unions could flow out of insured depository institutions and into payment stablecoins. A Treasury report from April 2025 estimates that roughly $6.6 trillion in deposit outflows could occur with higher usage of stablecoins (particularly if issuers could offer yields similar to bank accounts), representing a 36% decrease in the total amount of bank deposits.[3]

This level of outflows would be incredibly challenging for banks to weather. Traditional FDIC-insured depository institutions would be forced to compete for an increasingly scarcer amount of funds. This chasing of deposits would be potentially good for depositors in the short term, as banks would be forced to offer higher yields on savings and checking accounts. But over time, this would lead to considerable consolidation within the industry as banks either merge or declare bankruptcy — with smaller community banks likely bearing the brunt of the impact.

This, in turn, would undermine an important source of economic dynamism: community lending. Community banks use deposits to originate approximately 60% of all small business loans and 80% of agricultural loans nationally. The decline in the number of small banks, more scarce deposits, and reduced competition amongst credit providers will all lead to less credit for households, local businesses, and farmers. In many areas, less lending will lead to fewer jobs. For example, small businesses are important employers in rural areas, employing 62% of all workers.[4]

This impact will be especially acute in rural and low-income areas with few credit options, since an outflow in deposits will hinder lending for the Community Reinvestment Act (CRA). Under the CRA, banks are encouraged to meet the credit and community development needs of their entire communities, especially low- and moderate-income (LMI) neighborhoods. Banks are evaluated on their performance in providing loans, investments, and services to these communities, and these evaluations are used when they apply for mergers or other changes to their deposit facilities.

Especially since the Clinton administration’s 1995 reforms to the law, CRA has dramatically increased lending, investment, and basic banking services to underserved communities. The evidence shows that the changes made to CRA coincided with a rise from $1.6 billion in 1990 annual commitments to $103 billion in 1999.  Over that roughly same period, the number of CRA-eligible home purchase loans originated by CRA lenders and their affiliates rose from 462,000 to 1.3 million.

Today, CRA continues to benefit communities around the nation. For example, there have been nearly $5 trillion in CRA-qualifying mortgages and small business loans made from 2010 to 2024, according to an analysis by the National Community Reinvestment Coalition. In 2023 alone, CRA lending accounted for roughly $387 billion in small business and community development loans.[5] Furthermore, this is a substantial portion of all lending that depository institutions do in these areas, accounting for nearly 77% of outstanding small business loan dollars and 35% of outstanding farm loans.

Yet unlike deposits at banks, stablecoins have no community lending obligations. While it is not certain exactly how much damage a one-third decline in deposit levels would do to CRA’s vital source of credit, history does give us a reason for concern. At the end of 1980, money market mutual fund assets were only about $135 billion. Today, that number is closer to $5 trillion, making it second only to banks among financial intermediaries. The main advantage mutual funds had in the early years was the industry’s ability to offer higher interest rates than banks because of regulatory limits on insured depository institutions. This led to explosive growth throughout the decade and a substantial level of deposits shifting from banks and thrifts into money market mutual funds, weakening these institutions and undermining the goals of CRA. While successful reforms in the 1990s helped soften the impact, the underlying shift in deposits nevertheless cut the amount of funds available for investment in underserved communities.

CONCLUSION

To ensure financial stability, policymakers have a responsibility to ensure that the GENIUS Act’s prohibition on interest-bearing stablecoins is effective. The delineation between payment stablecoins and stablecoins that would offer interest was carefully thought out and was placed into the law for a reason — to protect large outflows of deposits from insured depository institutions that are the backbone of lending to small businesses and homeowners. The Federal Reserve and other regulators should proceed cautiously as they develop regulations to implement the GENIUS Act, heeding Congress’s mandate to balance the innovation and efficiency gains that stablecoins offer with protecting deposits and the critical lending they enable. Finally, Congress may want to revisit and enact legislation that closes any loopholes created by the GENIUS Act that would undermine insured depository institutions and the communities they serve.

 

[1] Rafael Nam, “Why There’s So Much Excitement Around a Cryptocurrency Called Stablecoin,” National Public Radio, July 15, 2025, https://www.npr.org/2025/07/15/nx-s1-5467380/crypto-stablecoin-genius-act-congress

[2] “What to Know About Stablecoins,” JP Morgan, September 4, 2025, https://www.jpmorgan.com/insights/global-research/currencies/stablecoins.

[3] Dylan Toker and Gina Heeb, “Why Banks Are on High Alert About Stablecoins,” Wall Street Journal, July 18, 2025, https://www.wsj.com/finance/currencies/why-banks-are-on-high-alert-about-stablecoins-2f308aa0?mod=Searchresults&pos=2&page=1.

[4] Michelle Kumar and Justice Antonioli, “Small Businesses Matter: Increasing Small Business Access to Capital in the Digital Age,” Bipartisan Policy Center, April 29, 2024, https://bipartisanpolicy.org/report/small-businesses-matter-capital-access/.

[5] “Findings from Analysis of Nationwide Summary Statistics for 2023 Community Reinvestment Act Data Fact Sheet,” Federal Deposit Insurance Corporation, 2023, https://www.fdic.gov/findings-analysis-nationwide-summary-statistics-2023-community-reinvestment-act-data-fact-sheet.

New PPI Report Warns Credit Card Rate Caps Could Limit Access for Working-Class Borrowers

Posted on by Alex Terr

WASHINGTON — Credit card interest rates have skyrocketed over the past few years, increasing borrowing and debt. Congress has attempted to mitigate credit card debt for Americans by introducing legislation to cap credit card interest rates at ten percent. However, this legislation would do more harm than good.

To inform the debate around new legislation proposing a 10% interest rate cap, the Progressive Policy Institute (PPI) today released “Cutting Credit: How Rate Caps Undermine Access for Working Americans.” Authored by Andrew Fung, Senior Economic & Technology Policy Analyst; Alex Kilander, Policy Analyst at PPI’s Center for Funding America’s Future; and Sophia Lu, PPI Public Policy Fellow, the report argues that while rising interest rates reflect inflation and increased lending risk, a blunt rate cap would strip issuers of a key tool for managing that risk — ultimately reducing access to credit for working-class borrowers.

“A 10% interest rate cap may sound like relief, but it could end up closing the door on credit for millions of Americans,” said Fung. “When lenders can’t price for risk, they stop serving lower-income borrowers.”

The authors suggest three ways that would strengthen consumer protections without cutting off access to credit:

  • Enhancing Transparency in Credit Terms and Disclosures: When consumers can clearly find and understand how much they will pay over the life of a loan or credit card balance, they can better evaluate their credit and spending decisions.
  • Expanding Financial Education in Schools and Communities: Most young Americans struggle with managing their finances, and the implementation of financial education will help them make better monetary decisions. 
  • Investing in Community Development Financial Institutions (CDFIs) to Provide Responsible Credit Access for Working Americans: CDFIs play an essential role in the financial ecosystem by giving those who cannot afford rising interest rates at banks a safer alternative to predatory loans.

“Rather than imposing blanket rate caps, targeted reforms expand access to responsible credit and empower consumers through transparency and education, said Kilander.”

Read and download the report here.

 

Founded in 1989, PPI is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org. Find an expert at PPI and follow us on X.

###

Media Contact: Ian O’Keefe – iokeefe@ppionline.org

Cutting Credit: How Rate Caps Undermine Access for Working Americans

Posted on by Alex Terr

INTRODUCTION

As the inflation rate surged throughout 2021 and 2022 and put pressure on consumers’ wallets, another important trend was underway: credit card interest rates were rising. With the Federal Reserve raising the federal funds rate substantially to combat inflation, credit card interest rates climbed sharply in 2022 and 2023 as a result of the increased costs of lending, rising from an average of 14.51% in Q4 2021 to 21.19% just two years later. However, even as inflation subsided and prices stabilized, credit card interest rates remained elevated.

Why is this the case? Ultimately, credit card interest rates reflect the state of the broader consumer credit market. In recent years, that market has started showing signs of stress, particularly among less creditworthy borrowers, who have higher credit card debt and more frequent delinquencies. Higher market-wide risk — alongside a still high federal funds rate — has caused banks that issue credit cards to raise interest rates and keep them high.

Consumer discontent with these high rates has spurred a bipartisan effort to address the issue. In February 2025, Senator Bernie Sanders (I-Vt.) and Josh Hawley (R-Mo.) introduced legislation that would cap credit card interest rates at 10% for five years, claiming that the bill would provide “working families with desperately needed financial relief.” A 10% cap was also floated by Donald Trump on the campaign trail, to provide relief “while working Americans catch up.”

However, limiting credit card interest rates to an arbitrary 10% effectively deprives credit card issuers of their most powerful tool to manage risk. As a result, a rate cap would dramatically reduce access to credit for the very people it aims to protect, just as the economy teeters on the precipice of a recession. By significantly limiting their ability to qualify for and use credit, it would even cause many consumers to turn to predatory alternatives such as payday lenders.

The following sections of this paper dive into the consumer credit market and evaluate the different options policymakers can use to make it function better for working Americans. First, it reviews the current state of the market, highlighting the important role that consumer credit plays in the economy, how credit card issuers decide upon interest rates, and breaking down why interest rates have risen in recent years. Second, it explains the economics of rate caps, and how workingclass Americans would bear the brunt of a cap’s consequences. Lastly, the paper explores some better policy alternatives to protect consumers, including greater transparency, better financial capability for households, and alternatives to traditional credit.

Read the full report.

New PPI Report Examines Impact of ‘Buy Now, Pay Later’ on Consumer Credit

Posted on by Max Sherrill

WASHINGTON — Amid growing concerns about economic instability and the risk of a wider economic downturn, the Progressive Policy Institute (PPI) has released a new report examining the rapidly expanding “‘Buy Now, Pay Later”’ (BNPL) trend. The report, titled “Buy Now, Pay Later: The New Face of Consumer Credit,” explores the benefits and risks of this emerging form of consumer credit and advocates for targeted regulations to protect consumers while encouraging ongoing innovation in the credit market.

Authored by Andrew Fung, an Economic Policy Analyst at PPI, the report highlights the growing popularity of BNPL services among young and low-income consumers, who are attracted to the flexibility these services provide in accessing goods and services that may otherwise be unaffordable. While BNPL loans can improve financial inclusion, they also carry significant risks, especially for consumers with limited financial literacy or those prone to overextending themselves financially.

“In today’s uncertain economic climate, it’s crucial to understand the patterns of consumer spending,” said Fung. “BNPL loans present a new way for consumers to access credit, but the rapid growth of this market requires careful attention to potential financial risks.”

The report outlines the current state of consumer credit, noting that while overall debt levels remain stable, there are emerging areas of concern that should be closely monitored. BNPL loans, with their smaller, fixed payment structures, are generally less risky than traditional credit cards. However, the report recommends sensible regulations, such as interest rate caps, clear loan term disclosures, and standardized dispute resolution processes, to protect consumers and support the sustainable growth of this credit option.

“As policymakers continue to navigate economic challenges, it’s important to examine the current state of consumer credit closely,” added Fung. “Our report provides a practical approach for ensuring BNPL can benefit consumers while mitigating potential risks to both individuals and the broader economy.”

The report also examines the demographic profile of BNPL users, revealing that these services are especially popular among Black, Hispanic, and female consumers, as well as those with household incomes between $20,000 and $50,000 per year. Although BNPL has grown rapidly, it still represents a relatively small portion of the overall American economy. However, its differences from traditional credit methods and the unique risks it presents are drawing increasing attention from policymakers.

Read and download the report here.

The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org. Find an expert at PPI and follow us on Twitter.

###

Media Contact: Ian O’Keefe – iokeefe@ppionline.org

Buy Now, Pay Later: The New Face of Consumer Credit

Posted on by Max Sherrill

Introduction

Consumer credit plays two essential roles in our everyday lives. Instruments like credit cards make it possible for Americans to purchase everything from their daily latte to groceries and furniture with less friction, even if we have enough money in the bank. Beyond these smaller purchases, consumer credit also allows us to borrow to pay for bigger ticket items that may be too expensive to buy with their current resources. The second scenario can lead to a potentially dangerous expansion of household debt, which can trap some households in a debt spiral that’s hard to escape or have larger systemic effects.

This paper will consider the economic and policy ramifications of the current rapid expansion of one form of consumer credit, known as buy now, pay later (BNPL). Buy now, pay later loans serve as an alternative to traditional payment methods like credit cards when shopping online, allowing consumers to break up the cost of their purchase into several installments to be paid over the course of a few weeks or months, often with very low or zero interest. Understanding how this new form of consumer credit fits into the larger American economy is important, and this paper will explain why BNPL falls under the first category of consumer credit but does merit scrutiny and potential regulation as it continues to develop.

Read the full report.

Ritz for Forbes: No, Bitcoin Won’t Solve Our National Debt

Posted on by Max Sherrill

By Ben Ritz

At a Bitcoin conference last weekend, Senator Cynthia Lummis (R-Wyo.) announced forthcoming legislation that would direct the Treasury to buy 1 million Bitcoin, or roughly 5% of the global stock, over five years (which would cost between $60 billion and $70 billion at today’s prices). Lummis claimed that the federal government would be “debt-free because of Bitcoin” if her proposal is enacted, because these Bitcoin could be sold by the federal government at a profit after 20 years. Unfortunately, there are both mathematical and conceptual problems that prevent such an approach from solving the federal government’s budget problems.

Let’s start with the math: The U.S. national debt today stands at nearly $28 trillion (or $35 trillion, if one includes “intragovernmental debt” the general fund owes to other internal government accounting entities such as the Social Security and Medicare trust funds). This year alone, the federal government spent roughly $2 trillion more than it raised in revenue, which had to be covered by borrowing that gets added to our national debt.

Keep reading in Forbes.

Paying for Progress: A Blueprint to Cut Costs, Boost Growth, and Expand American Opportunity

Posted on by The Progressive Policy Institute

The next administration must confront the consequences that the American people are finally facing from more than two decades of fiscal mismanagement in Washington. Annual deficits in excess of $2 trillion during a time when the unemployment rate hovers near a historically low 4% have put upward pressure on prices and strained family budgets. Annual interest payments on the national debt, now the highest they’ve ever been in history, are crowding out public investments into our collective future, which have fallen near historic lows. Working families face a future with lower incomes and diminished opportunities if we continue on our current path.

The Progressive Policy Institute (PPI) believes that the best way to promote opportunity for all Americans and tackle the nation’s many problems is to reorient our public budgets away from subsidizing short-term consumption and towards investments that lay the foundation for long-term economic abundance. Rather than eviscerating government in the name of fiscal probity, as many on the right seek to do, our “Paying for Progress” Blueprint offers a visionary framework for a fairer and more prosperous society.

Our blueprint would raise enough revenue to fund our government through a tax code that is simpler, more progressive, and more pro-growth than current policy. We offer innovative ideas to modernize our nation’s health-care and retirement programs so they better reflect the needs of our aging population. We would invest in the engines of American innovation and expand access to affordable housing, education, and child care to cut the cost of living for working families. And we propose changes to rationalize federal programs and institutions so that our government spends smarter rather than merely spending more.

Many of these transformative policies are politically popular — the kind of bold, aspirational ideas a presidential candidate could build a campaign around — while others are more controversial because they would require some sacrifice from politically influential constituencies. But the reality is that both kinds of policies must be on the table, because public programs can only work if the vast majority of Americans that benefit from them are willing to contribute to them. Unlike many on the left, we recognize that progressive policies must be fiscally sound and grounded in economic pragmatism to make government work for working Americans now and in the future.

If fully enacted during the first year of the next president’s administration, the recommendations in this report would put the federal budget on a path to balance within 20 years. But we do not see actually balancing the budget as a necessary end. Rather, PPI seeks to put the budget on a healthy trajectory so that future policymakers have the fiscal freedom to address emergencies and other unforeseen needs. Moreover, because PPI’s blueprint meets such an ambitious fiscal target, we ensure that adopting even half of our recommended savings would be enough to stabilize the debt as a percent of GDP. Thus, our proposals to cut costs, boost growth, and expand American opportunity will remain a strong menu of options for policymakers to draw upon for years to come, even if they are unlikely to be enacted in their entirety any time soon.

The roughly six dozen federal policy recommendations in this report are organized into 12 overarching priorities:

I. Replace Taxes on Work with Taxes on Consumption and Unearned Income
II. Make the Individual Income Tax Code Simpler and More Progressive
III. Reform the Business Tax Code to Promote Growth and International Competitiveness
IV. Secure America’s Global Leadership
V. Strengthen Social Security’s Intergenerational Compact
VI. Modernize Medicare
VII. Cut Health-Care Costs and Improve Outcomes
VIII. Support Working Families and Economic Opportunity
IX. Make Housing Affordable for All
X. Rationalize Safety-Net Programs
XI. Improve Public Administration
XII. Manage Public Debt Responsibly

Read the full Blueprint. 

Read the Summary of Recommendations.

Read the PPI press release.

See how PPI’s Blueprint compares to six alternatives. 

Media Mentions:

Weinstein for Forbes: What History Tells Us About The Fed’s Timing Of Interest Rate Cuts

Posted on by Max Sherrill

By Paul Weinstein Jr.

At the end of 2023, many economists and bankers predicted the Federal Reserve would cut interest rates several times over the course of 2024, leading to lower mortgage and credit card rates, and greater economic activity overall.

The Fed itself, according to its dot plot (a chart that records each Fed official’s projection for the central bank’s key short-term interest rate), projected three 0.25% cuts by the end of 2024. Yet, at the conclusion of the first quarter, the federal funds rate still remains locked in between 5.25% and 5.5%. While the stock market rally indicates that investors believe three or more rate cuts are still on the table for this year, history suggests that may not be the case.

Keep reading in Forbes.

Navigating the Winds of Change: Asset Managers’ Strategic Shifts in Climate Initiatives

Posted on by Max Sherrill

The finance industry has, until recently, taken a collective approach to climate change, showing a united front in addressing one of the great challenges of our time. But that groupthink approach is evolving, as seen by recent third-party engagement modifications made by top asset managers such as BlackRock, JPMorgan Asset Management, and State Street Global Advisors. These coalition changes, especially in how they interact with Climate Action 100+, a climate-focused, investor-led program that was introduced in 2017 that recently announced an evolution in focus known as “phase 2,” (described by the organization as “markedly shifting the focus from corporate climate-related disclosure to the implementation of climate transition plans”), indicate a subtle recalibration as opposed to a retreat from environmental commitments.

The decision of State Street and JPMorgan to reallocate resources elsewhere, together with BlackRock’s decision to transfer its involvement to its overseas arm, demonstrate the difficult balancing act these multinational behemoths face.  They find themselves at a crossroads where they must continue to carry out their fiduciary responsibilities in the face of shifting market and regulatory environments while attempting to pilot the maiden voyage toward environmental sustainability. This shift demonstrates a wider trend in the financial sector: the path to a low-carbon, sustainable future is complex and calls for a flexible multimodal strategy that respects global decarbonization targets while navigating a patchwork of regulatory frameworks and client preferences.

In its announcement, BlackRock previewed the launch of a new stewardship option that will provide clients additional decarbonization engagement and proxy voting options. Furthermore, the introduction of programs such as Decarbonization Partners by Temasek and BlackRock highlights a consistent commitment to creative solutions to climate-related problems. This pledge to make strategic investments in next-generation businesses that are necessary to achieve a net-zero global economy by 2050 is an example of how the investment landscape is changing in terms of how it approaches climate action, and- to be blunt- a more efficient use of institutional resources and expertise being applied to climate efforts. (and yes, potentially profitable.)

The shift towards proactive participation is also shown by JPMorgan Chase’s Center for Carbon Transition (CCT), which offers bespoke assistance and in-house expertise to worldwide clients as they navigate the low-carbon transition. This project, which aims to match the company’s finance portfolio with the goal of net-zero emissions by 2050, demonstrates an understanding and actionable willingness to address the challenges associated with making the transition to a sustainable energy future.

State Street Global Advisors has demonstrated its active involvement in influencing policy directions that promote sustainable investment practices by continuing to invest in research and content platforms to interact with policymakers on decarbonization and the clean energy transition. This proactive approach to innovation and policy formation shows a dedication to the ultimate objective of realizing a path to a low-carbon economy.

These calculated realignments show the extent to which the financial industry understands the challenges and opportunities associated with the shift to more sustainable energy sources. (It is also a tacit acknowledgement that a “one size fits all” approach itself, isn’t sustainable.)  Rather than indicating a turnback, these organizations are improving their tactics to more effectively advance the decarbonization of the world economy. This sophisticated approach highlights the value of flexibility, client autonomy, and active participation in the dynamic field of climate action.

Ultimately, these tactical changes, however, continue to underscore a collective, if changing, commitment to helping the global energy transformation as the financial world continues to work through the great unknown of the energy transition. This journey, characterized by thoughtful analysis, demonstrates the industry’s willingness to make the tough decisions posed by a sustainable, environmentally conscious future.

New Report: Congress should rethink extending the Durbin Amendment to credit card interchange fees

Posted on by Alyssa Brown

Washington, D.C. — In 2010, the Durbin Amendment was enacted as part of the historic banking bill, the Dodd-Frank Act, and established a ceiling on debit card interchange fees — the cost that merchants pay each time a customer makes a purchase using a credit or debit card. While this legislation was intended to lower costs for consumers, when studied, the expected price reductions never came to pass, and in some cases, prices actually rose.

Lawmakers are now considering implementing a similar model to cap interchange fees for credit card transactions. Today, the Progressive Policy Institute (PPI) released a new report “No Change Needed: Congress Should Rethink Extending the Durbin Amendment to Credit Card Interchange Fees” detailing why extending the law to interchange fees for credit cards would harm consumers.

The report, written by Paul Weinstein Jr., Senior Fellow at PPI, outlines how numerous studies found no evidence that the cap on debit card interchange fees has led to savings for consumers. Furthermore, there is considerable evidence that extending the Durbin Amendment to credit cards would not only fail to provide consumers with any savings, it could actually leave them worse off.

“Despite how well-intended the Durbin Amendment was, the fact remains that the law had little or no impact on prices, and in some cases, may have even led to higher costs for consumers,” said Paul Weinstein. “Extending the Durbin Amendment to credit card interchange fees could ultimately hurt consumers by ending access to rewards offered by credit card providers, and increase security risks for cardholders.”

Read and download the report here.

The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C., with offices in Brussels, Berlin and the United Kingdom. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.

Follow the Progressive Policy Institute.

Find an expert at PPI.

###

Media Contact: Amelia Fox, afox@ppionline.org

No Change Needed: Congress Should Rethink Extending the Durbin Amendment to Credit Card Interchange Fees

Posted on by Alyssa Brown

INTRODUCTION

One of the greatest challenges for policymakers is the “unexpected negative consequence” of a change in law or regulation. There is a well-documented history of proposed policies that have achieved successes, but not without negative externalities. Prohibition in the 1920s United States, originally enacted to suppress the alcohol trade, drove many small-time alcohol suppliers out of business and consolidated the hold of large-scale organized crime over the illegal alcohol industry. 

Tradeoffs in pursuit of greater benefits to society are worth the cost if the positives are greater than the negatives. But if the negative consequences of a policy change outweigh the benefits — or actually make the problem worse — then that policy can only be described as problematic and worth reconsidering. The “Durbin Amendment, enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, has been cited by some as an example of a policy that did not achieve the goals of the authors of the policy while imposing new costs on the financial and debit exchange sectors. Yet despite its mixed record, some in Congress want to extend the Durbin Amendment to interchange fees for credit cards.

READ THE FULL REPORT. 

 

PPI Urges Congress to Advance a Modern Regulatory Framework for Digital Assets after FTX Meltdown

Posted on by The Progressive Policy Institute

In the wake of the collapse of crypto exchange platform FTX, the Progressive Policy Institute (PPI) today sent a letter to leadership of the House Committee on Financial Services and the Senate Committee on Banking, Housing and Urban Affairs calling for a functional and modern regulatory regime for digital assets.

Efforts to provide clarity to the regulatory framework of stablecoins have advanced in the House Committee on Financial Services, albeit slowly. The crash of FTX is yet another example of customers losing their savings due to the failure of unregulated institutions, highlighting the need for quick action from federal policymakers on digital assets. PPI urges the leadership of the House Financial Services and Senate Banking Committees to come together in a bipartisan way and advance regulation that balances both the benefits and risks of digital assets for investors and future consumers. 

Download and read the full letter here: 

 

November 17, 2022 

The Honorable Maxine Waters
Chair
U.S. House Committee on Financial Services
Washington, DC 20515 

The Honorable Patrick McHenry
Ranking Member
U.S. House Committee on Financial Services
Washington, DC 20515

The Honorable Sherrod Brown
Chair 
U.S. Senate Committee on Banking, Housing and Urban Affairs
 Washington, DC 20515 

The Honorable Pat Toomey
Ranking Member
U.S. Senate Committee on Banking, Housing and Urban Affairs
Washington, DC 20515

Dear Chair Waters, Ranking Member McHenry, Chair Brown, and Ranking Member Toomey: 

The collapse of crypto exchange platform FTX underscores the need for a modern, clear, and well functioning regulatory regime for digital assets. In a moment where uncertainty for cryptocurrency investors is rising — with customers losing their savings in the failures of unregulated institutions — the need for legislation to protect investors in the market for digital assets has never been more clear. But protecting investors while enabling the innovation that drives progress will require a balanced approach. 

Stablecoins can mitigate the risk of volatility associated with other cryptocurrencies and capitalize on the benefits of digital assets, such as allowing for faster and more efficient transmission of money. However, without a regulatory definition of ‘stablecoins,’ other tokens call themselves stablecoins and are listed as such but are not truly stable, hurting consumers who invest in them. The industry has seen so-called-stablecoins lose value almost overnight, as evidenced by the collapse of TerraUSD in May 2022.

Bipartisan legislative efforts by House Financial Services Committee Chair Maxine Waters and Ranking Member Patrick McHenry have sought to address the need for regulatory clarity in the realm of stablecoins. These efforts can be an important building block in the effort to provide sensible protections for investors. 

In the wake of the failure of FTX, regulation may need to be expanded to a broader scope. Fundamentally, though, regulation must both ensure stability and liquidity, and put appropriate measures in place to protect consumers when that is not the case. In regard to stablecoin regulation, a first step is defining a stablecoin as something backed by dollars, allowing consumers to determine legitimate value of digital assets in the market. Additional measures could include enforceable reserve requirements for stablecoins, transparency, and disclosure requirements for the assets backing those stablecoins, compliance with anti-money laundering/counter-terrorism financing rules, and clear rules regarding the timely redemption of payment from the sale of stablecoins. 

Innovative payment systems like stablecoins bring competition to the banking and money transmission industries and can provide less expensive, more efficient payments. But legislation is needed to make this system more sustainable. It is crucial that Congress move forward to regulate digital assets, including stablecoins, in a way that balances their benefits and risks. 

Sincerely, 

Progressive Policy Institute 

 

DOWNLOAD THE LETTER

+++

The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.

Follow PPI on Twitter: @ppi

Find an expert at PPI.

###

Media Contact: Aaron White; awhite@ppionline.org

Ritz for Forbes: Neither Party Has A Good Plan For Social Security And Medicare

Posted on by The Progressive Policy Institute

By Ben Ritz, Director of PPI’s Center for Funding America’s Future

The future of Social Security and Medicare has unexpectedly become a central point of contention in the final week before the 2022 midterm elections. As the two biggest non-emergency spending programs in the federal budget and the foundation of retirement security for nearly all American workers, it makes perfect sense to have a conversation about Social Security and Medicare during election season – particularly since both programs face serious financial challenges as our population ages. Unfortunately, the debate currently playing out on the campaign trail is devoid of the serious substance voters deserve, and it’s abundantly clear that neither party has a good plan to secure these programs for current and future beneficiaries.

 

Sen. Rick Scott (R-Fla.), who leads the GOP’s Senate campaign arm, kicked off the discourse when he released a proposal that would allow all federal programs – including Social Security and Medicare – to expire if not reauthorized every five years. Sen. Ron Johnson (R-Wis.), a far-right senator who is up for re-election next week, then suggested requiring the programs be reauthorized annually. Such a radical change that would enable these essential programs to suddenly vanish every few years would be catastrophic for American workers, who must plan their retirements around them years or even decades in advance.

Read the Full Piece in Forbes.

ESG Ratings and the Regulation of Information Markets

Posted on by The Progressive Policy Institute

ESG-oriented investing (Environment/Social/Governance) is a key market-oriented mechanism for using the financial system to assess material risk around generally agreed upon societal goals that go beyond profit-maximization. Environmental goals can include such factors as carbon emissions and water usage. Social goals can include diversity, labor standards, and data protection. Governance goals can include executive compensation and board composition.

Assessing the ESG-related performance of a company or country is an extremely data-intensive enterprise. Investors usually end up relying on one of a number of different companies that provide ESG ratings (also called scores or assessments), such as Sustainalytics (a Morningstar subsidiary) and MSCI (listed on the S&P 500). Parent companies of credit rating agencies (CRA) have also moved into the business of providing ESG scores, even as the credit rating agency arms of those companies increasingly incorporate ESG considerations into their credit ratings with greater transparency and consistency.

Considering how new the practice of non-financial evaluations is, ESG ratings from different firms often give very different results, depending on which measures are factored into the scoring process and how they are prioritized. One study suggested only a 31% correlation between ESG ratings produced by Sustainalytics and MSCI. While divergence of views can often be healthy, this degree of difference suggests a lack of shared data and a lack of agreement about the key drivers of ESG risk. By comparison the credit ratings market — another example of an “information market” — has had much more time to agree on many drivers of credit risk.

We applaud the recent proposal by the SEC to require more disclosure by public companies of climate-related risks. That is a good step that will provide investors with more information, help improve the ESG ratings process, and lead to more robust ESG ratings. We will also be able to better determine the connection between ESG ratings and financial performance.

The SEC is also looking at the potential for conflicts in this new area. The agency’s 2022 staff report on Nationally Recognized Statistical Ratings Organizations (NRSRO) raised questions about credit ratings produced by NRSROs, particularly those with ESG affiliates. The report noted that:

….in incorporating ESG factors into ratings determinations, NRSROs may not adhere to their methodologies or policies and procedures, consistently apply ESG factors, make adequate disclosure regarding the use of ESG factors applied in rating actions, or maintain effective internal controls involving the use in ratings of ESG-related data from affiliates or unaffiliated third parties. The Staff also identified the potential risk for conflicts of interest if an NRSRO offers ratings and non-ratings ESG products and services

The SEC was doing its job by raising these questions of methodology and potential conflicts as part of its regulatory oversight.  Notably, the inspections did not produce any evidence of actual problems. Yet these concerns can easily be overstated, as they were in recent articles by the  Wall Street Journal and Responsible Investor. It’s important to note that such issues of conflicts of interest and consistent application of methodologies arise in any market for information. In a data-driven world, companies that use data to provide third-party assessments of products, services, and other companies will always be under pressure to modify their assessments by those being assessed or with something to gain from the assessment. As I wrote in a January 2021 policy brief, available on the Progressive Policy Institute website:

In every part of the economy, the Information Age has made an exponentially increasing amount of data available to everyone. The difficult problem is extracting useful signals from the noise, especially when some market participants are actively taking advantage of opportunities to manipulate data, or to create false signals.

The key is to develop a set of processes and incentives that help manage new conflicts of interest. That’s certainly not an insurmountable problem, as the credit ratings agencies have shown. Indeed, credit rating agencies are known for their ability to apply their methodologies in a consistent and transparent fashion. In fact, that’s the essence of their business model. As I wrote in the policy brief:

The agencies assess the creditworthiness of the bonds according to published and detailed methodologies. In fact, there is literally nowhere else in the private sector that gives this level of transparency into the intellectual property of an organization, or that so rigorously documents their internal methodology for making decisions (imagine a newspaper committing itself publicly for how it chooses stories or does reporting, including reporting on advertisers).

True, the credit rating agencies came under criticism for their role in the 2008-2009 financial crisis. But the aftermath of the crisis, SEC oversight of CRAs was greatly increased. As Jessica Kane, then director of the SEC’s Office of Credit Ratings, noted in a 2020 speech: “In the span of 15 years, the credit rating industry has gone from being largely unregulated to being subject to a robust disclosure and examination regulatory regime.” As a result, the CRAs consistently produce strong signals that are useful for market participants. ESG ratings firms should strive to do the same.