Consumer Financial Protection Bureau reform

Acting Director of the CFPB Mick Mulvaney has detailed a new vision for the agency in which it will act with restraint and not target companies without substantial evidence of wrongdoing. Since assuming his Acting Directorship, Mulvaney has announced several political appointments to key CFPB positions, issued over ten requests for information seeking public input on nearly every aspect of the Bureau, undertaken a comprehensive review of all CFPB rules rolled back requirements under its payday, prepaid card and HMDA-related rules, and announced its intention to create a regulatory sandbox to help incubate fintech and regtech products and services.

The Trump administration has nominated budget official Kathy Kraninger to succeed Mulvaney as the CFPB's permanent director. If confirmed, Kraninger is expected to continue Mulvaney's reforms of the agency. The CFPB, meanwhile, continues to face threats from the judicial and legislative branches concerning its current leadership structure and funding mechanisms. Given the foregoing, M&A activity in the consumer finance industry, which had slowed following the creation of the CFPB, continues to accelerate.

It will be interesting to observe how buyer consolidation activity evolves as the Trump administration continues to implement regulatory reforms and reshapes the CFPB. The rollback of regulations, for example, concerning the payday lending industry has made such lenders more attractive acquisition targets, hastened IPO activity and bolstered debt capital markets offerings.

Favorable economic trends, meanwhile, should continue to support financing and M&A activity within the consumer finance sector as businesses reach scale and seek further consolidation opportunity.

Financial regulatory reform could encourage bank M&A

In late May 2018, President Trump signed into law the Economic Growth, Regulatory Reform and Consumer Protection Act (the "Act"), which could spur more bank combinations. One of the Act's key provisions raises the threshold for systemically important financial institutions (who are subject to more burdensome regulation) from US$50 billion to US$250 billion. The US$50 billion threshold has been a major deterrent to bank M&A, and raising it could stimulate more deal activity. Other changes under the Act could also encourage consolidation among smaller banks.

Beyond the Act, the regulatory environment continues to ease, as new leadership at the banking agencies softens their approach to enforcement, which could especially benefit foreign banks, who (up to now) have been frequent enforcement targets and who, as such, have been less acquisitive in recent years.

Likewise, the process for obtaining regulatory approvals appears to be accelerating as, among other things, regulators resolve community group objections more swiftly than in the past.

Finally, regulators appear increasingly open to innovative approaches to charter-structuring strategies, including dormant charter alternatives. These include industrial loan companies and new charter alternatives, such as the OCC's proposed special-purpose national bank fintech charter. Regulators' openness to innovation could significantly benefit M&A.

Other demographics also favour consolidation, as banks increasingly look to develop digital platforms and make heavy investments in technology; again, often with the support of regulators increasingly focused on fintech and regtech solutions that are transforming the landscape of the financial services industry.

All of these factors suggest that we will see increased bank M&A activity. Indeed, concurrent with the Act's enactment, in May 2018, a number of bank deals were announced, including Fifth Third Bancorp's US$4.6 billion purchase of MB Financial. Sellers in those deals varied, from de novo to larger regional banks and from commercial to retail operations. With continued easing of the regulatory environment, there is reason to think such deal activity will continue.

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