Senate #2 Joins Mounting Opposition to Hochul’s Pick for Top Financial Regulator

[Gunnar Larson]

Senate #2 Joins Mounting Opposition to Hochul’s Pick for Top Financial
Regulator

Two months ago, Obama-era Treasury Department official Adrienne Harris
joined the board of LendingClub, a scandal-plagued
<https://www.nytimes.com/2018/09/28/technology/lendingclub-renaud-laplanche-fraud.html>
online
lending company. It was the latest of well over a dozen past and present
positions Harris has held at financial technology (“fintech”) firms or
related companies, many headquartered in New York.

Two weeks ago, Governor Kathy Hochul nominated her to be New York’s top
financial watchdog, charged with regulating those same firms.

The state Senate won’t vote on the nomination until it reconvenes in
January, but it has already provoked significant consternation among some
Democrats in the chamber—including Deputy Majority Leader Michael Gianaris
(D-Queens), who told New York Focus that he will vote against Harris’
confirmation.

“What we need is someone to oversee the industry that actually has interest
in overseeing the industry. I don’t believe that Adrienne Harris is that
person,” Gianaris said.

But supporters point to Harris’ experience advising the Obama
Administration on fintech policy as a qualification for the role, along
with the expertise on the industry she has developed from the inside.

“The opposition to her is just a knee-jerk reaction against anybody from
the private sector, and I think it’s wrong,” said Kathryn Wylde, president
and CEO of the Partnership for New York City, a business consortium.

New York Focus sent repeated questions to both Hochul and Harris about
whether Harris will remain on fintech boards if confirmed, how much she has
earned from board memberships and consulting jobs with fintech firms, and
what guardrails would be established to avoid conflicts of interest with
regards to specific companies she has worked for.

Neither Hochul nor Harris responded. The contact form on Harris’ personal
website <http://adrienneaharris.com/> was removed shortly after New York
Focus used it to request comment.
“Go forth, free market”

New York’s Department of Financial Services, the agency that Harris would
lead, regulates over 3,200 financial institutions controlling more than
$8.4 trillion. Its purview
<https://www.dfs.ny.gov/institution_definition> includes
chartering banks and regulating check cashers, mortgage issuers, life
insurance companies, and credit unions.

“The person who runs NYDFS is the bulwark between consumers and sharks. And
the shark’s expert is unlikely to act as aggressively to protect the
consumer minnows,” Jeff Hauser, director of the Revolving Door Project, a
progressive group that advocates against conflicts of interest in
government, told New York Focus.

In the fintech realm, the DFS issues regulations that protect consumers’
data rights, shield them from onerous fees, and ensure that interest rates
on loans do not exceed the state’s statutory maximum of 25%, meant to ward
off exploitative payday lenders. (It also licenses cryptocurrencies,
another growing area in the industry.)

Fees have been a particular issue
<https://newrepublic.com/article/161488/fintech-industry-wants-give-desperate-workers-advance-next-paycheck-its-trap>
for
many fintech companies in recent years—including firms that Harris advises. In
2019, the DFS subpoenaed
<https://nypost.com/2019/03/28/cash-advance-app-earnin-gets-subpoenaed-by-ny-regulator-source/>
small-loan
fintech company Brigit, which Harris’ LinkedIn lists her as a current
advisor of, over concerns that the effective interest rates on its loans
exceeded New York’s 25% cap.

Max Moran, a researcher at the Revolving Door Project who co-wrote an op-ed
<https://prospect.org/economy/fintech-fox-in-the-regulatory-henhouse-adrienne-harris/>
in
the American Prospect last week sounding the alarm on Harris’ nomination,
pointed to signs that Harris could take a hands-off approach to policing
fintech interest rates and fees. “There are many services that are part of
the financial technology companies that Adrienne Harris has advised that
offer payday loan adjacent type products,” Moran said. “Harris is someone
who is very strongly inclined towards not treating products like that as a
payday loan.”

Moran cited Harris’ comments last year at an event
<https://www.youtube.com/watch?v=rxOOIDG59fk> hosted by the University of
Michigan’s business school. “The way we tend to regulate financial
services, and most industries in the United States, is—and I always took a
little bit of an issue with this—it’s sort of like the list of no-no’s,”
Harris said.

“It’s like ‘Go forth, free market, but here are the list of no-no’s.”
An extensive resume

Since leaving the Obama administration, Harris has amassed an extensive
resume of board memberships and advisory positions at numerous fintech
companies, including the Financial Health Network, Liquidly, Nova Credit,
Homie, BOND.AI, Brigit, and Carver Edison.

In 2020, Harris became an advisor to NYCA Partners, a New York-based
venture capital firm that primarily invests in fintech companies, including
Brigit. (If Harris is confirmed as Superintendant, it won’t be the first
instance of a revolving door between the firm and the agency: in July 2021,
NYCA Partners hired DFS’ chief fintech regulator, Matt Homer, as its “executive
in residence
<https://www.reuters.com/technology/fintech-investor-nyca-partners-snaps-up-former-regulator-focus-crypto-2021-07-09/>
.”)

Just seven weeks before the DFS nomination, Harris joined the board of
LendingClub, which offers loans to individuals dealing with credit card
debt. The day before she joined the board, LendingClub agreed to pay $18
<https://www.ftc.gov/news-events/press-releases/2021/07/lendingclub-agrees-pay-18-million-settle-ftc-charges>
million
to settle Federal Trade Commission charges that it had falsely advertised
“no hidden fees” loans that did indeed have fees attached and taken money
from customers’ bank accounts without authorization. In 2016, the firm paid
over $4 million to the SEC as a penalty for improprieties under its former
CEO, who paid an additional $200,000 to settle charges of fraud.

“LendingClub continues to innovate on behalf of consumers, and I look
forward to applying my expertise as the company reimagines retail banking
to help its customers on a path towards financial success with fairness,
simplicity and heart,” Harris said in a statement
<https://ir.lendingclub.com/news/news-details/2021/LendingClub-Appoints-Adrienne-Harris-to-its-Board-of-Directors/default.aspx>
accompanying
the announcement of her joining the board.

Harris has also served on the board of the Alliance for Innovation in
Regulation, a lobbying group that seeks to remove regulatory obstacles
<https://www.rollcall.com/2020/03/10/former-official-seeks-to-root-out-fintechs-legal-impediments/>
to
financial technology companies. As of Tuesday, her profile appeared to have
been removed from Alliance’s website, but was available in an archived
version
<https://web.archive.org/web/20210414081544/https://regulationinnovation.org/team/adrienne-harris/>
from
earlier this year. (The Alliance did not immediately respond to a question
about whether Harris still serves on its board.)

A previous version
<https://drive.google.com/file/d/1FspoXIVq8cgJu2x2J245a3YrdrBnVab8/view?usp=sharing>
of
Harris’ personal website, accessible until last week, offered paid
consultations for companies looking to “future-proof” operations with the
help of Harris’ “regulatory intelligence” and “political expertise.”
The current
version contains only a resume and a quote praising her qualifications to
lead DFS.

Critics say that Harris’ nomination is the latest in a string of attempts
by the fintech industry to capture regulatory agencies. “The financial
technology industry is very well known for trying to get people into high
positions as regulators, where they can deregulate,” said Sarah Ludwig,
co-director of the New Economy Project. “The playbook is…to try to get
state regulators to put a freeze on regulating so they can ‘innovate.’”

On the federal level, good government groups have managed to prevent
conflicts of interest in the Biden Administration, Hauser said. The
Revolving Door Project helped block the appointment
<https://prospect.org/cabinet-watch/fintech-loves-this-rumored-biden-nominee-michael-barr/>
of
Michael Barr, a fintech executive who has worked closely
<https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3422860> with Harris,
to a key financial regulatory position in the Biden Administration—and had
begun compiling research on Harris herself when her name was floated for a
senior role in the same office.

But they’ve had less success on the state level—like in California, where
the recent top financial regulator
<https://therevolvingdoorproject.org/revolver-spotlight-manny-alvarez/> was
a former fintech executive.

“This is what we’ve been fearing at the federal level and so far largely
avoided,” Hauser said.
“Back to the Cuomo playbook”

Though the vote on her confirmation may not occur for months, Harris’
nomination is already threatening to sour Hochul’s relationship with New
York’s progressives, with whom Hochul, a longtime political moderate
<https://www.nysfocus.com/2021/08/11/who-is-kathy-hochul-next-governor/>,
had been enjoying something of a honeymoon period.

“She’s trying to figure out how to maximize her ability to raise money,”
Assemblymember Ron Kim (D-Queens) told New York Focus, referring to Hochul.
“She’s going back to the Cuomo playbook…go to fintech, go to Wall Street,
and do whatever they ask you to do, because that’s how you raise the most
money in the shortest period of time.”

Senator Jabari Brisport (D-Brooklyn) said that Harris’ appointment “would
be akin to giving predatory financial tech companies free rein in New
York,” and
Senators Julia Salazar (D-Brooklyn) and Alessandra Biaggi (D-Bronx) said
they would vote against it.

But other legislators are supporting Harris—including Insurance Committee
Chair Sen. Neil Breslin (D-Albany), who told
<https://www.cityandstateny.com/politics/2021/09/backlash-grows-over-hochul-dfs-nominee/185289/>
City
& State that she “has much better credentials than either of her two
predecessors.”

And Sen. George Borello (R-Allegany), the ranking member of the Banks
Committee and a member of the Finance Committee, told New York Focus that “Ms.
Harris’ impressive background in both the private and public sectors is
encouraging and suggests that she has the expertise and perspective to lead
DFS with the right balance of pragmatism and vision.”

The appointment has added to previous concerns about conflicts of interest
in the Hochul administration. Karen Persichilli Keogh, Hochul’s top aide,
is married to a partner in major Albany lobbying firm Bolton-St. Johns, the
New York Times reported
<https://www.nytimes.com/2021/08/23/nyregion/kathy-hochul-staff.html>. And
Hochul’s husband is general counsel and senior vice president of the
Buffalo-based casino and hospitality company Delaware North, which has tens
of millions of dollars
<https://therealdeal.com/2021/08/11/hochul-has-conflict-with-husbands-casino-company/>
of
contracts with New York State that will expire during Hochul’s term. Hochul
and Keogh have promised to recuse themselves from any decisions implicating
their spouses’ employers.

Michael Kink, executive director of the labor-backed Strong Economy for All
Coalition, a progressive advocacy group, suggested that Harris’ nomination
could affect Hochul’s reelection prospects.

“A lot of voters will be looking at Hochul’s prior close connections to
Cuomo and his big money backers, and judging her to see if she’s really in
any way different,” he said.
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