Embedded finance and automated lending services are under threat as policy and regulatory changes continue under the Donald Trump administration. 

After nearly seven months, effects from the changes at the Consumer Financial Protection Bureau (CFPB) surfacing, specifically a pullback on funding and a reevaluation of open banking.

“There’s a reduction in the operating expenses for the Consumer Financial Protection Bureau,” Renata Caine, general manager of BaaS at digital bank Green Dot, told Bank Automation News. “It’s going to potentially mean a new layer of complexity for the fintech ecosystem, particularly around infrastructure, tax treatment and oversight responsibilities.”

CFPB funding was reduced to 6.5% of the Federal Reserve’s annual earnings from 12% in the One Big Beautiful Bill Act, which was signed by Trump on July 4. 

With less money, CFPB enforcement is likely to diminish and “we could see a shift from broad regulation to far more targeted regulation for something very specific,” Caine said.

Specific regulations rather than broader one might add more compliance layers, which will be costly for FIs, she said. 

With scaled-back CFPB enforcement, state regulators are expected to pick up enforcement, Caine said. 

“It could be that 50 states have 50 different rules around embedded finance, which could be very cumbersome to navigate and handle,” Caine said. “I think having a regulatory body that you work with, where you know their expectations, you understand your role … I think that’s a lot easier to maneuver versus multiple regulators.”

Impact on automated lending 

Embedded finance is not the only segment that will be affected by changing regulations, Welles Borie, principal product manager at automated lending provider Amount, told BAN.

The CFPB filed a motion with the U.S. District Court for the Eastern District of Kentucky on May 23, informing the court that after reviewing the open banking rule, it determined the rule was unlawful and should be set aside.

Amount, which helps FIs reduce loan origination times by a factor of 10, believes vacating the rule will constrain the full benefits of automated lending tools, Borie said. 

“I would say open banking is a key part of client underwriting strategies” at Amount, he said. 

Open banking requires API access for data sharing, Borie said, adding that if the framework is removed, many fintechs will resort to other data collection avenues such as screen scraping. 

“There’s also the manual approach of uploading a few PDFs and keying in [the consumer financial] information,” Borie said. “Now that moves you away from automation” and involves a lot of friction for the consumer. 

Section 1033 of the Dodd-Frank Act allows consumers to share data with third party vendors or fintechs to avail new financial products and services. 

If Section 1033 “were repealed, it makes automated lending very difficult because there is no infrastructure for the free transfer and collection of data,” James McCarthy, founder and chairman of financial consulting agency McCarthy Hatch and a founding member of the CFPB, told BAN. “You’ve already seen [JPMorgan Chase Chief Executive] Jamie Dimon say that he’s going to charge for the data to third-party providers, so without that infrastructure controlling that free flow of data, it becomes very difficult for those companies to do things like automated funding.” 

The growth and innovation the embedded finance industry has enjoyed in recent years are in large part thanks to a robust and accessible open banking system, which allows it to thrive on efficient, low-friction data exchange between banks and fintechs, Green Dot’s Caine said. 

“Adding red tape to current open banking models and further restricting access to consumer financial data will undoubtedly introduce near-term operational hurdles and make entry into the market more burdensome,” she said. 

CFPB’s future  

While many questions surround the open banking rule, experts say it is here to stay — although likely with changes. 

“I think they’re going to put it back out for public comment and make some adjustments, and then reissue it,” McCarthy Hatch’s McCarthy said.  

The CFPB might leave certain sections like free data sharing in the gray area for the market to figure out, but the agency scrapping the rule is highly unlikely, he said.