Revolver Spotlight: Manny Alvarez

Manuel “Manny” Alvarez is the current head of the California Department of Financial Protection and Innovation, sometimes referred to as the “mini-CFPB,” and has been floated as a possible Comptroller of the Currency. 

But Alvarez only re-entered the regulatory world after six years at Affirm, a fintech e-lender that offers loans up to 30 percent APR under sometimes confusing terms at the point of sale, so consumers rarely have the opportunity to shop around or read the fine print for an informed decision. The “Innovation” component of the California Department of Financial Protection and Innovation refers to its explicit mandate to help fintechs like Affirm thrive and expand in California. Meanwhile, many consumer advocates and financial reformers are increasingly skeptical of the fintech industry, viewing many of its “innovations” as simply digital versions of old-school debt traps. Alvarez helped write a draft of the legislation creating the Department, which called for an even stronger handout to the nascent fintech industry.

Here are just a few of the concerning elements of Alvarez’s history:

Alvarez was the general counsel and chief compliance officer at the fintech e-lender Affirm from 2014 – 2019.

• Alvarez says most of his work was focused on “how the old rules of the road apply to new technologies and products.” The fintech industry notoriously seeks to dodge traditional financial regulations by using the excuse that their online and app-based functionality makes them fundamentally different from traditional lenders that offer similar products.
• Affirm offers “point-of-sale loans” in which consumers take out a loan to finance a purchase at the moment they are paying at the cash register. Some Affirm customers don’t even know they’ve taken out a loan until after the transaction is completed. 
• While it doesn’t always charge interest, when it does, Affirm loans can go as high as 30 percent APR. The average Affirm consumer takes out a $750 loan at 21 percent interest and takes nine months to pay it back, according to The Outline.
• Many businesses that offer Affirm loans market them toward cash-strapped millennials. Expedia offers Affirm loans so that young people “on a tight budget” can still book their “dream vacation.” Despite its often unclear lending terms, the firm markets itself toward people distrustful of traditional banks or credit cards.

Alvarez’s involvement in Affirm was marketed to potential investors or banking partners, in a classic example of reputation-selling.

• Alvarez received an unusual profile in VentureBeat upon being published. VentureBeat is a tech industry magazine aimed in part at venture capitalists looking to invest in startups. 
• Alvarez represented Affirm at a webinar for fintech companies looking to partner with traditional banks. Alvarez stated that one thing Affirm looks for in potential business partners is “strength and support when it comes to government relationships. […] we do not have the dedicated resources to support a government relations-type function. So we really do look to our banking partners to assist with those sorts of activities.”

Alvarez deliberately leads the California Department of Financial Protection and Innovation to have a “non-confrontational” approach to fintech, despite the industry’s frequently risky and abusive practices.

• The California regulator which Alvarez leads has a mandate to “cultivate financial innovation, and allow the department to track and regulate emerging financial products so we can serve consumers and licensees in a more meaningful and efficient way,” in Alvarez’s words.
• Alvarez told Yahoo Finance that the Department would seek to “proactively engage with fintech in a non-confrontational manner, but also in a programmatic way so that we can try and wrap around some of these episodic conversations and really develop a more holistic picture of innovation in financial services, and then let that inform the rest of the department’s work. Let it inform the supervisory work with respect to even existing licensees like our banks and credit unions.”

Alvarez wanted to make it easier for fintechs to charter as industrial loan companies, which would have exempted them from all federal bank regulation.

• Alvarez helped draft a version of the legislation creating the Department which would have made it easier for fintechs to charter as industrial loan companies in California. “We cannot compel interested groups to apply in California, but we can certainly provide a glidepath,” Alvarez wrote.
• ILC charters are granted to commercial firms that also want to engage in basic banking services. This violates the strong American norm against blending finance and commerce, creating anti-competitive and unfair conditions.
• ILCs are chartered at the state level, and thus exempt from federal banking regulation, even though they have access to the federal payments system and federal deposit insurance. 
• The most popular states for fintechs to seek ILC charters tend to have low tax rates and “virtually non-existent usury caps,” such as Utah, according to one industry lecture.

PHOTO: “Manny Alvarez (26171746387)” by Gage Skidmore is licensed by Wikimedia Commons.