Regulators need to be cautious.

Sounds like they are quite cautious:

After an 18-month application process, regulators let the Internet Archive Federal Credit Union open in 2012, but with restrictions that did not allow it to offer basic banking products, such as debit cards and online banking.

We wouldn't want more people getting their hands on debit cards, where would it lead? Better to stick with the safe, established status quo:

The credit union aimed to provide financial services to poor immigrants, and its opening was attended by the Mexican consul general in New York. But Mr. Modell said that with the restrictions placed on it, the credit union would only have been able to give out what amounted, in practice, to predatory payday loans, which he did not want to do.

What if no one volunteers to give us the "full regulatory story" and we have to make a decision based on the information we have?

Currently, the Office of the Comptroller of the Currency, which regulates banks, has such stringent underwriting standards that it costs more for banks to meet the paperwork-intensive requirements than they could reasonably charge for such small sums. Indeed, the regulations have in practice (though not in rule) banned banks from offering small credit to a broad range of people.

Banks, like car washes and coffee shops, can harm customers by offering bad products that customers mistakenly believe will benefit them. Such customers pay for their mistakes and, maybe, learn not to repeat them.

Regulators are actively harming people, and incentives are often aligned so that the problem is perpetuated.

In my view, we could do with a good deal less banking regulation.