Jan. 12, 2021
The Consumer Financial Protection Bureau (“Bureau” or “CFPB”) Taskforce on Federal Consumer Financial Law (“Taskforce”) released a two-volume report, on January 5, 2021, providing an examination of the existing legal and regulatory environment facing consumers and financial services providers. Within the nearly 900-page report are 102 recommendations by the Taskforce for ways to improve and strengthen consumer financial laws and regulations.
The findings and recommendations within the report are poised to not only reshape Bank-Fintech partnerships but also the scope of competition facing depositories over the next few years. The report states “to facilitate competition and innovation, the Taskforce recommends enabling non-bank institutions to provide a greater array of financial services, including authorizing nonbank payment systems, reducing regulatory obstacles to chartering of industrial loan companies, and expanding the opportunities for credit unions to serve low-income communities.” The Taskforce recommends that “the CFPB be authorized to grant charters to non-depository FinTech companies, payments processors, and other financial service providers that operate in inherently interstate markets.”
This will have a seismic impact on the U.S. financial services landscape while bringing the U.S. more in line with the approach European regulators have taken within the space. The CFPB notes that our current approach in the U.S. leaves some consumers “on the margins of the system, including those who are ‘credit invisible’ or lack the resources or knowledge to navigate the consumer financial system successfully.” The Taskforce urges policymakers to “consciously adopt policies that will facilitate greater inclusion, such as creating a modern regulatory framework for FinTech firms, facilitating use of alternative data, allowing greater use of industrial banking charters for commercial providers of financial services, and adopting a faster payments clearing system.” Modernization efforts like this would not only open access to a broader array of consumers, but it will also substantially reshape the average customer experience within many U.S. banks, forcing many depositories to adopt similar technologies or begin to lag in customer experience and product offerings.
Key recommendations found in the report include (listed in no particular order):
Given the OCC’s pushing of its own agenda over the past 5 years, it was unsurprising to see the Acting Comptroller of OCC, Brian P. Brooks, issue a statement in response to the CFPB’s Taskforce report saying:
The thoughtful report by the task force created by the CFPB concludes that the nation needs federal charters for fintechs to effectively, efficiently, and safely serve the financial needs of consumers across the nation under a single uniform set of rules. We absolutely agree with that conclusion.
Under the law, the agency that grants national charters to companies engaged in lending, payments, or deposit-taking is the Office of the Comptroller of the Currency (OCC), which has the responsibility for prudential supervision to ensure these chartered institutions operate in a safe, sound, and fair manner. In its wisdom, Congress in the Dodd-Frank Act separated chartering and prudential supervision from consumer protection enforcement, assigning chartering authority to the OCC and specific consumer protection enforcement authority to the CFPB.
As is evident with the above statement, we will continue to see interagency conflict as well as disputes between the federal and state regulators as these issues come to the forefront, but what we will not see is the push to modernize our structure subside given the current momentum and the need for the U.S. to compete on a global scale. While the report is far from binding law, it does shed light on many of the policy issues that industry stakeholders are pushing Congress, the Bureau, and other prudential regulators to consider and provide another glimpse of what the shifting regulatory landscape within financial services may look like over the next 24 months. Depositories should be preparing to compete in a landscape with chartered FinTechs while FinTechs should be preparing for the unmatched regulatory oversight associated with full CFPB, OCC, and/or FRB supervision.
These materials have been prepared for informational purposes only and are not legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Internet subscribers and online readers should not act upon this information without seeking professional counsel.