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Financial Services Law Insights and Observations

Treasury recommends closer supervision of fintech-bank partnerships

Fintech Federal Issues Biden Nonbank Supervision


On November 16, the U.S. Treasury Department, in consultation with the White House Competition Council, released a report entitled Assessing Impacts of New Entrant Non-bank Firms on Competition in Consumer Finance Markets. The report is a product of President Biden’s July 2021 Executive Order, Promoting Competition in the American Economy, (covered by InfoBytes here), which, among other things, ordered Treasury to submit a report within 270 days on the effects on competition of large technology and other non-bank companies’ entry into the financial services space. Assessing Impacts of New Entrant Non-bank Firms on Competition in Consumer Finance Markets is the final report in a series of reports that assesses competition in various aspects of the economy. Among other things, the report found that while concentration among federally insured banks is increasing, new entrant non-bank firms, specifically “fintech” firms, are adding significantly to the number of firms and business models competing in consumer finance markets and appear to be contributing to competitive pressure. In addition to enabling new capabilities, fintech firms are also creating new risks to consumer protection and market integrity, according to the report. The report noted that non-bank firms could “pose risks by engaging in harmful regulatory arbitrage, conducting activities in a manner that inappropriately sidesteps safety and soundness and consumer protection law requirements applicable to an [insured depository institution].”

The report also noted that new entrant non-bank firms or their offerings may pose risks of reliability or fraud issues, in addition to data privacy risks and the potential for new forms of surveillance and discrimination. The report provided recommendations for regulators to encourage fair and responsible competition that benefits consumers and their financial well-being, including: (i) addressing market integrity and safety and soundness concerns by providing a clear and consistently applied supervisory framework for bank-fintech relationships; (ii) protecting consumers by robustly supervising bank-fintech lending relationships for compliance with consumer protection laws and their impact on consumers’ financial well-being; and (iii) encouraging consumer-beneficial innovation by supporting innovations in consumer credit underwriting designed to increase credit visibility, reduce bias, and prudently expand credit to underserved consumers.

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