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OCC establishes Office of Financial Technology
On March 30, the OCC announced the establishment of the Office of Financial Technology, and selected Prashant Bhardwaj to lead the office as Deputy Comptroller and Chief Financial Technology Officer beginning April 10. As previously covered by InfoBytes, last October the OCC said the new office will build on and incorporate the agency’s Office of Innovation (established in 2016 and covered by InfoBytes here), and will strengthen the OCC’s expertise and ability to adapt to a rapidly evolving banking landscape. The Office of Financial Technology will “enhance the OCC’s expertise on matters regarding digital assets, fintech partnerships, and other changing technologies and business models within and that affect OCC-supervised banks,” the OCC said in its announcement, noting that Bhardwaj will lead a team responsible for analyzing, evaluating, and discussing relevant fintech trends, emerging and potential risks, and the potential implications for OCC supervision.
Fed governor says transparency is key for promoting innovation in the banking system
On March 14, Federal Reserve Governor Michelle W. Bowman presented thoughts on innovation trends within the U.S. financial system during a conference held by the Independent Community Bankers of America. Bowman commented that innovation has always been a priority for banks of all sizes and business models, and that regulators—often accused of “being hostile to innovation” within the regulated financial system—are continually trying to learn and adapt to new technologies, which often introduce new risks and vulnerabilities. In order to address these challenges, which are often amplified for community banks, Bowman said banks must be prepared to make improvements to risk management, cybersecurity, and consumer compliance measures, and regulators—playing a complementary role—must ensure rules are clear and transparent. She further stressed that “[i]t is absolutely critical that innovation not distract banks and regulators from the traditional risks that are omnipresent in the business of banking, particularly credit, liquidity, concentration, and interest rate risk.” Noting that these types of risks are present in all bank business models, Bowman said they “can be especially acute for banks engaging in novel activities or exposed to new markets, including crypto-assets.”
Explaining that transparency is important for promoting a safe, sound, and fair banking system, particularly when it comes to innovation, Bowman stated that insufficient clarity or transparency or disproportionately burdensome regulations may “cause new products and services to migrate to the shadow banking system.” Bowman went on to discuss ways bank regulation and supervision can support responsible innovation, and highlighted unique challenges facing smaller banks, as well as key actions taken by regulators to date relating to crypto assets, third-party risk management, cybersecurity, Community Reinvestment Act reform, bank mergers, and overdraft fees, among others.
OCC to establish Office of Financial Technology
On October 27, the OCC announced it intends to establish an Office of Financial Technology early next year that will build on and incorporate the agency’s Office of Innovation (established in 2016 and covered by InfoBytes here). Intended to strengthen the OCC’s expertise and ability to adapt to a rapidly evolving banking landscape, the Office of Financial Technology will provide strategic leadership, vision, and perspective for the agency’s financial technology activities and related supervision. The new office will be led by a chief financial technology officer who will be a deputy comptroller reporting to the senior deputy comptroller for bank supervision policy. “Financial technology is changing rapidly and bank-fintech partnerships are likely to continue growing in number and complexity. To ensure that the federal banking system is safe, sound, and fair today and well into the future, we need to have a deep understanding of financial technology and the financial technology landscape,” acting Comptroller of the Currency Michael J. Hsu said. “The establishment of this office will enable us to be more agile and to promote responsible innovation, consistent with our mission.”
Chopra outlines CFPB’s efforts to promote competition in financial markets
On July 11, CFPB Director Rohit Chopra provided an overview of recent steps taken by the agency as part of a “whole-of-government effort” to promote financial market competition. In an effort to identify obstacles facing consumers who want to refinance or easily switch providers, the Bureau sent letters to the CEOs of the nation’s largest credit card companies asking for explanations of how they furnish data to credit reporting agencies regarding the exact monthly payment amounts made by borrowers (covered by InfoBytes here). The Bureau reported that “[c]onsumers reasonably expect that they will receive competitively priced credit based on their ability to manage and repay their credit obligations,” but warned that “this is impaired if actual payment amount information is being suppressed by major credit card companies.” Chopra added that the Bureau is also working to “identify[] impediments to refinancing in other markets, including mortgages and auto,” and is “accelerating its work to implement a required rulemaking on personal financial data rights” to help promote competition and switching by providing consumers more control of their data.
Chopra also highlighted an initiative to reduce junk fees. As previously covered by InfoBytes, the Bureau has requested comments from the public on fees associated with consumers’ bank accounts, prepaid or credit card accounts, mortgages, loans, payment transfers, and other financial products that are allegedly not subject to competitive processes to ensure fair pricing. The Bureau also issued an advisory opinion last month stating its interpretation that Section 808 of the FDCPA and Regulation F generally prohibit debt collectors from charging consumers “pay-to-pay” fees, also commonly known as convenience fees, for making payments online or by phone to make sure debt collectors are not “disadvantaged by those that impose unlawful fees” (covered by InfoBytes here). A rulemaking process has also begun to address credit card late fees and late payments and card issuers’ revenue and expenses (covered by InfoBytes here).
Additionally, Chopra discussed Bureau efforts to identify roadblocks facing small financial institutions and new entrants when challenging larger, more dominant players. Specifically, the Bureau issued orders to six large U.S. technology companies seeking information and data on their payment system business practices (covered by InfoBytes here). According to Chopra’s statement, the “information will help the CFPB shed light on how they will decide who they kick off their platform and how they will use the data of individual consumers and any competing businesses.” The Bureau is also working with community banks to understand the impact of major core services providers on their business (covered by InfoBytes here).
CFPB’s new innovation office to focus on competition instead of fintech sandboxes
On May 24, the CFPB launched the Office of Competition and Innovation, which will focus on competition and explore ways to “create market conditions where consumers have choices, the best products win, and large incumbents cannot stifle competition by exploiting their network effects or market power.” The new office will be housed under the Bureau’s Research, Markets and Regulation division, providing “greater access to resources to look at market-structure problems that create obstacles to innovation.” It replaces the Bureau’s existing Office of Innovation, which was established in 2018 and focused on allowing companies to apply for no-action letters and regulatory sandboxes in order to test specific product offerings. According to the Bureau, the agency will no longer offer these programs after a review established that the initiatives “proved to be ineffective and that some firms participating in these programs made public statements indicating that the Bureau had conferred benefits upon them that the Bureau expressly did not.”
The new office will focus on competition and explore ways to stop large banks and fintech lenders from “squeezing out smaller players” in the consumer finance market. It will also explore ways to ensure that consumers have their “walking rights” and can easily switch service providers. Additionally, the new office will research “structural problems” that create obstacles to innovation, examine dynamics between large and small players related to competition, identify ways to address commonplace obstacles such as access to capital and talent, examine financial data-sharing to ensure large financial institutions are not hoarding large volumes of digital data, and host events that explore barriers to entry and other obstacles, the Bureau said.