Regulatory Note — Fintech — Regulatory Agenda for 2023
On November 16, 2022, the Treasury Department offered an agenda in 2023 for the regulation and supervision of relationships between banks and fintech companies by the federal banking agencies and the CFPB. The agenda is embedded in a report, “Assessing the Impact of New Entrant Non-bank Firms on Competition in Consumer Finance Markets” (the "Report"). Treasury consulted the agencies and the CFPB before releasing the Report. The analysis and recommendations in the Report thus should be consistent with the agencies' thinking on arrangements between banks and fintech firms.
The proposed agenda takes the form of recommendations in the Report, which formally responds to a 2021 Executive Order on promoting competition, but it goes well beyond customary concepts of competition to make suggestions about the agencies' use of their prudential and compliance powers in overseeing bank-fintech relationships.
Accordingly, banks of all sizes that have relationships with fintech companies — which is to say, nearly all banks — can expect in 2023 to see new or additional agency instruction on the terms of bank-fintech relationships and how banks should manage them.
The Report includes five sets of recommendations that would result in the finalization of specific pending proposals as well as in greater supervision ofbank-fintech relationships. According to the Report, the agencies should:
Complete the bank merger review guidelines. The Report encourages "enhanced measurement of competition and review of concentration in banking." As part of this effort, the banking agencies and the Justice Department would complete the review of comments in response to requests that the Justice Department and the FDIC published in 2021 and 2022, respectively.
Expand guidance on model risk management and increase supervision of consumer lending practices that rely on alternative underwriting approaches. The Report broadly encourages the banking agencies to "enable competition in responsible consumer credit underwriting." Among other things, banks could expect to see new policies on model risk and enhanced enforcement of fair lending statutes as they apply to alternative underwriting.
Finalize the Interagency Guidance on Third-Party Relationships (the "TPRM Guidance') that was proposed in July 2021. Doing so would give effect to the third recommendation in the Report to "enable effective oversight of bank-fintech relationships." The Report observes that the final guidance should include language to help encourage banks to negotiate effective oversight provisions in their contracts with fintech firms and other third-party service providers.
Broaden the application of and provide more specific guidance relating to the Interagency Lending Principles for Offering Responsible Small-Dollar Loans (the "SD Lending Guidance']. These actions would follow the Report's recommendation to "encourage competition in responsible small-dollar lending." Per this recommendation, there would be clearer guidance on arrangements between banks and fintech companies in making consumer loans. The CFPB also would apply the SD Lending Guidance to non-bank lenders.
Complete the CFPB's rule-making on consumer access to financial records for which the CFPB issued an advance notice of proposed rule-making two years ago. Completion of this project would promote the Report's recommendation to "enable secure data sharing." In addition to completing the rule, the CFPB would consider if and how it could supervise data aggregators. For their part, the bank regulatory agencies would include in the TPRM Guidance a discussion of obligations of third parties in handling consumer data.