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Fintechs Need Strong Consumer Protections, Diversity, Inclusion Asserts Key Congressman

Apr 16, 2021
In The News

Fintechs need to include strong consumer protections, diversity, and inclusion, Rep. Ed Perlmutter (D-CO), chair of the House Financial Services Committee’s panel on consumer protection and financial institutions said at a hearing on banking innovation today.

“Most banks and credit unions have been a source of strength in the pandemic in part because of the stringent capital, liquidity, and other regulatory requirements we place on these financial institutions,” he asserted.

The financial stability risks, consumer protection issues, market fairness questions, and potential benefits of unconventional banking charters needs to be explored, Perlmutter said.

Financial Services Committee Chairman Maxine Waters (D-CA) said she was alarmed the Office of the Comptroller of the Currency (OCC) overstepped its authority by creating a fintech charter and expressed concern it could lead to a regulatory race to the bottom.

The New York State Department of Financial Services has sued the agency, claiming it lacks the legal authority to issue that type of charter.

In a memo prepared for the hearing, the Committee’s Democratic staff noted in recent years, OCC, and the Federal Deposit Insurance Corporation (FDIC) 

have taken steps to allow firms to engage in banking activities while being subject to less regulations and supervision compared to most other banks and credit unions.

At the same time Wyoming, which was mentioned frequently at the hearing, and other states have ventured into unconventional bank charters aimed at allowing cryptocurrency and blockchain to provide bank-like services.

Financial Services Committee lead Republican, Patrick McHenry of North Carolina, said regulators should be advancing advances in banking innovation and not hindering them.

Brian Brooks, who headed up the agency as Acting Comptroller of the Currency during the Trump administration praised the potential of fintechs to expand credit and economic opportunity with additionally providing better alternatives to payday lenders.

“The startling fact (is) that fintechs today supply more personal loans than banks,” Brooks told the session.

He signed OCC’s first fintech charter last year for Varo Bank.

With the importance of anti-money laundering, know-your-customer (AML_KYC) among the banking regulators, Bill Foster (D-IL) said there are proposals to create “digital drivers licenses” so consumers can prove who they are online to obtain financial services.

Expanding bank charter offerings without sufficient guardrails raises significant consumer protection, fairness, and safety and soundness concerns, Emory University Law School Professor Kristin Johnson warned at the hearing.

For instance, she said consumer advocates have expressed some concerns that the use of some data by fintechs in granting credit, such as utility bill payments, could treat low-income consumers unfairly.

“First, dispute resolution processes for public utilities and cable services may differ from other types of recurring obligations. Second, utility bill balances may fluctuate seasonally, prompting some consumers to delay payments or fall behind on pay utilities bills,” the law professor pointed out.

Rural residents are being limited in their access to credit and other banking services by fintechs from a shortage broadband in their communities and from brick-and-mortar banks the closing of many branches, pointed out David Kustoff (R-TN) and other Congress members with sizable non-urban populations in their districts.