Fintech Legal Report – September 2022 | Perkins Coie

Weekly Fintech focus

• OCC Focuses on Fintech-Bank Partnerships as Explained in Speech by Acting Comptroller of the Currency Michael J. Hsu
• Members of Congress seek information related to a BNPL firearms supplier

OCC Warns of Fintech-Bank Partnership Risks

On September 7, 2022, Acting Comptroller of the Currency Michael J. Hsu, speaking before conference-goers at the TCH + BPI Annual Conference in New York, explained why he believes regulators should pay more attention to fintechs and large technology companies engaged in banks and banks. services.

To begin with, Acting Comptroller Hsu recommends developing a more sophisticated understanding of banking fintech arrangements, which have spread across the industry – resulting in financial services being “unbundled” and offered by non-bank entities through “increasing more varied and complex[s] of arrangements.” Hsu believes that the growth of fintech, banking-as-a-service (BaaS) and big-tech engagement with payments and lending is affecting the risk profile of financial products and services. As an example, Hsu noted that after reviewing banks regulated by the Office of the Comptroller of the Currency (OCC), his team found at least 10 banks that have BaaS partnerships with nearly 50 fintech companies and, using public data, identified similar arrangements at banks regulated by the Federal Reserve and the FDIC. the banks that offer BaaS products have assets under $10 billion, and nearly a fifth have assets under $1 billion.

As the industry has grown and changed, efforts by banks and technology companies to provide clean customer experiences, according to the OCC, have made it “more difficult for customers, regulators and the industry to distinguish where the bank stops and the technology company starts.” And these facts together create for Hsu a “gnawing familiarity” with the 2008 financial crisis and a concern that a “similar increase in complexity is occurring with respect to online and mobile payments, lending and deposit activities.” So Hsu worries that “if left to its own devices,” the “de-integration” of banking services will lead to a “serious problem or even a crisis.”

To address the issue, the OCC is developing a process to “subdivide banking fintech schemes into cohorts with similar safety and soundness risk profiles and attributes” to enable the regulator to focus on risk management expectations. This process will answer questions about liability for problems with the partnerships, effects on consumer confidence in the event of disruption, treatment of consumers (including in the context of whether they are considered customers or products), and questions related to resilience and handling fintech failures.

Members of Congress seek information from Firearms BNPL Company

Recently, a group of 18 Democratic congressmen sent a letter to a buy-now-pay-later company (BNPL) that provides financing for online sales of firearms and accessories regarding business practices and consumer protection measures. Historically, gun dealers have had challenges obtaining and maintaining relationships with payment processors and other financial services due to increased risks associated with firearms sales, including background checks, licensing and negative press.

The company that receives the request for information works with gun dealers and the NRA to market its services. According to the letter, the BNPL company is “aggressively advertising[s]“The BNPL product as a payment option, thereby “increasing the apparent affordability of firearms to consumers.” The congressional request focuses on the company’s customer demographics, insurance activities, credit reporting activities and advertising.

Answers to the letter must be sent on 26 September, and we do not know if there will be a report on the answers. The focus on this BNPL company seems to be primarily related to the Congressmen’s opposition to BNPL services for firearms purchases in particular. Nevertheless, BNPL providers – especially those providing BNPL services to high-risk products – can use this letter as a guidepost to understand the concerns of some legislators in relation to the financing of these types of products.

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