Treasury Report Sets Guidelines for Oversight of FinTech Participation in Core Financial Markets | Sheppard Mullin Richter & Hampton LLP

The US Treasury Department recently released a report titled “Assessing Impacts of New Entrant Non-bank Firms on Competition in Consumer Finance Markets,” a product of the Biden administration’s efforts to assess competition in various aspects of the economy. The report focuses primarily on FinTechs and other non-bank entrants, including the implications of their participation with insured depository institutions in core consumer finance markets (e.g. credit, deposits and payments) and recommendations to improve oversight of non-bank finance. institutions.

While the report recognizes the benefits of innovation, competition and contributions from FinTech and other non-banking firms, it warns of additional risks to consumer protection and market integrity and recommends certain steps to maintain responsible competition and consumer safety, specifically recommending that regulators:

• take various steps to support innovations in consumer credit insurance designed to increase credit visibility, reduce bias, and extend credit to underserved consumers;
• provide a clear and consistently applied supervisory framework for bank-FinTech relationships to address competition, consumer protection and security concerns;
• increase consistency in supervisory practices related to small dollar lending programs; and
• take steps to promote a more unified approach to oversight of consumer-authorized data sharing.

In addition, the report also supports regulators’ ongoing efforts on related matters, including: (i) the federal banking regulators’ and DOJ’s review of bank merger policies; (ii) the CFPB’s inquiries into Big Tech payment platforms and BNPL providers; and (iii) the CFPB’s rulemaking efforts to address consumer access to financial data through implementation of section 1033 of the Dodd-Frank Act.

Putting it into practice: This report reinforces the Treasury Department’s intention to increase the robustness of regulatory oversight while encouraging diversification in consumer finance markets along with adequate consumer protection and appropriate supervisory practices. FinTechs and other non-banking companies should be aware of the potential for increased oversight of their banking-FinTech relationships, and carefully address any new laws and/or regulations that may affect their businesses.

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