On October 30, two leading fintech industry trade associations submitted comments (see comment letters here and here) in response to a joint Request for Information (RFI) issued by the Office of the Comptroller of the Currency (OCC), the Federal Reserve System (Fed), and the Federal Deposit Insurance Corporation (FDIC) (collectively, the “Agencies”) (see here for our previous discussion on the RFI). The RFI seeks input on the nature of bank-fintech arrangements, effective risk management practices, and the implications of such arrangements, including whether enhancements to existing supervisory guidance may be helpful in addressing associated risks. The comment period concluded on October 30.
The associations’ comments highlight the role of bank-fintech partnerships in expanding financial access for historically underserved and near- or below-prime consumers by offering responsible lending options. The comments also emphasize how these partnerships foster market competition and drive innovation, enabling smaller financial institutions to reach broader audiences and strengthen long-term resilience.
In addition, one of the associations noted that additional regulations are not necessarily needed because fintechs that are creditors are already subject to fair lending and privacy regulations, and as such, develop merged compliance management systems in conjunction with their the bank partners. Moreover, fintechs acting as bank vendors must comply with their bank partners’ policies and procedures in performing their duties and are subject to review by the bank’s regulators.
One of the associations offered recommendations to the Agencies. For example, it recommended:
- Increased Staff Education and Funding. One of the trade groups noticed a substantial variance in examiners’ understanding of bank-fintech models. In some cases, examiners fundamentally misunderstand the risks associated with bank-fintech partnerships and pursue unproductive lines of inquiry. The Agencies should dedicate adequate funding to the staffing and development of programs designed to examine bank-fintech partnerships and emerging technologies.
- Specific Guidance on Bank-Fintech Partnerships. Because many of the existing laws and regulations governing the financial services industry were promulgated prior to the development of bank-fintech partnerships, it is critical for the Agencies to review existing regulations and, where necessary, provide additional guidance to industry participants who pursue bank-fintech partnerships.
- Policies to Incentivize Self-Disclosure and Remediation. The recent slew of enforcement actions against bank-fintech partnerships highlights a “regulation by enforcement” approach. Instead, the Agencies should pursue programs that incentivize the proactive identification and remediation of compliance issues within bank-fintech partnerships.
- FDIC Should Reconstitute its FDITech Office as an Effort to Engage with the Private Sector. One trade association requested that the FDIC reconstitute its FDITech Office as an effort to engage collaboratively with private industry to promote economic inclusion, consumer protection, competition, and risk identification.
- The Agencies Should Encourage the Use of “Alternative Data.” One association noted that the primary benefit of bank-fintech partnerships is the ability to serve historically underserved communities. An innovative way they do so is through the use of alternative data, such as rental and utility payment data, which can open the door for certain consumers to gain access to funding.
Putting It Into Practice: The bank-fintech partnership model has surged in recent years, drawing the attention of federal and state regulators (previously discussed here, here, here, and here). In recent times, regulators have adopted an enforcement-heavy approach against fintechs and their bank partners. It will be interesting to see whether the Agencies’ rulemaking efforts reset the table somewhat and lead to a more collaborative approach with private industry.