In a letter dated July 21, Senators Sherrod Brown (D-Ohio) and Jeffrey Merkley (D-Ore.), on behalf of the Committee on Banking, Housing, and Urban Affairs (the “Committee”), asked the heads of several federal agencies to provide the Committee with information concerning their understanding of the role of fintech in the consumer financial services and small business lending industries. The letter also asks the agencies about the supervisory oversight that the agencies have exercised or should have exercised with fintech companies. It will be particularly interesting to review the CFPB’s response to the Committee’s questions, as the Bureau has expanded the scope of its fintech oversight through investigations looking for unfair, deceptive, and abusive acts and practices (“UDAAP”). More recently, we have seen this expansion to payment processors and in the area of marketplace lending.
The Committee addressed the letter to the Chairs of the Federal Reserve, the FDIC, and the NCUA; the Director of the CFPB; and Comptroller of the Office of the Comptroller of the Currency (“OCC”). The letter asks these agencies to provide “information about the tools the regulators have to ensure effective oversight of fintech companies” in order to allow Congress to “better understand the way federal regulators oversee fintech and their relationships with federally regulated financial institutions.”
The letter notes that “fintech” is a broad term, and fintech companies engage in many different types of activities utilizing many different business models. For example, some fintech companies have formed partnerships with financial institutions, and others have a less formal relationship “such as through the payment system.” The Committee asks the federal agencies: (1) what each of them has done to study and understand the various types of fintech companies who interact with consumers and small businesses (examples include marketplace lending, virtual currency, small business financing, invoice financing, blockchain and distributed ledger, merchant cash advances, and education financing); (2) what each agency has done or will do with respect to supervising fintech companies; and (3) the impact that fintech companies have on the companies that these agencies supervise and regulate. The Committee mentions, for example, that the OCC is “open to offering a charter to fintech companies.”
The Committee also suggests that the federal agencies consider overseeing fintech companies as third–party service providers consistent with how the CFPB has handled enforcement actions against entities that provide services to the companies that the Bureau supervises. The Committee asks the agencies to detail: (1) how each agency’s guidance with respect to third–party relationships applies to fintech; (2) what each agency expects from financial institutions under their supervision who partner with fintech companies; (3) the factors each agency considers with respect to whether and how to use their authority to examine fintech companies; (4) what they are doing to understand the risks of partnering with or acquiring fintech companies; and (5) the authority the agencies have to conduct examinations of, and initiate enforcement against, fintech companies as third–party service providers.
Additionally, the Committee asks the agencies to provide information concerning fair lending and credit reporting for both small businesses and consumers. As such, the agencies are asked to “provide a description of the direct and indirect authority that your agency has to supervise companies that make consumer and small business loans or advances” and to outline “the ability of your agency to enforce consumer protection and fair lending laws and ensure fintech companies are CRA compliant.”