The U.S. Department of the Treasury, working with the White House Competition Council, released a report today that cited fintech firms for “creating new risks to consumer protection and market integrity.” The report, titled “Assessing Impacts of New Entrant Nonbank Firms on Competition in Consumer Finance Markets,” said that, while concentration among federally insured banks is growing, new entrant nonbank firms—fintech firms in particular—are “significantly” adding to the number of organizations and business models competing in core consumer finance markets and may be contributing to competitive pressures.
According to the report, while fintech firms enable new capabilities, they also create new risks related to data privacy and regulatory arbitrage. The report called for enhanced oversight of the consumer financial activities of nonbank firms. “Innovation and competition must work hand in hand in a healthy economy,” said Treasury Secretary Janet Yellen, adding that the report details steps to “maintain fair, transparent and competitive markets while encouraging responsible innovation that benefits consumers. With existing authorities, regulators can encourage competition and innovation while further safeguarding and protecting consumers.”
The report includes a number of recommendations. Regulators should provide “clear and consistently applied” supervisory framework for bank-fintech relationships. According to the report, a bank-fintech relationship that delivers consumer financial services provided by an insured depository institution “must operate in compliance with the laws, regulations and risk management standards applicable to the IDI.” By unbundling core consumer financial products into more limited offerings, new entrant nonbank firms have largely not been subject to the kind of comprehensive regulation and supervision to which IDIs are subject, the report said.
Regulators also should “robustly” supervise bank-fintech lending relationships for compliance with consumer protection laws and their impact on consumers’ financial well-being. To encourage consumer-beneficial innovation, the report suggested that regulators support innovations in consumer credit underwriting designed to increase credit visibility, reduce bias and “prudently” expand credit to underserved consumers. The report also includes discussion of interchange revenue earned by banks under $10 billion and references the Federal Reserve’s recently-finalized Regulation II rule change regarding processing of debit transactions, a rule change that applies to banks of all sizes (and which ABA opposed). The Treasury report describes current payment system as being “concentrated among a small group of [bank and credit union] incumbents.”
The report is a product of an executive order issued by the Biden administration last July and is the final in a series of reports assessing competition in various areas of the economy.
