Banks play a pivotal role in innovating to serve low- and moderate-income households, sometimes in partnership with financial technology companies, but those innovations must be “adopted responsibly,” Federal Reserve Vice Chairman for Supervision Michael Barr said Tuesday.
Speaking during a financial inclusion conference in Washington, D.C., Barr said the Fed has seen a growing number of banks offering small-dollar loans, expanding use of alternative data to underwrite and price their credit products, and investing in tools to help better understand consumers’ financial health. “When adopted in a responsible and well-managed manner—with systems, processes and policies in place to monitor and manage related risks—these innovations can broaden access to fair, affordable and transparent bank-provided credit,” he said.
However, Barr said the Fed has also seen examples of failures of banks to effectively manage risks in third-party partnerships, which has resulted in customer harm. “In communities where people are living on tight budgets or with limited access to financial services, disruptions of this kind can be catastrophic,” he said. “These examples are a reminder that providing innovative financial services comes with responsibilities to ensure that risks are appropriately controlled. Durably supporting financial inclusion means ensuring that necessary controls grow in step.”
