New finance report shows the Fintech industry requires additional oversight to close loopholes, prevent abuse and protect consumers

The report recommends that Fintech-Bank partnerships be subject to enhanced oversight

WASHINGTON – The US Treasury Department, in consultation with the White House Competition Council, has released a report entitled “Assessing the Impact of New Non-Bank Entrants on Competition in Consumer Financial Markets.” The report finds that while concentration among federally insured banks is increasing, new entrants to non-bank firms, particularly “fintech” firms, are adding significantly to the number of firms and business models that compete in core consumer finance markets and appear to be contributing. to competitive pressure. While these fintech firms enable new opportunities, they also create new risks to consumer protection and market integrity, such as risks related to privacy and regulatory arbitrage. To protect consumers in these rapidly changing markets and enable sustainable competition, among other recommendations, the report calls for increased oversight of the consumer financial activities of non-bank firms.

“Innovation and competition must work hand in hand in a healthy economy,” said US Treasury Secretary Janet L. Yellen. “While the entry of non-bank firms into core consumer finance markets has increased competition and innovation, it has not come without additional risks to consumer protection and market integrity. This report sets out actions that will 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 is a product of President Biden’s July 2021 Executive Order, “Promoting Competition in the American Economy,” and is the latest in a series of reports assessing competition in various aspects of the economy, including the alcohol industry and the labor market. Today’s report recommends a number of steps to encourage fair and responsible competition that benefits consumers and their economic well-being:

• To address market integrity and safety and soundness concerns, regulators should provide a clear and consistently applied supervisory framework for bank-fintech relationships. A bank-fintech relationship providing financial services to consumers provided by an insured depository institution (IDI) must operate in accordance with laws, regulations and risk management standards applicable to the IDI.

• To protect consumers, regulators should monitor bank-fintech lending relationships for compliance with consumer protection laws and their impact on consumers’ financial well-being.

• To encourage pro-consumer innovation, regulators should support consumer credit underwriting innovations designed to increase credit visibility, reduce bias, and cautiously extend credit to underserved consumers.

The full report can be seen here.

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