CFPB Reiterates Safety & Soundness of America’s Leading Banks, Need for Greater Fintech Oversight

The Consumer Financial Protection Bureau (CFPB) today issued a report highlighting the potential harm fintech payment providers operating outside of the well-regulated and supervised banking system could cause consumers. The CFPB also issued a consumer advisory urging consumers to move funds stored on apps such as Venmo, PayPal, and CashApp, which may not be protected by insurance in the event of another financial disruption similar to those caused by the collapse of Silicon Valley Bank and Signature Bank, to their insured accounts.

What They’re Saying: In the report, CFPB Director Rohit Chopra reiterated concerns long-held by the Consumer Bankers Association (CBA) that the growing fintech and nonbank market could result in consumer harm without proper safeguards, warning:

“Popular digital payment apps are increasingly used as substitutes for a traditional bank or credit union account but lack the same protections to ensure that funds are safe. As tech companies expand into banking and payments, the CFPB is sharpening its focus on those that sidestep the safeguards that local banks and credit unions have long adhered to.”

Similarly, last month, FDIC Chair Martin Gruenberg highlighted the agency’s work on expanding access to banks and helping consumers recognize the risks of non-FDIC insured financial service providers. Specifically, Gruenberg said it is critical to regulate these platforms so consumers clearly understand which institutions are banks as well as when their money is FDIC insured.

What They Found: The CFPB’s report highlighted several findings, including:

• More than three quarters of adults in the United States have used a payment app.
• Funds sitting in payment app accounts often lack deposit insurance.
• User agreements often lack specific information about how funds held in payment app accounts are invested or used, or what would happen if the company holding the funds were to fail.

Why It Matters: The financial services ecosystem continues to rapidly evolve, highlighted by the growth of large fintechs and other non-bank providers that now offer many of the same products and services as traditional banks. Unlike well-regulated financial institutions, non-banks do not have the same stringent federal oversight standards as banks, potentially putting the safety of consumers’ funds at risk.

• According to the New York Federal Reserve, these firms now issue nearly three-quarters of all personal loans – double their share from just five years ago and raising the amount of consumer debt held in nonbanks to all-time highs.

What CBA Is Proposing: Since the CFPB was founded more than a decade ago, a growing share of banking activity has occurred outside of the purview of leading regulators, putting consumers and the resiliency of the financial system at risk. CBA long has advocated for policymakers to craft policies that foster a level playing field that reflects this market evolution and ensures every American family receives the protections they deserve, regardless of where they go to meet their financial needs. These efforts by CBA include:

• Urging the CFPB to take further steps to stop harm before it spreads by preemptively adding certain markets to the larger participant rule.
• Supporting the CFPB’s decision to utilize its nonbank risk-based supervision authority to increase nonbank supervision.
• Commending the CFPB for advancing its mission of protecting all consumers by issuing a series of orders to collect information on the business practices of large technology companies operating payments systems in the U.S.
• Outlining why the regulatory disparity in the consumer lending market should alarm policymakers whose broad oversight reforms following the 2008 financial crisis were conceived before the word “fintech” was ever in their lexicon.
• Advocating for Federal oversight of data aggregators that hold and transfer sensitive consumer financial information.

Go Deeper: A poll released by CBA in December 2022 found Americans believe Congress and the CFPB need to do more to ensure large fintech are subject to increased oversight by federal regulators. The poll, conducted among US adults, also found that when it comes to protecting their money, consumers overwhelmingly trust banks over these other financial services providers.