CBA Commends CFPB on Step to Protect Consumers In Non-Bank Marketplace

CFPB
April 25, 2022

Consumer Bankers Association President and CEO Richard Hunt today released the following statement after the Consumer Financial Protection Bureau (CFPB) announced it will begin utilizing a previously dormant authority allowing the Bureau to conduct supervisory examinations of non-bank entities offering traditional bank products and services:

“As the rise in banking activity outside our nation’s well-regulated and well-supervised banking system accelerates, so too does the risk to consumers who do not receive the same level of protection from non-banks as they do from traditional banks. As a leading advocate for a level playing field, CBA commends efforts by the CFPB to ensure the same level of consumer protections, regardless of where they bank or which tools they use to meet their financial needs.

“As regulators look to mitigate the growing risk of consumer harm in the under-regulated and quickly growing non-bank marketplace, CBA will continue to urge the Bureau to issue a larger participant rule to ensure the highest level of consumer protections are upheld. The banking industry is rapidly evolving. It’s well past time for our rules and regulations to follow suit.”

What’s happening

Today, The Consumer Financial Protection Bureau (CFPB) said it is: “invoking a largely unused legal provision to examine nonbank financial companies that pose risks to consumers. The [Bureau] believes that utilizing this dormant authority will help protect consumers and level the playing field between banks and nonbanks.”

Why it matters

Despite competing for the same customers, fintechs are not required to abide by the same federal oversight as traditional banks. Senate Banking Committee Chair Sherrod Brown (D-OH) warned fintechs offering traditional bank products and services through online platforms may put consumers at risk:

“Fintech companies that want to act like banks – but without the consumer protections and safeguards that actual banks must adhere to – put people's hard earned money at risk. Consumers shouldn't be getting locked out of their accounts, leaving them with no way to access their money to buy groceries, pay their bills, or make rent.”

What they're saying

CBA’s President & CEO, Richard Hunt, issued a call to action for fintechs to voluntarily follow all consumer protection laws and assume the same federal oversight as banks during his keynote address at CBA LIVE 2022. At the event, several key fintech leaders answered Hunt’s call to level the regulatory playing field. As CBA Board Member and President of SoFi Bank Chad Borton said: “I agree with [the call for fintechs to assume federal oversight], and I welcome the challenge.”

The big picture

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 institute a level playing field to reflect this market evolution and ensure every American family receives the protections they deserve, regardless of where they go to meet their financial needs.

  • In response to the CFPB’s December 2021 inquiry examining the business practices of leading fintech BNPL providers Affirm, Afterpay, Klarna, PayPal, and Zip, CBA reiterated the importance of competition in the banking marketplace.
  • After the CFPB issued a series of orders to collect information on the business practices of large technology companies operating payments systems in the United States, CBA commended the move for advancing the Bureau’s mission of protecting all consumers.
  • In a letter sent to CFPB Director Chopra in October 2021, CBA called on the Bureau to mitigate the potential for consumer harm in the under-regulated fintech lending market by issuing a larger participant rule.
  • In an American Banker op-ed, CBA outlined 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.

Go deeper

The rapid growth of fintech firms, coupled with continued expansion of big-tech companies into more segments of the market have led some of the world’s leading financial governance bodies to express deep concern over regulatory inaction.

  • In August 2021, the Bank for International Settlements urged policymakers to “invest with urgency.”
  • Last year, the International Monetary Fund warned of the risks associated with multinational fintech and big-tech companies offering banking services without proper oversight: “Shocks in one jurisdiction can quickly spill across financial sectors and national borders. Therefore, resilient financial systems that are well regulated and well supervised are essential.”
  • JPMorgan Chase CEO Jamie Dimon, in his 2020 annual letter to shareholders, said: “We need competition – because it makes banking better – and we need to manage the emerging risks with level playing field regulation in a way that ensures safety and soundness across the industry. […] Growth in shadow banking has partially been made possible because rules and regulations imposed upon banks are not necessarily imposed upon these nonbanks.”

 

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