NEW – CBA Urges CFPB To Supervise Fintech Small Business Lenders

In a new letter sent yesterday to Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra, Consumer Bankers Association (CBA) President & CEO Richard Hunt urged the Bureau to extend its supervisory authority over small business fintech lenders, who operate outside the regulatory purview of the Bureau and do not abide by the same federal oversight requirements as traditional banks.

As the banking industry evolves, fintechs are gaining significant market share across various segments of the market, including small business lending. Although fintechs offer similar products as the nation’s leading banks, they are not held to the same federal oversight standards. Commenting on the impact of this regulatory disparity on small businesses, CBA wrote: 

“A failure to examine fintechs does not just contribute to an uneven playing field between fintechs and supervised entities, but more importantly, results in a continuous and growing threat of harm to small businesses. […] A recent study found nonbank fintech PPP lenders were nearly five times more likely than traditional lenders to be involved with suspicious loans, and nine out of the top ten lenders with the highest rates of suspicious PPP loans were fintech firms.”

Recognizing the CFPB’s lack of supervisory authority over fintech small business lenders also threatens the Bureau’s ability to deliver on existing priorities, the letter continues:

“The Bureau’s lack of supervisory authority […] threatens to undermine other regulatory efforts, such as identifying and addressing fair lending concerns through a final rule for small business lending data collection pursuant to Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.”

The letter concludes by urging the Bureau to utilize one of its most effective tools in facilitating competitive markets for consumer financial products and services – the larger participant rule – to ensure small business fintech borrowers receive the protection they have come to expect from their well-regulated, well-supervised banks:

“The Bureau should […] promulgate a rule adding these nonbank small business lenders to the larger participant rule to ensure these entities continue to comply with all relevant law. CBA stands ready to assist the Bureau in this effort.”

To read the full letter, click HERE. 

CBA Advocacy for a Level Regulatory Playing Field

Since the Bureau’s founding more than a decade ago, the financial marketplace has rapidly evolved with the emergence of technology companies increasingly offering products and services traditionally handled by banks. While they directly compete for the same customers, these firms do not abide by the same stringent federal oversight requirements as America’s leading banks, putting families and small businesses at greater risk of fraud and abuse.

As a result, CBA has served as a leading advocate for policymakers to recognize the shifting banking landscape and modernize the regulatory rules of the road across every segment of the market, including: 

Consumer Lending

In an October letter sent Director Chopra, CBA specifically urged the Bureau to mitigate the potential for consumer harm in the unsecured consumer loan market – where fintechs now issue nearly half of all loans – by issuing a larger participant rule. You can read the full letter HERE.

Additionally, in an October op-ed in American Banker, Hunt stated 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. You can read the full op-ed HERE.

Buy Now, Pay Later (BNPL) 

In a blog released last month, CBA highlighted the rapid growth of the BNPL market and the threat posed to consumers from under-regulated fintech providers. To read the full blog, click HERE.

In an American Banker op-ed, Consumer protections should apply to buy now/pay later firms, too, CBA urged policymakers to apply the same broad oversight requirements to fintech BNPL firms as banks already abide by to ensure all consumers safely benefit from this new banking innovation. To read the full op-ed, click HERE

To read CBA’s statement responding to the CFPB’s December inquiry into the business practices of BNPL fintech providers Affirm, Afterpay, Klarna, PayPal, and Zip, click HERE.

Data Collection

In December, CBA, along with the American Bankers Association (ABA), sent a letter commending the CFPB for a series of orders to collect information on the business practices of large technology companies operating payments systems in the United States. The initial orders were sent to Amazon, Apple, Facebook, Google, PayPal, and Square. You can read the full letter from CBA and ABA HERE and CBA’s statement responding to the Bureau’s RFI HERE. 

Following the Bureau’s Notice of Proposed Rulemaking (NPRM) in September to expand data collection requirements for financial institutions in the small business lending market under Section 1071 of the Dodd-Frank Act, CBA sent a letter advocating for the new requirements to “apply equally to all small business lenders – especially nontraditional banks and fintechs, which are not currently bound to the same level of consumer protection standards as traditional banks.” To read the full letter, click HERE.