Fraud Friday – Petition Filed for the CFPB to Subject Fintechs to Higher Levels of Supervision

September 30, 2022

Delaney Sexton
Contributing Editor

Fraud Friday – Petition Filed for the CFPB to Subject Fintechs to Higher Levels of Supervision

“Fintechs increasingly are providing financial products and services, but their activities are largely unsupervised by the Bureau or any federal regulator, leaving customers vulnerable. Supervision and examination of fintechs by the Bureau through its dormant authority and by adding the unsecured consumer lending market, the payment processing market, and the data aggregation market to the larger participant rule are integral to “stop[ping] harm before it spreads,” reads a letter by the Consumer Bankers Association to the Director of the Consumer Financial Protection Bureau, Rohit Chopra.

In a study from last year, researchers at the University of Texas found that fintech lenders were almost five times more likely to be involved with suspicious PPP loans, and nine out of the top ten PPP lenders with the highest rates of suspicious PPP loans were fintechs. In the last few months, some fintechs have been the subject of investigation, and transparency in fintech lending has been a major topic of discussion for legislators.

Recently, a joint petition was filed by the CBA and the Center for Responsible Lending (CRL) to push the CFPB to develop a rule that makes non-depository, non-bank lenders subject to the same level of supervision that other banks and credit unions are. They recommend a rule to cover closed-end installment loans and open-end lines of credit and a rule to cover loan origination and servicing of personal loans.

Earlier this year, the Consumer Bankers Association asserted that the CFPB should extend its supervisory authority into currently under-regulated markets that fintechs are significant contributors to. As fintechs expand into different markets and offer traditional banking products/services, they are not subject to the same regulations that banks are subject to.

The CFPB did announce that they will start conducting examinations of fintechs that are believed to cause consumer harm, but the CBA believes that action is too little and too late. The CFPB’s “dormant authority” allows supervisory examinations only after complaints have been filed against the fintech.

“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 consumer harm,” continues the letter to the CFPB written by Richard Hunt, President and CEO of the CBA. “The Bureau has acknowledged it is essential to ‘protect consumers and level the playing field between banks and nonbanks.’ Consumers are best protected when entities offering similar financial products and services are subject to the same oversight.”

Financial Regulation News Article
Letter from the CBA