Newsroom

December 02, 2016

Fed Gov. Brainard talks fintech; OCC considers charters

Federal Reserve Gov. Lael Brainard, at the Conference on Financial Innovation on Friday, said fintech has the potential to expand access to credit and other financial services for consumers and small businesses but risks need to be managed and consumers protected throughout the process.

The NAFCU Board last week met with Brainard at Fed headquarters to discuss findings of the 2016 NAFCU Report on Credit Unions and other issues affecting the credit union industry.

Brainard noted in her remarks that some fintech companies are using nontraditional data in their underwriting and pricing credit products, such as the level of education and social media usage of consumers, which could raise consumer protection concerns. "To the extent that the use of this type of data could result in unfairly disadvantaging some groups of consumers, it requires careful review to ensure legal compliance," she said.

Similarly, she said, fintech innovations that rely on data sharing "may create security, privacy, and data-ownership risks, even as they provide increased convenience to consumers."

Brainard also noted that along with new risks, fintech firms must also control for risks within the Bank Secrecy Act and anti-money laundering rules. She also told those financial institutions collaborating with fintech firms that they "must control for the risks associated with the associated new products, services, and third-party relationships."

Brainard said regulators need to be "prepared to appropriately tailor regulatory or supervisory expectations to facilitate fintech innovations that produce benefits for consumers, businesses, and the financial system." The Federal Reserve Board, she said, has established a working group that is analyzing fintech innovation.

NAFCU believes that financial regulators must require fintech firms to meet basic consumer protection requirements, such as the Truth in Lending Act, underwriting standards for loans, and applicable state usury laws, just as credit unions must do now.

On a related note, the Office of the Comptroller of the Currency on Friday announced that it is moving forward with considering applications from fintech companies to become special purpose national banks.

Comptroller of the Currency Thomas Curry explained that fintech charter applications would provide "businesses a choice without creating a requirement to seek a charter" and that those companies that seek a charter "are evaluated to ensure they have a reasonable chance of success, appropriate risk management, effective consumer protection, and strong capital and liquidity."

Comments on the OCC's paper discussing the issue and conditions in granting special purpose national bank charters may be submitted through Jan. 15.