April 16, 2021

NAFCU-rep Pacheco: CU regs need to keep pace with fintech, members' needs

Pacheco testifying
Premier Members Credit Union CEO Carlos Pacheco testifying before the House Financial Services Subcommittee on Consumer Protection and Financial Institutions Thursday.

During his testimony on behalf of NAFCU before a House Financial Services subcommittee yesterday, Carlos Pacheco – CEO of Premier Members Credit Union in Boulder, Colo. – highlighted ways in which credit unions utilize technology partnerships to better serve members and the need for a level playing field as more fintech companies begin offering traditional banking products and services.

"As technology companies expand, and new charters emerge to compete in the financial services marketplace, it is important that they compete on a level playing field of regulation and supervision," Pacheco said. "It is important that Congress ensures laws are modernized to allow regulated financial institutions, such as credit unions, to keep up and compete with technological advances."

The hearing, hosted by the Subcommittee on Consumer Protection and Financial Institutions, explored the rise of financial technology companies in the financial services space and how lawmakers and regulators could ensure these entities are operating safely while meeting consumers' needs.

Pacheco, in his testimony, said credit unions' "use of fintech can have a positive effect on the credit union membership."

"Many credit unions embrace innovations in technology in order to improve member relationships and NAFCU believes that it is important for regulators like the NCUA to ensure that credit unions have the proper authority in this space under their charters," he said.

While some have argued that fintechs will help reach underserved areas, including former Acting Comptroller of the Currency Brian Brooks during his remarks at the hearing, Pacheco countered that credit unions are actively going into those communities that have been left behind and building relationships as they provide safe, affordable financial services.

Responding to a question from Rep. David Kustoff, R-Tenn., Pacheco shared how disruptive the coronavirus pandemic has been to normal operations, but that technology partnerships – including in online and mobile banking and mobile deposits – have allowed Premier Members Credit Union and others in the industry to continue meeting the needs of their members.

"The partnerships that we've had have been a welcome and well-received benefit to our members in the pandemic," Pacheco added.

Pacheco also gave insights into how underregulated fintech companies can "place a greater burden on credit unions' efforts to protect deposit accounts," noting that in cases of fraud, members who trust their credit union will seek resolution there instead of through a fintech company.

"While credit union consumer complaint processes are overseen by regulators, there is no comparable oversight for fintech companies that facilitate payment transactions, even in instances where they share a responsibility for resolving errors under Reg E," Pacheco explained. "A minimally staffed call center may be all it takes to steer frustrated fintech users to the credit union if there's a problem, and that alone can create competitive imbalance."

Pacheco detailed NAFCU's concerns with fintech companies taking advantage of loopholes in bank chartering rules, and several lawmakers and witnesses expressed similar concerns with under-regulation adding systemic risk. Some also backed Pacheco's call for the Gramm-Leach-Bliley Act (GLBA) to apply to all companies – not just financial institutions as it currently stands – that handle consumer financial information.

In addition, Pacheco also offered support for:

  • imposing a moratorium on new Industrial Loan Company (ILC) charter approvals by the FDIC and closing the Bank Holding Company Act (BHCA) loophole for existing ILCs;
  • the CFPB using its "larger participant" authority to regulate and supervise technology firms and fintech companies that enter into the financial services marketplace;
  • subjecting new chartering ideas to a transparent notice-and-comment rulemaking process; and
  • Congress creating a Federal Financial Examination Institutions Council (FFIEC) subcommittee on emerging technology to monitor the risks posed by fintech companies and develop a joint approach for facilitating innovation and identifying regulatory gaps between new and existing chartering options.

NAFCU will continue to advocate for a fair and level playing field for credit unions to operate on.