The Consumer Financial Protection Bureau announced yesterday (1/5/2021) the results of a study created by the Taskforce on Federal Consumer Financial Law. The output includes two reports which I confess I have not yet read cover-to-cover since collectively they are 898 pages in length.
The end of the report does offer some recommendations for the financial services industry that includes some rather controversial topics such as allowing the CFPB to license and oversee non-chartered organizations like fintechs for activates such as lending, deposit taking and money movement.
Here’s a summary of just one of the recommendations:
“…non-bank FinTech companies engaged in payments, remittances, or lending services are generally subject to state law and must register or acquire a license from each state in which they operate. A company with a nationwide footprint thus may need 50 separate licenses and adjust its practices to conform with each state’s laws. As a result, a non-bank FinTech lender would be subject to different maximum-allowable interest rates depending on the state, whereas a federally chartered bank providing the same service could charge the interest rate that its home state allows, regardless of the consumer’s location. These costs, and the competitive disadvantages from a segmented regulatory regime, are significant. Federal policymakers should address these regulatory hurdles and promote competition and innovation by enabling FinTech companies to operate nationwide. Specifically, following on the National Commission on Consumer Finance’s (NCCF) recommendation that Congress create a federal consumer financial protection agency that could issue federal charters to non-bank finance companies, the Taskforce recommends that Congress either authorize the Bureau to issue federal charters or licenses to non-bank FinTech companies engaged in payments, remittances, or lending services, or clarify the authority of the OCC. Charters or licenses should provide that these institutions are governed by the regulations of their home states, even when providing services to consumers located in other states, similar to the National Bank Act’s treatment of federally chartered banks.”
So what does this mean? These are recommendations, not proposals so this effort is likely to be reference material for the industry, regulators and policy makers and the means for the current leadership at the CFPB, who will likely be asked to find new jobs when the new administration is installed, to create a legacy.
Overview by Sarah Grotta, Director, Merchant Services at Mercator Advisory Group