The U.S. Department of the Treasury, in consultation with the White House Competition Council, published a report that assesses effects, on competition, of large technology firms’ and other non-bank companies’ entry into core consumer finance markets—namely deposits, payments, and credit.
The report focuses on the role of new entrant non-bank firms, how they interact with insured depository institutions, and their impact on the markets that constitute the core functions of traditional banking. The report findings show that while concentration among federally insured banks is growing on a national basis, new entrant non-bank firms, in particular fintech firms, are adding significantly to the number of firms and business models competing with insured depository institutions in core consumer finance markets. These new entrant non-bank firms appear to be contributing to competitive pressures; however, they are generally not subject to the same oversight for safety and soundness or consumer protection as insured depository institutions, which raises various public policy considerations. The report also show that new entrant fintech firms are enabling new capabilities and creating new risks to consumer protection and market integrity, such as risks related to data privacy and regulatory arbitrage. To protect consumers in these rapidly changing markets and enable sustainable competition, among other recommendations, the report calls for enhanced oversight of the consumer financial activities of non-bank firms.
The report lays out actions that would maintain fair, transparent, and competitive markets while encouraging responsible innovation that benefits consumers. The recommendations of the report focus primarily on how the federal banking regulators and the Consumer Financial Protection Bureau (CFPB) can use existing authorities to further encourage policies that maintain a level regulatory playing field, promote competition and responsible innovation, and protect consumers and market integrity. The recommendations are as follows:
- Enable competition in responsible consumer credit underwriting—regulators should take various steps to ensure that credit underwriting practices of all lenders are designed to increase credit visibility, reduce bias, and prudently expand credit to consumer.
- Enable effective oversight of bank-fintech relationships—federal banking regulators should implement a clear and consistently applied supervisory framework for an insured depository institution’s role in bank-fintech relationships to address competition, consumer protection, and safety and soundness concern.
- Encourage competition in responsible small-dollar lending—the agencies should increase consistency in supervisory practices related to small-dollar lending program.
- Enable secure data-sharing—federal banking regulators and CFPB should take steps to help promote a more unified approach to oversight of consumer-authorized data-sharing.
Keywords: Americas, US, Banking, Fintech, Regtech, Non Bank Financial Institutions, Consumer Protection, Credit Risk, CFPB, Lending, Data Sharing, Credit Underwriting, Bank Fintech Relationships, Platform Businesses, US Treasury
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