AFSA has responded to a request for information from the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Federal Reserve. These agencies are seeking insights into bank-fintech arrangements, particularly how they protect consumers.
AFSA highlighted that such arrangements can benefit American consumers, especially those who are underbanked with thin credit profiles. These consumers may find it challenging to obtain credit from traditional creditors but can access credit through bank-fintech programs. AFSA shared an example where a customer was able to purchase a generator through a bank-fintech program after being denied credit by a merchant's primary lender.
Bank-fintech arrangements in the credit space often involve fewer participants but display varied approaches based on their nature and scope. Some fintechs act as partners prominently featured in customer materials, while others function as vendors assisting banks in the background. Risks associated with these arrangements arise mainly from complex non-credit products and services.
Fintechs involved in these arrangements actively engage with banks to ensure comprehensive compliance programs. They designate principal contacts for effective communication, hold frequent meetings, participate in audits, and provide regular reports to monitor risks and protect customers.
The loans issued through these arrangements are subject to both bank and fintech compliance regulations. Fintechs acting as creditors adhere to strict regulatory oversight like the Truth in Lending Act (TILA). Their compliance programs typically integrate with those of banks to ensure all transactions comply with relevant laws.
AFSA noted that competition within the financial system benefits customers most when it is healthy and safe. Bank-fintech collaborations have fostered increased competition, leading to a more diverse and inclusive financial system. A working paper from the Federal Reserve Bank of Philadelphia suggests that banks partnering with fintechs are more likely to extend personal credit and offer larger credit limits to below-prime customers due to better risk assessments.