WASHINGTON–Recommendations for the oversight of certain non-banks and fintechs based on risk determination have been made by CUNA in a letter to the Consumer Financial Protection Bureau.
“…Credit unions are concerned about the growing influence of unsupervised entities offering financial products to consumers designed to be glossy, heavily marketed, tech-savvy alternatives to traditional banking services,” CUNA wrote in the letter signed by Alexander Monterrubio, its senior director of advocacy & counsel for consumer protection. “These business models of nonbank providers often rely on avoiding accountability and prudent regulation. We agree that there is a benefit to consumers in the Bureau supervising these entities and subjecting them to the same standards as traditional financial institutions.”
The letter states that while credit unions welcome innovation in financial services, “it has become clear that the growth of financial technology companies (FinTechs) and other nonbank actors have outpaced prudent regulatory oversight and this imbalance could ultimately result in consumer harm. In addition, the absence of effective regulatory oversight creates an uneven playing field that materially disadvantages traditional service providers. Credit unions and other well-established providers are heavily regulated for safety and soundness and compliance with consumer protection laws and regulations. This is often not the case for many nonbanks.
Understand the Appeal, But…
“We understand the consumer appeal of nonbank FinTechs as they seem to create novel products available through a click of a virtual button,” the letter continues. “While some of these products and services are truly new, others are merely repackaged traditional products and services wrapped in a thin veneer of technology and supported by venture capital that allows for pricing that undercuts traditional service providers to rapidly gain market share. While competition is a necessary component of properly functioning markets, credit unions are concerned that nonbanks have essentially evaded state and federal consumer protection regulations by exploiting gaps in regulatory oversight.”
CUNA told the Bureau its long held position has been that similar products and services should be regulated similarly so that consumer protections run with a product or service, not with the entity providing the products or service.
“Credit unions and banks are subject to most of the same consumer protection laws. While not perfect, these consumer protection laws are often intended to be in the best interest of consumers,” the letter continues. “The CFPB should continue to stay focused on nonbank providers as their business model and substantial growth could result in irreparable harm to consumers and cause consumers to lose trust in the financial services marketplace.”
CUSO Oversight
In addition, CUNA stated NCUA has had regulatory oversight powers related to CUSOs, which it described as “virtually limitless,” in addition to having various authorities related to third party vendors. (As CUToday.info has reported, NCUA has been pushing for broader vendor oversight, which the credit union trade groups oppose. A bill is currently before the House that would give the agency such oversight.)
“While the CFPB theoretically could subject a CUSO to supervision through its risk-based supervisory authority, we strongly recommend the Bureau focus its supervisory resources on influential FinTechs and other entities that are not currently subject to the authority of a federal banking regulator,” the letter reads. “NCUA’s historically active oversight of CUSOs clearly renders Bureau oversight redundant and duplicative.”
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