The fintech industry requires “additional oversight” to sustain competition, prevent abuse and protect consumers, a new US Treasury report has argued.
The report, released in partnership with the White House Competition Council and at the behest of President Biden’s July 2021 Executive Order to promote competition in the US economy, finds new fintechs are adding significantly to the number of financial institutions competing in the consumer market.
While it acknowledges that fintechs are enabling new capabilities, they are also creating new risks to consumer protection and market integrity, such as data privacy and exploiting loopholes.
Janet Yellen, US secretary of the Treasury, said on release of the report: “While non-bank firms’ entrance into core consumer finance markets has increased competition and innovation, it has not come without additional risks to consumer protection and market integrity.
“This report lays out actions that would maintain fair, transparent, and competitive markets while encouraging responsible innovation that benefits consumers. With existing authorities, regulators can encourage competition and innovation while further safeguarding and protecting consumers.”
The report recommends a number of steps to ensure fair competition that benefits consumers financial well-being.
Clear regulations are needed for bank-fintech partnerships. If they deliver consumer financial services provided by an insured depository institution (IDI), the partnership must operate in compliance with the laws, regulations and risk management standards applicable to the IDI.
Regulators should “robustly” supervise bank-fintech lending relationships for compliance with consumer protection laws.
To encourage innovation that will be benefit consumers, regulators should support innovations in consumer credit underwriting, to increase credit visibility, reduce bias and “prudently” expand credit to underserved consumers.
Yellen said: “Innovation and competition must work hand in hand in a healthy economy.”