U.S. Rep. Patrick McHenry (R-NC) and his Republican colleagues on the House Financial Services Committee’s Task Force on Financial Technology are urging the Office of the Comptroller of the Currency (OCC) to clarify its position on partnerships between banks and financial technology firms.
“Innovation is a critical component of the U.S. economy, and we are concerned with the potential for further uncertainty around partnerships and the consequences for consumers. New financial products and services can drive down costs and foster greater inclusion and competition in our financial system. Under the previous administration, the OCC worked to provide banks and their customers with a clear understanding of the regulatory and supervisory expectations surrounding emerging products and services and how to properly assess risk. While we expected the OCC to continue to provide clear rules of the road and support innovative banking services, such has not been the case,” McHenry, ranking member of the House Finance Committee, wrote to Michael Hsu, acting head of the Office of the Comptroller of the Currency (OCC).
Hsu recently highlighted five areas the OCC would prioritize in supporting community banks. However, the Republican lawmakers pointed out that fintech relationships were not among the five priorities.
“Let us be clear. Technological innovation fostered by fintech partnerships has enabled banks to reach segments of the population that may have been left behind and increase customer engagement. Much of this innovation has been driven by industry newcomers that have developed a novel product or business model. When properly regulated, these partnerships can provide greater financial inclusion, spur technological innovation, and foster competition that ultimately benefits consumers,” Republicans wrote to Hsu.
They added that non-bank fintechs partner with banks for several reasons — their deposit-based funding, their relatively large balance sheets, and their expertise lenders. And banks typically seek partnerships with fintechs for the advantages they bring, including more effective branding or marketing, better technology to support underwriting or to manage a customer relationship, and the lower cost of outsourcing to a fintech rather than building it in-house.
“When conducted properly, the benefits from these partnerships far outweigh the risks. Fintech partnerships can lead to cost savings for both fintechs and banks, increase competition, and provide faster, better, and cheaper banking products and services for consumers. Nevertheless, the model has generated political controversy. In June 2021, a Democrat-led Congress voted to nullify the OCC’s True Lender Rule along party lines, preventing the OCC from issuing any substantially similar rule without subsequent statutory authorization. This single act will have repercussions for communities throughout the United States, including those who need credit the most,” the Republicans added.