Weekly Fintech Focus

• CFPB announces initiatives to address junk fees in consumer financial products and services.
• CFPB seeks comment on BNPL services.
• The OCC approves another banking charter for a fintech company.
• FDIC and FinCEN launch Tech Sprint to address challenges in digital identity.

CFPB Requests Info on Consumer Financial Products or Service Fees

On January 26, 2022, the Consumer Financial Protection Bureau (CFPB) announced the launch of an initiative to collect information from consumers, academics, attorneys, industry, and a wide range of other stakeholders on the “exploitative junk fees charged by banks and financial companies.” This formal request for information was later followed by a February 2 CFPB blog post encouraging stakeholders to participate.

Seeking Consumer Narratives About Effects of “Junk Fees”

The wide-ranging information request “seeks information from the public on how junk fees—exploitative, back-end, hidden, or excessive fees—have impacted peoples’ lives.” The CFPB is “interested in hearing about people’s experiences” (as the blog post described them, “stories and insights”) with fees associated with their bank, credit union, prepaid or credit card account, mortgage, loan, or payment transfers, including:

• Fees for things people believed were covered by the baseline price of a product or service;
• Unexpected fees for a product or service;
• Fees that seemed too high for the purported service; and
• Fees where it was unclear why they were charged.

The CFPB stated that it intends to use the information to craft rules, issue industry guidance, and focus supervision and enforcement resources related to these fees.

Focus on Credit Card Fees

Recent publications by the CFPB signal that the credit card industry will be a point of focus for the “junk fee” information request. A January 19, 2022, CFPB blog post highlights credit card “junk fees,” the “billions in cash advance fees, balance transfer fees, foreign currency fees, and more” levied each year by credit card companies. According to the CFPB, “these fees ‘herd’ around common amounts, suggesting that competition is ineffective in driving down price,” and the CFPB “will be considering ways that will help consumers cut down on these fees that drive up the total cost of credit.”

Industry Perspective

From the industry perspective, this request for information will be particularly relevant for companies or segments of the financial services industry that obtain revenue from consumer costs that are not incorporated into the upfront price. Such companies should consider potential responses to the request for information, for example to explain practical obstacles to building fees into up-front prices, or to explain the drivers of the costs that the back-end fees cover.

CFPB Requests Comment on Buy-Now Pay-Later Products

On January 24, 2022, the CFPB requested comments on the CFPB’s inquiry into “buy-now pay-later” (BNPL) providers in the United States. This comes after the CFPB issued a series of orders to five companies that offered consumers BNPL credit inquiring about their size, scope, and business practices. These orders were aimed at gathering information on the benefits and risks of these newly popular loans.

According to the notice, the CFPB is looking to “help the Bureau better understand how consumers interact with BNPL providers, and how BNPL business models impact the broader e-commerce and consumer credit marketplaces.” The CFPB is seeking comments from the public on topics such as the consumer experience with BNPL products, the merchant experience, and ways in which the BNPL market can be improved. Comments must be received on or before March 25, 2022.

It appears that the CFPB may be moving closer to regulating this emerging space of BNPL loans, either through direct rulemaking or enforcement actions. Therefore, it may be in the interest of BNPL providers to ensure that their compliance programs are consistent with consumer protection laws and other regulatory standards.

OCC Approves National Bank Charter for Fintech Company

The OCC announced on January 18, 2022, that it has conditionally approved Social Finance Inc.’s (SoFi) application to create SoFi Bank, National Association (SoFi Bank, N.A.), as a full-service national bank headquartered in Cottonwood Heights, Utah.

As part of the transaction, SoFi Bank, N.A. acquired Golden Pacific Bank, National Association, an insured national bank. SoFi will continue to offer a range of loan and deposit products previously offered by Golden Pacific while now having the national reach to provide a fully digital lending platform for consumers across the country. However, SoFi is not permitted to engage in any crypto-asset activities or services without written approval from the OCC.

The OCC’s press release stated that its approval “brings SoFi, a large fintech company, inside the federal bank regulatory perimeter, where it will be subject to comprehensive supervision and the full panoply of bank regulations… This levels the playing field and will ensure that SoFi’s deposit and lending activities are conducted safely and soundly, including limiting the bank’s ability to engage in crypto-asset activities.”

The full-service national bank charter­ route, either through an acquisition of an existing financial institution or a de novo charter, now may appear more viable for fintech companies than taking the “special purpose national bank” charter approach, which comparatively seems more uncertain.

FDIC and FinCEN Launch Digital Identity Tech Sprint

The Federal Deposit Insurance Corporation (FDIC) and the Financial Crimes Enforcement Network (FinCEN) opened the registration period for those interested in participating in its upcoming Digital Identity Tech Sprint. The FDIC’s technology lab (FDITECH) and FinCEN are looking for solutions for digital identity proofing to enable digital financial services and measure the effectiveness of digital identity proofing for risk assessment purposes. One challenge identified by the regulators is enabling dynamic identity evidence in an environment where there are increasing risks of compromise to personally identifiable information, use of synthetic identities, and the presence of many diverse approaches to identity proofing. Some of the expected outcomes for the Tech Sprint include developing scoring models for digital identity proofing, findings on how to enhance existing solutions, applications of AI/ML programs to identify questionable identities, and creating other technical solutions. Registrations for the Tech Sprint can be found here and registration will close at 5pm ET on February 15, 2022.

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