Federal: AFC Letter to House Financial Services Committee on Principles to Make Community Banking Great Again

U.S. House of Representatives
Financial Services Committee
2129 Rayburn House Office Building
Washington, DC 20515

Re: Request for Feedback on “Make Community Banking Great Again” Principles and Slate of Bills

Dear Chairman Hill,

On behalf of The American Fintech Council (AFC), I am submitting this comment letter in response to the request from the House Committee on Financial Services (the Committee) for public feedback on Making Community Banking Great Again Principles (the Principles).

AFC’s mission is to promote an innovative, transparent, inclusive, and customer-centric financial system by fostering responsible innovation in financial services, and encouraging sound public policy. AFC members are at the forefront of fostering competition in consumer finance and pioneering ways to better serve underserved consumer segments and geographies. Our members are also improving access to financial services and increasing overall competition in the financial services industry by supporting the responsible growth of lending and lowering the cost of financial transactions, allowing them to help meet demand for high-quality, affordable financial products.

We commend the Committee’s focus on strengthening the community banking system in the United States and this letter serves as our perspective on several of the Principles put forward. There is a great opportunity for the Committee and the 119th Congress broadly to examine and pass a legislative agenda that strengthens the standing of community banks, bank-fintech partnerships, and the broader financial services ecosystem in the United States.

Responsible bank-fintech partnerships are critical to the continued innovation in and improvement of the financial services industry, particularly in the community banking space. As the premier industry association representing both innovative banks and fintech companies, we are uniquely positioned to discuss the opportunities and benefits that these partnerships present regarding community banking in the United States. Our overarching aim is to pursue a pragmatic approach to policymaking and regulation that will encourage responsible innovation through sound public policy. To ensure the continued development of responsible bank-fintech partnerships, AFC has consistently advocated for the federal financial regulatory agencies and policymakers to:

I. engage in regulatory modernization that encourages competition and innovation;

II. develop a unified and consistent approach to their oversight of bank-fintech partnerships;

III. increase clarity of supervisory expectations for regulated entities engaging in novel or innovative business models and activities; and

IV. avoid the development of a patchwork or inconsistent regulatory and supervisory landscape that harms consumers, industry participants, and the resilience of the financial services ecosystem by inadvertently encouraging regulatory arbitrage.

In addition, as will be discussed further below, fintech companies have established an important role in serving consumers, particularly those in historically underserved communities, with modern, digital-first banking services. And as such, many have formed partnerships with community banks. In general, through these innovative products and services, consumers have both found an ease of use not previously found in services offered by legacy financial services providers and a trust in the products and services offered. In turn, these products and services have become an integral part of the livelihoods of consumers, including those who have been historically underserved.

As outlined in AFC’s letter responding to the federal bank regulatory agencies' Request for Information, not all bank-fintech partnerships are structured the same way, and the specifics of a given arrangement significantly impact risk profiles, business operations, and oversight requirements. AFC urged the federal bank regulatory agencies to consider these differences more closely to ensure that regulatory approaches are appropriately tailored. One critical distinction AFC emphasizes is between fintech consumer and fintech supplier partnerships. Fintech consumer partnerships involve direct engagement between fintech firms and end-users, often in lending or payments, requiring strong consumer protection measures. Conversely, fintech supplier partnerships support financial institutions as enterprise-facing service providers, assisting with areas like fraud prevention, KYC monitoring, and payments processing. Additionally, AFC highlighted the distinction between direct and indirect partnership models, where direct relationships involve a financial institution providing APIs and technology solutions, while indirect partnerships utilize middleware providers. In both cases, clearly defining roles and responsibilities is essential to maintaining compliance and ensuring consumer protection. AFC encouraged the federal bank regulatory agencies to incorporate these distinctions into their oversight framework, ensuring regulatory clarity and stability in the evolving bank-fintech ecosystem. However, if left to just the regulatory agencies, or to the states, the risk of regulation by enforcement, unclear supervisory expectations, and non-binding interpretive rulemakings could return.

As such, in the response presented below, AFC seeks to address several of the Principles under discussion by the Committee. We do this first by examining the benefits of bank-fintech partnerships for consumers and the community banking space. Then, we discuss the leading risk management practices and processes identified for establishing and maintaining responsible bank-fintech partnerships. Lastly, AFC poses multiple recommendations related to the Principles in an effort to tailor the oversight and supervision of bank-fintech partnerships in a manner that can ultimately encourage the revitalization of community banks.  

I. Bank-Fintech Partnerships Exhibit a Multitude of Benefits for Both Consumers and Community Banks

Fintech companies arose out of the combination of a dearth of consumer trust in traditional financial institutions in the wake of the 2008 financial crisis and increasing demand for modern, digital-first banking services.  Through partnerships with financial institutions, particularly community banks, fintech companies have been able to increase access to historically underserved communities, expand offerings, and create a robust and competitive market that has the ability to mitigate certain types of contagion risks in the financial services industry. As noted in multiple reports by the U.S. Government Accountability Office (GAO), responsible fintech providers provide the opportunity for significant consumer and market benefits.  As we will discuss in more detail below, these benefits are not coincidental to bank-fintech partnerships, but instead, they are central to the robust market that has developed over the past 15 years.

a. Responsible Bank-Fintech Partnerships Increased Competition and Improved Long-Term Viability of Community Banks

Bank-fintech partnerships have also been crucial to improving competition in the financial services industry both domestically and abroad. According to a June 2024 literature review conducted by the Basel Committee on Banking Supervision, there is ample evidence to support the view that the rise of fintech has put pressure on the market share and pricing power of incumbent banks. They also note the rise in community bank and fintech partnerships.  Ultimately, as evidenced by the aforementioned discussion on consumer demand and service to underserved populations, responsible bank-fintech partnerships has led to greater competition for banking services, particularly when gaps in the market are present. In turn, this greater competition has led to a virtuous cycle of innovation and consumer benefit by pushing companies to continue seeking new services or providing these services in unique ways to increase their market share and effectively serve more consumers.

In addition, through this competition, community banks have experienced unique benefits. This has been evidenced by statements from multiple agency heads. For example, the sentiments of former FDIC Chair Martin Gruenberg, community banks and their continued involvement in the U.S. financial services industry are crucial to ensuring that the industry remains resilient and that consumers are properly served, and as acting FDIC Chair Travis Hill wrote that he intends to focus on adopting a more open-minded approach to innovation and technology adoption including for community banks.  Through partnerships with fintech companies, community banks have been able to reach far more consumers than through their traditional banking services alone. Central to many community banks is a “relationship banking” culture that meets customers on their terms and provides additional flexibilities in the products and services offered. Community banks engaged in bank-fintech partnerships bring additional benefits to consumers by providing their relationship banking style to the products and services they offer online. Further, the relationship banking ethos that underpins community banks helps to bolsters the suitability and resilience of partnering with fintech companies who seek to leverage innovative technologies and methods to offer new products and services. In turn, by pursuing these innovative products and services through responsible bank-fintech partnerships these community banks can help ensure long-term viability of their institutions and the resilience of the U.S. financial services industry.

b. Responsible Bank-Fintech Partnerships Responded to Digital-First Consumer Demand

Over the past several years, the community banking space in the financial services industry has seen significant change due to the development of bank-fintech partnerships. Bank-fintech partnerships developed and rapidly grew in popularity due to strong consumer demand for digital first financial products and services. Partnerships that started within one vertical, such as lending or payments services, quickly developed to include other services, such as deposit taking. Consumer demand, which has been a driving force for these innovative products and services, shows no sign of slowing, regardless of market or non-market forces and their impacts on bank-fintech partnerships.  

c. Bank-Fintech Partnerships have Increased Access to Financial Services for Historically Underserved Consumers

Through academic, industry, and government research, bank-fintech partnerships have been empirically shown to improve financial inclusion through improved services to historically underserved communities.  In addition, innovations from fintech companies have provided responsible alternatives to high-cost options for consumers in these communities; thus, improving the overall financial health of these consumers.  Specifically, consumers have gained access to responsible term loans and high-yield demand deposit accounts. In turn, the deposits brought into financial institutions via their partnerships with fintech companies have proved to be stable and beneficial for both the consumers and the financial institution. These products and services are a direct response to consumer demand is most acute for those consumers historically underserved by traditional financial services participants. Further, given that many bank-fintech partnerships are through community banks, these benefits have the greatest impact within the community banking space and provide a unique way to make community banking great again.

Responsible innovations and bank-fintech partnerships, particularly those offered through community banks, has dramatically increased credit access to historically underserved communities. Specifically, consumers categorized as “near prime” consumers have uniquely benefited from responsible bank-fintech partnerships and their ability to offer expanded traditional products and services. For example, credit offerings, including credit builder products, credit cards, and term-loans, offered through the innovative services born out of the bank-fintech partnership model are able to serve an expanded consumer market making these products and services more economically viable and available to consumers.

d. Responsible Bank-Fintech Partnerships Expanded Offerings through Innovative Products and Services

In addition to the expanded offerings of traditional banking services—including no-fee, high-yield demand deposit accounts, term loans, and faster payments services—responsible bank-fintech partnerships have also been able to offer new, innovative products and services to consumers. For example, through bank-fintech partnerships, buy-now-pay-later (BNPL) loans and earned wage access (EWA) transactions have been able to flourish and assist consumers in developing stronger financial lives. While these two products are distinct in crucial ways, they both leverage innovative technologies to effectively serve consumers and expand available alternatives to predatory products. These products allow consumers to smooth their spending, budget more effectively, and, specifically for EWA, receive the pay they are entitled to for completed work prior to the end of an arbitrarily set pay period. In short, these innovative products and services would not be viable without the use of innovative technologies and a partnership between financial institutions and fintech companies.

e. Responsible Bank-Fintech Partnerships Leveraged the Core Competencies of Each Entity to Improve Services to Consumers in a Compliant Manner

Relatedly, responsible bank-fintech partnerships have been able to improve regulatory and cost efficiencies within both financial institutions and fintech companies, particularly for community banks, who must deploy their resources strategically in order to remain competitive in the industry. For years, fintech companies have leveraged their core competencies to make payments, lending, and deposit taking easier for their financial institution partners. On the financial institution side, these entities have used existing robust compliance practices and processes, as well as keen knowledge of the regulatory requirements in financial services to improve the safety and security of products and services offered in partnership with fintech companies. Thus, the bank leverages their strength in defining the regulatory guidelines for the fintech company and ensuring compliance. By creating these efficiencies, financial institutions and fintech companies are able to dedicate additional capital to their core products and services. Thus, more effectively serving consumers, especially those in historically underserved communities.

II. AFC Identified Leading Risk Management Processes and Practices in Bank-Fintech Partnerships Both Throughout the Partnership and in Specific Activities

Fintech companies and the innovative financial institutions with whom they partner have a duty to operate in a responsible manner. To AFC and its members, this means avoiding simply digitizing existing analogue predatory products and operate in a proactive manner to address any identified issues that might harm consumers diminish the resilience of the financial institution or fintech company or increase risks to the financial services system. Like any emerging industry or model, the bank-fintech partnership continues to mature in its processes and practices related to risk management. To that end, AFC and its members continue to pursue leading practices to effectively manage risks associated with bank-fintech partnerships.

To address the Risk and Risk Management considerations raised by the Committee in the Principles, AFC has identified leading practices that responsible bank-fintech partnerships rely upon to conduct their operations in a prudent and orderly manner. In recognition of the complexity and nuance associated with bank-fintech partnerships, AFC and its members have engaged in establishing practices and processes that consider the partnership in a holistic manner, while also developing specific practices depending on the type of partnership and activities covered under it. Overall, this approach helps to ensure that both banks and fintech companies are developing effective, transparent, and resilient partnerships that benefit consumers.

a. AFC Identified Leading Practices in Throughout the Bank-Fintech Partnership

As noted in the existing interagency third-party risk management guidance, both financial institutions and fintech companies engaging in responsible bank-fintech partnerships of all types should develop robust due diligence and risk management processes and practices encompassing the entirety of the bank-fintech relationship.  AFC generally approved of the supervisory expectations conveyed through the Joint Agency’s third-party risk management guidance and found the guidance helpful for the continued development of responsible bank-fintech partnerships. Particularly, the provisions related to the due diligence and third-party selection, contract negotiation, and governance sections of the guidance were helpful in rebalancing industry conversations and developed a clear path forward for financial institutions and fintech companies. In accordance with this guidance, AFC members have developed specific processes and practices for partner onboarding, continued monitoring of the partnership, and the responsible dissolution or termination of a partnership should it be required.

Within the onboarding process for either a financial institution or a fintech company in a bank-fintech partnership, AFC identified leading practices as conducting robust “suitability assessments” holistic qualitative and quantitative risk assessments; targeted secondary risk assessments (where applicable); development of clear compliance requirements; and contingency planning for effective remediation of issues, dissolution, or termination of the partnership.

In addition to the robust onboarding processes implemented by both financial institutions and fintech companies, AFC members identified a number of leading practices related to continuous monitoring efforts throughout the partnership that they engage in to proactively identify and mitigate risks. While the specific practices implemented depend on the risk profile of the partnership, AFC members identified the importance of consistent engagement between both the financial institution and the fintech company to ensure that both entities are discussing any risks that might be on the horizon and are continuously monitoring their systems for potential issues.

To assist the regulators in their supervisory function, the Committee can play a role in facilitating public conversations on the nuances of these partnerships and the risk management processes pursued within them by convening hearings on the matters discussed above.

b. Leading Processes and Practices for Activity-Specific Risk Management in Responsible Bank-Fintech Partnerships

In addition to the aforementioned leading practices for risk management throughout a bank-fintech partnership, as well as within various partnership models, AFC and its members also identified leading practices and considerations for managing risks associated with specific activities often found in bank-fintech partnerships. Within any activity-specific risk management effort, entities must accurately assess the risk profile of a given activity and how it functions within the broader safety and soundness considerations of the entity. This means that issues such as concentration, criticality, and other common risk factors should be a part of the overarching activity-specific risk management effort.

For example, artificial intelligence (AI) within financial services has gained significant regulatory discussion over the past several years. While the methodologies underlying AI technologies have been used in financial services in some form since the 1980s, technological advances both directly and indirectly related to AI have greatly increased the potential use cases and more recent implementation of products and services that leverage the technology in financial services. Federal and state governments have recognized the potential for AI tools in financial services. Further, both federal and state legislatures have introduced, and in some cases passed legislation related to AI. As discussed below, AFC and its members have identified leading practices for managing risks associated with AI in financial services. Moreover, AI is not a monolithic concept; in particular, though generative AI receives much of the press, there are many use cases. Thus, AFC advocates, as it has done in the past, for policies under a risk-based framework that recognize the context-specific nature of a given use case for the AI technology.  Again, to further assist the regulators in their supervisory function, the Committee can play convene hearings on the role of AI in financial services.

III. AFC Identifies Opportunities for Reform to the Examination Efforts and Other Activities to Encourage Responsible Innovation for Community Banks

AFC and its members advocate for clear and consistent “rules of the road” for industry participants to use when developing innovative products and services or engaging in a responsible bank-fintech partnership. In response to questions posed in the Principles, we have provided a set of recommendations regarding regulatory and programmatic efforts that the Committee could consider improving oversight of and engagement with responsible bank-fintech partnerships. AFC believes that, if implemented correctly, these recommendations will serve the policy aims of the Committee.

a. AFC Highlights Need for Additional Examination Staff Education and Funding

Through AFC’s membership and discussions across the industry, we have learned that examiner knowledge and understanding of bank-fintech partnership models, as well as the innovative products and services offered through them varies substantially. Both federal and state examiners are crucial to ensuring a safe and sound financial services industry that serves consumers effectively. However, due to the varied understanding of bank-fintech partnership models and the risks associated with them, AFC believes that significant education and reform efforts are needed. While many examination staff work diligently to understand the nuances associated with bank-fintech models, at worst, we have heard that examination staff fundamentally misunderstand the risks associated with bank-fintech partnerships and therefore misapply the risk-based examination framework in their examinations. Further, we have heard that these examiners pursue unproductive lines of inquiry into the activities of the financial institution that are akin to “fishing expeditions” and result in high time and monetary costs to the financial institution.

AFC recognizes and appreciates the efforts to improve the examination of bank-fintech partnership models pursued by the OCC and Federal Reserve through the establishment of the Office of Financial Technology and Novel Activities Supervision Program, respectively. Given the continued growth of digital-first offerings through bank-fintech partnerships, it is incumbent upon the regulators to ensure that they are dedicating adequate funding to the staffing and development of programs designed to examine bank-fintech partnerships, such as OCC’s Office of Financial Technology and the Federal Reserve’s Novel Activities Supervision Program and Office of Innovation.

Some of the regulatory agencies have already recognized the importance of dedicating adequate funding to the staffing and development of programs designed to examine bank-fintech partnerships and emerging technologies. For example, Within OCC’s Congressional Budget Justification the agency noted “adapting to digitalization” as a priority to meeting its mission of “ensuring that national banks and federal savings associations operate in a safe and sound manner, provide fair access to financial services, treat customers fairly and comply with applicable laws and regulations.”  Specifically, the OCC identified additional focus on banks’ relationships with fintech companies. AFC is aligned with the agency’s priority in adapting to digitalization in order to meet its mission. These efforts are a positive step towards ensuring that emerging issues within the modern banking system are properly understood by examination teams.

While it is crucial that agencies support the continued development of the subject matter experts found in the Office of Financial Technology and Novel Activities Supervision Program, AFC believes that it is equally important to ensure that all examiners at the regulatory agencies have the requisite knowledge to engage effectively with financial institutions under their jurisdictions who are engaged in bank-fintech partnerships. AFC recognizes that the OCC and the Federal Reserve have engaged in specific efforts to improve their understanding—both in policy and examination engagements—of bank-fintech partnerships through the establishment of their Office of Financial Technology and Novel Activities Supervision Program respectively. However, specifically regarding examinations, while these staff have been helpful in assisting examination teams understand the nuances associated with bank-fintech partnerships, there is no substitute for the continued development of the examination teams tasked with overseeing a given innovative financial institution. To ensure that OCC meets its aforementioned priority, it is crucial that the agency frontline examination staff have the requisite education to effectively engage with financial institutions pursuing bank-fintech partnerships.

The frontline examination staff who consistently engage with a specific regulated financial institution, including those engaged in bank-fintech partnerships, typically has the best understanding of the operations, activities, and procedures of that financial institution within the examination division of a prudential regulator. However, these staff may not have the contextual sophistication necessary to make critical determinations of actual risks associated with a given partnership. The subject matter experts within the Office of Financial Technology and Novel Activities Supervision Program assist in bridging the gap for the frontline examination staff. However, it remains critical that these frontline examination staff have the requisite understanding of bank-fintech models in aggregate to make prudent determinations within the examination.

As a practical matter, AFC respectfully recommends that the regulatory agencies engage with private sector entities to craft examiner education programs, syllabi, and course materials related to examining bank-fintech partnerships. Regulators’ engagements with private sector entities have proved helpful for finding solutions to pressing policy issues. For example, in April 2022, the FDIC and the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) collaborated with private sector entities in a Tech Sprint to “develop solutions for financial institutions and regulators to help measure the effectiveness of digital identity proofing—the process used to collect, validate, and verify information about a person”.  The solutions developed during the Tech Sprint proved helpful to both FDIC and FinCEN staff by identifying areas that the regulators could further develop in their programmatic and regulatory agendas. AFC believes that the regulatory agencies could find a similar benefit from engagement with private sector entities on the development of craft examiner education programs, syllabi, and course materials related to examining bank-fintech partnerships.

With the above detailed perspectives in mind, we respectfully recommend that the regulatory agencies pursue significant education efforts for their examination staff specifically designed to educate these staff on the various types of bank-fintech models, activities conducted within the models, and leading risk management processes. Specifically, with the assistance of private sector entities, AFC believes that the agency should develop and implement additional training programs related to the bank-fintech partnership to understand the entire “supply chain of banking” and the relationships that exist between the various entities.

With that being said, AFC also strongly supports the Fair Audits and Inspections for Regulators’ (FAIR) Exams Act (H.R. 8071, 118th Congress), which would establish a new, structured process for institutions to appeal supervisory determinations. The lack of a fair and transparent appeals process has created uncertainty for financial institutions and their fintech partners, leading to inconsistent examination outcomes and undue regulatory burdens. AFC believes that adopting an appeals process similar to the FAIR Exams Act will improve fairness, accountability, and transparency in the examination process, ensuring that financial institutions are evaluated consistently and equitably. Given the crucial role of the Committee in ensuring the federal bank regulators are held accountable and are operating in the interests of the taxpayers, we believe that it is important for the Committee to continue engaging with the federal bank regulators on the issues we have discussed.

b. AFC Recognizes Opportunities for Hearings on Guidance Tailored to Bank-Fintech Partnerships

As noted above, AFC consistently advocates for clear and consistent “rules of the road” for industry participants to use when developing innovative products and services or engaging in a responsible bank-fintech partnership. A central part of this advocacy is pursuing explicit supervisory expectations through agency guidance for products, services, or other activities that operate in a distinct manner within bank-fintech partnerships from traditional offerings. Since many of the existing laws and regulations governing the financial services industry were promulgated prior to the development of bank-fintech partnerships as we have defined them in this response, it is incumbent upon the regulatory agencies to review existing regulations and, where necessary, provide additional guidance to industry participants who pursue bank-fintech partnerships.

AFC recognizes the importance and benefit of the regulatory agencies previous guidance on third-party risk management. However, now that the regulatory agencies have established adequate agency guidance for the overarching risk management framework within bank-fintech partnerships, AFC believes that the regulatory agencies should pursue the issuance additional activity-specific guidance. AFC believes that there are many areas that could benefit from additional guidance that is tailored to various bank-fintech partnership models. In this, we agree with the principle outlined in the Principles that specifically calls for tailoring to be re-established in prudential regulation and supervision.  For example, agency guidance related to fintech lending operations—akin to the inactive FDIC Financial Institution Letter FIL-50-2016,  deposit rule classifications, and open banking standards for business accounts are several areas where the Joint Agencies could greatly improve industry understanding of supervisors’ expectations through the issuance of agency guidance. AFC believes that the Committee is well positioned to convene hearings on the topics discussed above to help ensure that the agencies continue to improve their guidance on bank-fintech partnerships.

c. AFC Advocates for Developing Programs to Incentivize Proactive Identification and Remediation of Compliance Issues in Bank-Fintech Partnerships

AFC members endeavor to consistently operate in a safe, sound, and responsible manner. While compliance issues occur, AFC and its members maintain a strong commitment to providing innovative products and services responsibly. In an effort to encourage these practices across the broader financial services industry, AFC believes that the Committee should develop legislation and encourage regulatory policy that incentivize banks and fintech companies to proactively identify and remediate compliance issues. Based on conversations with our members, we have understood that there is a distinct desire to pursue proactive identification and remediation of issues. The impetus for pursuing these proactive measures is because it ultimately benefits both the consumer and the resilience of the partnership.

Specifically, as discussed above, financial institutions and fintech companies invest significant financial and reputational capital into the development and success of a partnership. Dissolution of these partnerships, while important to plan for, presents a significant cost to both the financial institution and the fintech company. AFC members recognize this fact and therefore pursue proactive identification and remediation of compliance issues.

However, the current examination culture within the regulatory agencies is not conducive to these efforts. As evidenced by the recent slew of enforcement actions against financial institutions engaged in bank-fintech partnerships, examiners have pursued a “regulation by enforcement” regime that disincentivizes the proactive identification and remediation of compliance issues identified in a bank-fintech partnership. By disincentivizing proactive identification and remediation of compliance issues, the regulatory agencies have injected additional risk into the financial services industry by pushing regulated entities to hide potential issues from examination teams. To avoid this issue, AFC believes that the regulatory agencies should pursue programs that incentivize the proactive identification and remediation of compliance issues within bank-fintech partnerships. This effort will require agencies to reevaluate examiner culture and engagement with regulated entities to ensure that the relationship is collaborative as opposed to adversarial while maintaining a prudent amount of professional skepticism. Ultimately, this change in perspective could benefit both the regulators and regulated entities and improve the safety and soundness of the financial services industry.

d. AFC Recognizes Opportunities For the Committee to Encourage the Use of Supervisory Technology in Examinations

Through the adoption of regulatory technology or “regtech” tools, innovative financial institutions and fintech companies sought to improve their internal and external regulatory processes. Regtech tools have been used to improve fraud detection practices, KYC activities, and regulatory reporting, among other activities. Financial institutions leverage the aforementioned fintech supplier partnerships to build these improved processes, resulting in significant cost savings and efficiencies.  

While these regtech tools have proved beneficial for financial institutions and fintech companies, there are also significant opportunities the regulatory agencies to identify and implement supervisory technology or “suptech” tools to improve oversight and examination processes. Globally, suptech tools have been a key area of potential innovation for regulators. Both academic institutions, such as the University of Cambridge via its Suptech Lab, and international organizations such as the International Monetary Fund and the Bank for International Settlements have recognized the importance of improving regulatory activities through the use of suptech tools.  

According to the Bank for International Settlement’s Financial Stability Institute, when pursued with a distinct strategy by an agency, suptech tools have been extremely helpful for improving supervision of regulated entities within a number of jurisdictions.  Specifically, the report found that suptech tools have improved efficiencies in their regulatory engagements. Further, the report noted that “[s]ome suptech tools are now critical to supervisory processes “[s]uptech tools should have a natural place in supervisory processes and address specific pain points”.  

Given the preponderance of evidence regarding the importance of suptech tools, AFC believes that it is imperative that the regulatory agencies follow their international counterparts and engage in a concerted manner to adopt suptech tools. AFC respectfully recommended that the regulatory agencies identify and implement relevant suptech tools to improve their oversight activities of regulated entities.  We noted that by implementing suptech tools, examiners could more efficiently and effectively examine regulated entities and lower the costs associated with an examination for both the agency and the regulated entity. To that end, AFC believes that the Committee can be helpful in encouraging regulators pursue suptech tools by pursuing legislation or resolutions that direct the agency to engage in these efforts.

e. AFC Recognizes the Importance of a Federal Solution to Protect Community Bank’s Ability to Lend Across the Country and Protect Bank Parity

AFC has long advocated for clarity and a unified regulatory approach to the determination of who constitutes the “True Lender” within a bank-fintech partnership. AFC has consistently ascribed to the common understanding that the “True Lender” of a loan in a bank-fintech partnership is bank, as they are the institution listed on the loan’s origination documents. Historically, the OCC has concurred with this view and promulgated a formal legislative rulemaking to codify this view.  Unfortunately, due to timing and partisan politics, the final rule was invalidated by the 117th Congress in 2021.  

In the intervening years, innovative banks and their fintech partners have faced a patchwork of state laws that pursued novel interpretations of which entity functions as the “lender” within a bank-fintech partnership. These state laws have unfortunately disregarded long-standing practice that recognized the institution listed on the loan origination documents as the “lender”. This slew of state activity exemplifies the need for federal action on this issue.

To that end, a federal “True Lender” law would establish a clear federal legislative standard that explicitly designates financial institutions as the originators of loans in bank-fintech partnerships. This would preserve the long-standing legal and regulatory framework under the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) which recognizes the critical role of banks in lending and ensure uniformity in the application of federal banking laws. We believe the Committee is well positioned to bring much-needed clarity to this issue through passage of a “True Lender” law.

* * *

AFC appreciates the opportunity to submit comment on the Principles to Make Community Banking Great Again. It is our sincere hope that the Committee will use the perspectives provided within this letter to craft a pragmatic, effective, and efficient legislative agenda regarding bank-fintech partnerships. AFC welcomes continued engagement with the Committee and Congress on how to craft regulations, guidance, and programs that encourage the development of responsible innovation through bank-fintech partnerships and strengthens community banking.

Sincerely,

Ian P. Moloney
SVP, Head of Policy and Regulatory Affairs
American Fintech Council

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[1] American Fintech Council’s (AFC) membership spans EWA providers, lenders, banks, payments providers, loan servicers, credit bureaus, and personal financial management companies.
[2] "Release: Rep. Hill Outlines Principles To Make Banking Great Again," U.S. Congressman French Hill, Nov 14, 2024. available at https://hill.house.gov/news/documentsingle.aspx?DocumentID=9376.
[3] American Fintech Council, "Federal: Advocacy Letter on Interagency Bank-Fintech Arrangements RFI," October 30, 2024, available at https://www.fintechcouncil.org/advoca cy/federal-advocacy-letter-on-interagency-bank-fintech-arrangements-rfi.Fintech Council
[4] U.S. Department of the Treasury, AFinancial System That Creates Economic Opportunities: Nonbank Financials,F intech, and Innovation, (July 2018), available at https://home.treasury.gov/sites/default/files/2018-08/A-Financial-System-that-Creates-Economic-Opportunities---Nonbank-Financials-Fintech-and-Innovation_0.pdf.
[5] U.S. Government Accountability Office, Financial Technology: Additional Steps by Regulators Could Better Protect Consumers and Aid Regulatory Oversight, GAO-18-254, (Mar. 22,2018), available at https://www.gao.gov/products/gao-18-254; and U.S.Government Accountability Office, Financial Technology: Products Have Benefits and Risks to Underserved Consumers, and Regulatory Clarity Is Needed,GAO-23-105536, (Mar. 08, 2023), available at https://www.gao.gov/products/gao-23-105536.
[6] Bogaard, Hein, Sebastian Doerr, Nicole Jonker,Hua Kiefer, Onur Koltukcu, Calixto Lopez, Jose R H Ornelas, et al., Literature review on financial technology and competition for banking services, Working Paper 43, Bank for International Settlements, (Jun. 7, 2024), available at https://www.bis.org/bcbs/publ/wp43.pdf.
[7] Federal Deposit Insurance Corporation, FDIC 2022-2026 Strategic Plan: The FDIC and the Banking Industry: Perspective and Outlook, (Last updated: Feb. 8, 2022).
[8} See, Hill, Travis, "Charting a New Course: Preliminary Thoughts on FDIC Policy Issues", Federal Deposit Insurance Corporation, (Jan. 10, 2025) available at https://www.fdic.gov/news/speeches/2025/charting-new-course-preliminary-thoughts-fdic-policy-issues and FDIC, "Statement from Acting Chairman Travis Hill", (Jan. 25, 2025) available at https://www.fdic.gov/news/press-releases/2025/statement-acting-chairman-travis-hill.
[9]Propson, Drew, Emina Ajvazoska, Felipe Ferri de Camargo Paes, Stanley Mutinda, Dana Salman, Jill Lagos Shemin, Krishnamurthy Suresh, et al., The Future of Global Fintech: Towards Resilient and Inclusive Growth, (Jan. 2024), available at https://www.jbs.cam.ac.uk/faculty-research/centres/alternative-finance/publications/the-future-of-global-fintech-towards-resilient-and-inclusive-growth/.
[10]Chernoff, Alan and Julapa Jagtiani, The Role of Bank-Fintech Partnerships in Creating a More Inclusive Banking System, WP 23-21, Federal Reserve Bank of Philadelphia, (Oct. 2023) available at https://www.philadelphiafed.org/the-economy/banking-and-financial-markets/the-role-of-bank-fintech-partnerships-in-creating-a-more-inclusive-banking-system; Dolson, Erik and Julapa Jagtiani, Which Lenders Are More Likely to Reach Out to Underserved Consumers: Banks versus Fintechs versus Other
Nonbanks?, WP 21-17, Federal Reserve Bank of Philadelphia, (Apr. 2021), available at https://www.philadelphiafed.org/consumer-finance/which-lenders-are-more-likely-to-reach-out-to-underserved-consumers; Lung, Harrison, Why financial inclusion is the key to a thriving digital economy, World Economic Forum, (Jul. 29, 2024), available at https://www.weforum.org/agenda/2024/07/why-financial-inclusion-is-the-key-to-a-thriving-digital-economy/; and Salman, Sabry, The role of banks in FinTech partnerships, Barclays Investment Bank, (Sep. 18, 2023) available at https://www.ib.barclays/our-insights/3-point-perspective/the-role-of-banks-in-fintech-partnerships.html.
[11] Dunn, Andrew and Nadia Van De Walle, Fintech as a Solution for Employee Financial Health Findings from Five: Exploratory Studies, Financial Health Network, (Mar. 2023), available at https://cfsi-innovation-files-2018.s3.amazonaws.com/wp-content/uploads/2021/03/23024025/FSL_IE-Report-WashU-Final.pdf; Cornelli, Giulio, Jon Frost, Leonardo Gambacorta, and Julapa Jagtiani, The Impact of Fintech Lending on Credit Access for U.S. Small Businesses, WP 22-14, Federal Reserve Bank of Philadelphia, (Apr. 2022), available at https://www.philadelphiafed.org/the-economy/banking-and-financial-markets/the-impact-of-fintech-lending-on-credit-access-for-us-small-businesses; and Dunn, Andrew and Heidi Johnson, Building Consumer Savings with Fintech Innovations: Savings are a critical component of financial health, and new approaches can encourage consumer savings, Financial Health Network, (Jul. 2022) available at https://finhealthnetwork.org/wp-content/uploads/2022/07/Building-Consumer-Savings-with-Fintech-Innovations-2022.pdf.
[12] The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency, Treasury, “Interagency Guidance on Third-Party Relationships: Risk Management”, Fed. Reg. 88, no. 111, (Jun. 9, 2023): 37920.
[13]American Fintech Council, “Comments Regarding Request for Information on Uses, Opportunities, and Risks of Artificial Intelligence in the Financial Services Sector”, (Aug. 12, 2024), available at https://www.fintechcouncil.org/advocacy/federal-ai-letter.
[14] American Fintech Council, “Comments Regarding Request for Information on Uses, Opportunities, and Risks of Artificial Intelligence in the Financial Services Sector”, (Aug. 12, 2024), available at https://www.fintechcouncil.org/advocacy/federal-ai-letter.
[15] See, Federal Deposit Insurance Corporation, “FDIC and FinCEN Launch Digital Identity Tech Sprint”, Jan. 11, 2022, https://www.fdic.gov/news/press-releases/2022/pr22003.html. While the Tech Sprint was announced in January 2022, it took place on April 4, 2022. See, Financial Crimes Enforcement Network, “FDIC FinCEN Digital Identity Tech Sprint - Key Takeaways and Solution Summaries”, Sep. 9, 2022, https://www.fincen.gov/news/news-releases/fdic-fincen-digital-identity-tech-sprint-key-takeaways-and-solution-summaries.
[16]  Ibid, Rep. Hill Outlines Principles To MakeBanking Great Again.
[17] Federal Deposit Insurance Corporation,FIl-50-2016, “Examination Guidance for Third-Party Lending” (July 29, 2016).This proposed examination guidance was not finalized.
[18] See, the University of Cambridge’sCambridge Suptech Lab, https://lab.ccaf.io/; BIS InnovationHub, “BIS Innovation Hub expands suptech and regtech research to include monetary policy tech”, Last updated Mar. 21, 2024, https://www.bis.org/about/bisih/topics/suptech_regtech.htm; and Tobias Adrian, Financial Counsellor and Direct, Money and Capital Markets Department,IMF,  “AI and Regtech”, Speech, Virtual Workshop on AI & Finance, Oct. 29, 2021, available at https://www.imf.org/en/News/Articles/2021/10/29/sp102921-ai-and-regtech.
[19] Prenio, Jermy, Peering through the hype - assessing suptech tools' transition from experimentation to supervision, Bank for International Settlements, FSI Insights No. 58, (Jun.14, 2024), available at https://www.bis.org/fsi/publ/insights58.pdf. ‍

[20] Ibid, Pages 14-15.
[21] Ibid, American Fintech CouncilBank-Fintech Arrangements Letter.

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