The Office of the Comptroller of the Currency (OCC) said it would allow fintech companies to apply for national bank charters earlier this year, but so far only one company — Varo Money — has applied. Meanwhile, state attorneys general want to regulate fintech themselves without federal interference.
Just a few months ago, Rep. Emanuel Cleaver, D-Mo., issued a report calling for more oversight of fintech and questioning whether fintech’s algorithm-calculated interest rates for car, personal or small business loans might be inherently discriminatory.
Because Democrats historically distrust the finance industry, experts told InsideSources that the lack of regulation and oversight of fintech makes the industry an easy target.
“What we will definitely see is a hearing announcement from the Financial Services Committee on the topic, and there’s a chance that could lead to some compromise and bipartisan legislation that doesn’t hamstring innovation,” Lindsay Gorman, managing director at Politech Advisories, told InsideSources.
The U.S. is not the leader in fintech innovation, but that could change if fintech garners publicity from an uptick in hearings.
Lawrence White, professor of economics at New York University’s Leonard N. Stern School of Business, told InsideSources that he expects Maxine Waters — who is the ranking member on the Financial Services Committee and likely to assume chairmanship — to haul fintech companies up for many hearings.
“A quite legitimate action of hearings is simply to be a forum, a vehicle for airing various concerns on legislative and regulatory issues,” he said, “so even if legislation doesn’t follow from any particular hearing, they still serve a value highlighting concerns and bringing issues into public dialogue.”
Waters has already said she plans to focus on consumer protection and emphasize housing, insurance and payday lenders as chair, so fintech companies specializing in those areas — and there are many — will likely face intense scrutiny.
“Transparency is a persistent issue across the entire tech sector, including fintech,” White said.
Some fintech hearings may dip into the larger tech industry discussion regarding consumer privacy and data protection, especially since many fintech companies use data-driven algorithms to offer their services. Regulators don’t know what data they collect or whether it’s used fairly and responsibly.
“It seems like the U.S. is really not the leader in regulations of new technologies, for better or worse, and that’s especially true in privacy legislation,” Gorman said.
Furthermore, many new fintech companies that offer budgeting or investing services in the form of smartphone apps require a consumer to provide his or her bank username and password so the app can access enough financial information to properly render services.
These apps provide an innovative new way to help consumers take control of their money and finances, but they create numerous privacy and data protection risks.
“When you hand over your username and password, they can pull any data they want from your bank account, and some I’ve heard they’re pulling more data than they need to and then selling it,” Mary Wisniewski, an analyst for Bankrate, told InsideSources.
From Wisniewski’s perspective, unregulated fintech is a double-edged sword, and ripe for a House probe.
“On the one hand it’s like, is this dangerous because they’re getting more data on you, and on the other hand, maybe this is a way to include a lot of people and financially inclusive, and the roots of fintech are all about that,” she said.
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