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This podcast provides you the ability to listen to new regulatory guidance issued by the National Credit Union Administration, and occasionally the F D I C, the O C C, the F F I E C, or the C F P B. We will focus on new and material agency guidance, and historically important and still active guidance from past years that NCUA cites in examinations or conversations. This podcast is educational only and is not legal advice. We are sponsored by Credit Union Exam Solutions Incorporated. We also have another podcast called With Flying Colors where we provide tips for achieving success with the N C U A examination process and discuss hot topics that impact your credit union.
Samantha: Hello, this is Samantha Shares.
This episode covers the Statement
of C F P B Director Rohit Chopra,
Member, F D I C Board of Directors,
on Stopping Fintech Deposit Meltdowns
The following is an audio
version of that statement.
This podcast is educational
and is not legal advice.
We are sponsored by Credit Union
Exam Solutions Incorporated, whose
team has over two hundred and
Forty years of National Credit
Union Administration experience.
We assist our clients with N C
U A so they save time and money.
If you are worried about a recent,
upcoming or in process N C U A
examination, reach out to learn how they
can assist at Mark Treichel DOT COM.
Also check out our other podcast called
With Flying Colors where we provide tips
on how to achieve success with N C U A.
And now the statement.
Statement of C F P B Director
Rohit Chopra, Member, F D I C
Board of Directors, on Stopping
Fintech Deposit Meltdowns
Over the past decade, we have
seen a significant incursion
into consumer deposit taking and
payments activities by companies
that arenât banks or credit unions.
These firms want the public benefits
of being a bank or credit union,
without the public obligations.
This trend poses significant risks.
We have developed a legal framework for
banks over the past century designed to
ensure peopleâs deposits are safe and that
they have constant access to their funds.
Deposit insurance and the special
F D I C resolution process protect
people if the bank fails and they
retain quick access to their cash.
When nonbanks engage in deposit taking,
whether directly or in partnership with a
bank, all these protections may not apply.
Today, the F D I C Board of
Directors is proposing a rule that
would strengthen requirements for
banks that partner with nonbanks
in offering deposit-style products.
This year, Synapse, a middleman
between nonbanks offering deposit-style
products to end users and their
partner banks, filed for bankruptcy.
The firm appears to have failed
to properly track customer
account balances and may have
engaged in other shady practices.
As a result, tens of thousands
of customers have had their
funds frozen for months.
The banks have been unable to
reconcile all the records necessary
to get end users their funds back.
This has led to severe harm,
especially for people who were
using the nonbank account as a
primary checking or savings account.
If one of the bank partners had failed,
instead of Synapse, the horrible
account balance tracking may have
prevented the F D I C from making quick
deposit insurance determinations and
returning funds promptly to end users.
When consumers do not have access to
their funds, it can undermine confidence
in the financial system and ruin lives.
The proposed rule would require banks
to maintain records identifying the
ultimate end users, their balances,
and other information for custodial
accounts with transaction-style features.
Banks would still be permitted
to maintain these records through
a third party as long as certain
protections are in place, including
daily reconciliations to make sure the
numbers at the customer-level add up.
Banks would also have to maintain
constant access to the records,
including in the event of the nonbankâs
bankruptcy or other disruption.
This framework would expedite an F
D I C insurance determination if the
bank fails and prevent the type of
chaos weâre seeing with the Synapse
bankruptcy if the nonbank fails.
To be clear, this rule would
not address all the risks posed
by banking with a nonbank.
Even if all the records are appropriately
maintained, there still may be some delay
in getting end users their money back as
the nonbankâs bankruptcy proceeding plays
out.1 In addition, nonbank deposit taking
offered directly without a bank partner
is generally outside the jurisdiction
of the federal banking agencies.2 If the
firm fails, consumers become unsecured
creditors of the nonbankâs bankruptcy
estate and may lose their funds.
This proposal must not be the end of
our collective work on this issue.
First, disclosure requirements related to
the intricacies of pass-through deposit
insurance are woefully inadequate.
Consumers should, at the very least,
be told clearly and concisely that
they could face delays or lose their
money by banking with a nonbank.
Second, we must continue to take
enforcement actions against nonbanks
that make misrepresentations
about deposit insurance or
misuse the F D I C name or logo.
Finally, for nonbanks like Venmo,
PayPal, and Cash App, that offer
deposit-style products directly, state
and federal policymakers should consider
requiring these firms to promptly
sweep peopleâs balances to their
linked insured account automatically.
Under their state licenses, these
nonbank firms are supposed to be in
the money movement business, not the
banking business of keeping deposits.
This concludes the C F P
B Directorsâ statement.
If your Credit union could use assistance
with your exam, reach out to Mark Treichel
on LinkedIn, or at mark Treichel dot com.
This is Samantha Shares and
we Thank you for listening.