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Samantha: Hello, this is Samantha Shares.

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This episode covers the Statement
of C F P B Director Rohit Chopra,

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Member, F D I C Board of Directors,
on Stopping Fintech Deposit Meltdowns

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The following is an audio
version of that statement.

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This podcast is educational
and is not legal advice.

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We are sponsored by Credit Union
Exam Solutions Incorporated, whose

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team has over two hundred and
Forty years of National Credit

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Union  Administration experience.

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We assist our clients with N C
U A so they save time and money.

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If you are worried about a recent,
upcoming or in process N C U A

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examination, reach out to learn how they
can assist at Mark Treichel DOT COM.

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Also check out our other podcast called
With Flying Colors where we provide tips

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on how to achieve success with N C U A.

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And now the statement.

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Statement of C F P B Director
Rohit Chopra, Member, F D I C

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Board of Directors, on Stopping
Fintech Deposit Meltdowns

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Over the past decade, we have
seen a significant incursion

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into consumer deposit taking and
payments activities by companies

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that aren’t banks or credit unions.

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These firms want the public benefits
of being a bank or credit union,

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without the public obligations.

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This trend poses significant risks.

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We have developed a legal framework for
banks over the past century designed to

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ensure people’s deposits are safe and that
they have constant access to their funds.

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Deposit insurance and the special
F D I C resolution process protect

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people if the bank fails and they
retain quick access to their cash.

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When nonbanks engage in deposit taking,
whether directly or in partnership with a

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bank, all these protections may not apply.

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Today, the F D I C Board of
Directors is proposing a rule that

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would strengthen requirements for
banks that partner with nonbanks

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in offering deposit-style products.

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This year, Synapse, a middleman
between nonbanks offering deposit-style

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products to end users and their
partner banks, filed for bankruptcy.

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The firm appears to have failed
to properly track customer

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account balances and may have
engaged in other shady practices.

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As a result, tens of thousands
of customers have had their

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funds frozen for months.

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The banks have been unable to
reconcile all the records necessary

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to get end users their funds back.

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This has led to severe harm,
especially for people who were

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using the nonbank account as a
primary checking or savings account.

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If one of the bank partners had failed,
instead of Synapse, the horrible

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account balance tracking may have
prevented the F D I C from making quick

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deposit insurance determinations and
returning funds promptly to end users.

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When consumers do not have access to
their funds, it can undermine confidence

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in the financial system and ruin lives.

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The proposed rule would require banks
to maintain records identifying the

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ultimate end users, their balances,
and other information for custodial

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accounts with transaction-style features.

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Banks would still be permitted
to maintain these records through

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a third party as long as certain
protections are in place, including

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daily reconciliations to make sure the
numbers at the customer-level add up.

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Banks would also have to maintain
constant access to the records,

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including in the event of the nonbank’s
bankruptcy or other disruption.

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This framework would expedite an F
D I C insurance determination if the

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bank fails and prevent the type of
chaos we’re seeing with the Synapse

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bankruptcy if the nonbank fails.

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To be clear, this rule would
not address all the risks posed

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by banking with a nonbank.

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Even if all the records are appropriately
maintained, there still may be some delay

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in getting end users their money back as
the nonbank’s bankruptcy proceeding plays

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out.1 In addition, nonbank deposit taking
offered directly without a bank partner

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is generally outside the jurisdiction
of the federal banking agencies.2 If the

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firm fails, consumers become unsecured
creditors of the nonbank’s bankruptcy

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estate and may lose their funds.

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This proposal must not be the end of
our collective work on this issue.

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First, disclosure requirements related to
the intricacies of pass-through deposit

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insurance are woefully inadequate.

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Consumers should, at the very least,
be told clearly and concisely that

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they could face delays or lose their
money by banking with a nonbank.

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Second, we must continue to take
enforcement actions against nonbanks

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that make misrepresentations
about deposit insurance or

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misuse the F D I C name or logo.

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Finally, for nonbanks like Venmo,
PayPal, and Cash App, that offer

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deposit-style products directly, state
and federal policymakers should consider

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requiring these firms to promptly
sweep people’s balances to their

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linked insured account automatically.

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Under their state licenses, these
nonbank firms are supposed to be in

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the money movement business, not the
banking business of keeping deposits.

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This concludes the C F P
B Directors’ statement.

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If your Credit union could use assistance
with your exam, reach out to Mark Treichel

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on LinkedIn, or at mark Treichel dot com.

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This is Samantha Shares and
we Thank you for listening.