Tagra expounded on the point: “If you look at the products they offer, in essence they’re banking products. But they just don’t fall under the fact that the banking entity has a banking charter. If someone’s doing payment applications, that’s the same type of service a bank would offer but because of the entity they are they’re not seeing that scrutiny.”
Asked if the move was reminiscent of safeguards established under Dodd-Frank in response to the excesses of ‘08-’09 enabled by easy credit, Tagra pointed to the growing popularity of today’s “buy-now-pay-later” option for consumers. “You’ve got folks that are in essence taking on consumer debt, but it’s not going through the normal channels. You can get on through your credit card, or Amazon, or other areas. Now, someone may accumulate a large amount of debt that won’t show up in a credit report.”
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The aim of the CFPB move is to level the playing field to protect consumers, Tagra said: “I think what they’re trying to do is put into effect the same rates or requirements that are on a bank institution or non-bank institution that provides these products. Making sure they have credit bureau reporting standards – like whether someone is making a payment or not making a payment. Or fees: Are you charging the appropriate fees? Interest rates? So, it’s to help protect the consumer based on having a level playing field on regulations that would apply to that product if it were withing the four walls of a bank versus a different type of institution that’s characterized as a fintech.”
If it’s sheer size and explosive growth that’s gotten the CFPB to move on oversight, one should expect more. Tagra predicted crypto is likely next to get the regulatory spotlight treatment. “They’ll probably more than likely get into that once they figure out the right approach and as it continues to scale from a transactional standpoint,” he said.
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