KT Fintech Blog

The KT Fintech Blog provides insights into how the emergence of fintech is fundamentally changing virtually every aspect of the financial services landscape and how traditional businesses navigate this rapidly evolving industry.

Archive for October 2017

Posted on Monday, October 30 2017 at 9:00 am by -

Federal Reserve Board Governor Jerome Powell Delivers Remarks on Financial Innovation

Written By Eamonn Moran

In a recent speech at the 41st Annual Central Banking Seminar, sponsored by the Federal Reserve Bank of New York, Federal Reserve Board Governor Jerome H. Powell discussed financial innovation. Powell is rumored to be President Trump’s leading contender for Federal Reserve Board Chair, and a formal announcement could be made as early as later this week.

His remarks focused on how technology is changing the delivery of retail banking and payments services, and he discussed the roles of banks, fintech companies, and other stakeholders in moving the United States forward to a better payment system. He also reviewed the Federal Reserve’s collaboration with these payment system stakeholders in pursuing that goal. He argued that, “for policymakers as well as the private sector, the challenge is to embrace technology as a means of improving convenience and speed in the delivery of financial services, while also assuring the security and privacy necessary to sustain the public’s trust.”

With respect to retail banking innovation, Governor Powell noted the role of fintech platforms in supporting access to credit through “innovative approaches to gathering and analyzing data,” which “may allow a lender to quickly monitor and analyze more up-to-date data from a broader range of sources, including those outside of the traditional lending process, to verify an applicant’s identity and make inferences about the applicant’s overall financial health.” He observed that “[w]ith this additional information, the bank would have a more complete picture of an applicant’s day-to-day activity and overall financial capacity, and potentially a greater ability to provide credit to customers, including some who might have been otherwise denied a loan based on traditional data.” He also noted that fintech companies are finding ways to use banks’ data, in some cases without entering into an explicit partnership with the bank. One example of this is how fintech companies, with customers’ permission, “have increasingly turned to data aggregators to ‘screen scrape’ information from financial accounts.” Reiterating concerns that other policymakers have expressed, Governor Powell cautioned that these technologies also pose issues regarding data security and safety, as well as consumer privacy and protection.

As with retail banking, Governor Powell discussed how retail payments “will need to evolve to meet consumer expectations of constant connectivity and instant access while assuring security and privacy.” He observed how innovation in retail payments can also offer tangible benefits to consumers beyond convenience, such as improvements in security, especially the ability to authenticate consumers and detect fraudulent transactions. “Consumers will not store their funds in a system that is not secure and will not want to transfer funds out of an otherwise secure system if the process is cumbersome,” he stated.

Although his remarks highlighted payments innovations from fintech firms and banks alike, he emphasized the “special role of banks in the payments process, and how banks are needed in order to create innovations that can be used broadly across the economy.”

Governor Powell also provided an overview of the Federal Reserve’s efforts to improve the U.S. payments system (which we reported on previously), and noted that the Federal Reserve plans to launch a study in early 2018 analyzing payment security vulnerabilities and will establish work groups focused on approaches for reducing the cost and prevalence of specific payment security vulnerabilities.

Posted on Wednesday, October 25 2017 at 9:00 am by -

Congress Votes To Overturn the Consumer Financial Protection Bureau’s Arbitration Agreement Final Rule

Written By Maureen Sheehy & Eamonn Moran

We previously reported on the issuance of the Consumer Financial Protection Bureau’s (CFPB or Bureau) final rule governing agreements that provide for the arbitration of any future disputes between consumers and providers of certain consumer financial products and services. At that time, we noted that the rule faced an uncertain political and legal future. The rule took effect on September 18, 2017 and applies to pre-dispute arbitration agreements entered into on or after March 19, 2018.

Congress directed the Bureau to study these pre-dispute arbitration agreements in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). In 2015, the Bureau published and delivered to Congress an arbitration study. In the Dodd-Frank Act, Congress also authorized the Bureau, after completing the study, to issue regulations restricting or prohibiting the use of arbitration agreements if the Bureau found that such rules would be in the public interest and for the protection of consumers. Congress also required that the findings in any such rule be consistent with the Bureau’s study.

On October 24, the United States Senate joined the United States House of Representatives in voting to overturn the CFPB’s arbitration rule. The Congressional Review Act (CRA) allows both houses of Congress to vote on resolutions of disapproval for regulations within 60 legislative days of their publication in the Federal Register. This development follows the recent issuance of separate reports by both the Office of the Comptroller of the Currency (OCC) and the United States Department of the Treasury, which challenged the rule and its underlying data and assumptions.

Since Congress has enacted a joint resolution of disapproval, and it is expected that President Trump will not veto such resolution, the rule will not take effect. The CFPB will also be prohibited from reissuing the regulation in “substantially the same form,” unless the reissued or new rule is specifically authorized by a law enacted by Congress after the date of the joint resolution of disapproval.

Posted on Tuesday, October 24 2017 at 9:00 am by -

3 Key Takeaways: Fintech & Banking 2017: Further Exploration of Bank Charters for Fintech Companies

Written By Eamonn Moran

During recent months, Kilpatrick Townsend Partner Christina Gattuso and Counsel Eamonn Moran have provided regular updates regarding the Office of the Comptroller of the Currency’s (OCC) decision to move forward with considering applications from fintech companies to become special purpose national banks. Please click here to learn about key developments that have taken place within the past few weeks.