Weekly Fintech Focus

• House Financial Services Committee sets priorities it hopes the incoming Biden administration will enact.
• First major bank prohibits use of its credit cards for buy-now-pay-later transactions.
• CFPB issues another no action letter for unsecured, closed-end installment lending model with AI underwriting.

House Financial Services Committee Sets Fintech Priorities for a New Administration

House Financial Services Committee Chairwoman Maxine Waters sent a letter to the incoming administration with nearly 50 pages of recommendations for changes to financial services policy, law and regulation through executive action and legislation. The recommendations cover a broad range of financial services issues from COVID-19 relief to regulatory priorities across the various financial regulators, with some changes directly targeting fintech. These include:

• Rolling back rulemakings on the “true lender” and “valid-when-made” doctrines.
• Replacing the Consumer Financial Protection Bureau’s (CFPB) payday lending rule with one that is more protective of consumers.
• Imposing a moratorium on approving deposit insurance applications for an Industrial Loan Company until the loophole that allows for a lending institution to be exempt from consolidated supervision and other requirements of the Bank Holding Company Act is addressed.
• Encouraging the Office of the Comptroller of the Currency to not assume that it has the authority to provide a national bank charter to non-bank fintech or payments companies.
• Prioritize fair lending enforcement and collect data, including on small business lending.

Capital One Prohibits Its Credit Card Customers from Using BNPL Services

Capital One instituted a new policy to prohibit its customers from using Capital One credit cards to engage in buy-now-pay-later (BNPL) transactions, i.e., transactions identified as point of sale loans. BNPL adoption has increased rapidly through the pandemic as a new credit option for customers, generally allowing them to break up purchases into four installments through the website point of sale. Capital One is the first bank to take this position on BNPL due to what it considers the increased risk of defaults and chargebacks. Capital One customers will still be able to use BNPL services through Capital One debit cards or checking accounts.

CFPB Issues No Action Letter for AI Underwriting Lending Model

The CFPB recently issued another no action letter (NAL) to Upstart, a fintech company that offers AI underwriting models (Upstart’s prior NAL is discussed here). The new NAL continues the dialogue between Upstart and the CFPB and narrowly applies to Upstart’s automated model for underwriting and pricing applicants for unsecured, closed-end loans. Upstart’s platform enables its partners to configure eligibility requirements and credit policy for the partner’s lending program to provide customers with loans with APRs under 36%. Upstart’s AI underwriting model is used by the partners during the underwriting process. The CFPB’s NAL states that it will not make supervisory findings or bring supervisory or enforcement action against Upstart under the Equal Credit Opportunity Act or Regulation B, or under its authority to prevent unfair, deceptive, or abusive acts or practices.

To comply with the NAL, Upstart must maintain a dialogue with the CFPB and notify the CFPB of any significant changes to Upstart’s model prior to implementation and provide documentation and the model’s software code on a periodic basis for the CFPB to monitor the results of the model. Upstart must also commit to testing its model and work to develop approaches that may produce less discriminatory alternative models to meet legitimate business needs.

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