Credit Union Regulatory Guidance Including: NCUA, CFPB, FDIC, OCC, FFIEC

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.

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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 aren’t 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 people’s 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 nonbank’s
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 we’re 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 nonbank’s 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 nonbank’s 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 people’s 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 Directors’ statement.

If your Credit union could use assistance
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This is Samantha Shares and
we Thank you for listening.