Economic Engineering: Items Have Advantages and Risks to Underserved Individuals, and Regulatory Clarity Is Required

What GAO Identified

Fintech refers to the use of technological innovation and innovation to offer monetary items and expert services (see figure for picked merchandise). Fintech products and solutions may well offer advantages to underserved consumers, these as those people devoid of lender accounts or credit score scores, but can also pose challenges. For example, electronic deposit accounts advertise small or no service fees and no minimum amount equilibrium requirements. Even so, consumers may be unaware that their cash are not staying held by the fintech corporation by itself and may well be confused about how to get well their resources if the company goes out of company. Attained wage access purports to give people access to dollars that has been gained but not nonetheless paid out, perhaps assisting reduced-income buyers fulfill fiscal obligations. But the prices of the solution could not be clear, and there may perhaps be pitfalls of unanticipated overdraft expenses.

Overview of Selected Fintech Merchandise

Some underserved customers may face barriers in accessing fintech products—for instance, they may possibly deficiency online obtain or want the individualized or in-individual assistance of regular banking companies. Info on the extent to which fintech goods provide underserved individuals are restricted. On the other hand, a single firm providing digital deposit accounts informed GAO just about 50 % of its accountholders are underbanked (i.e., have lender accounts but use option economical services like payday financial loans, which can be high priced) and 15 p.c ended up earlier unbanked. Facts GAO gained from 4 attained wage accessibility providers suggest that these goods had been applied largely by individuals earning much less than $50,000 per year.

Regulators have taken some ways to handle challenges that picked fintech solutions pose, but regulatory uncertainty exists for specific acquired wage accessibility products. Point out and federal regulators have sought to improved fully grasp fintech products by means of measures these kinds of as details-sharing agreements with businesses. Federal fiscal regulators are modifying their examination processes to far better check banks’ partnerships with fintech organizations. The regulators have also issued steering linked to chosen fintech items. For case in point, the Shopper Fiscal Security Bureau (CFPB) issued an advisory feeling in November 2020 clarifying that earned wage access merchandise with precise traits are not regarded to be an extension of credit history below the Truth in Lending Act. However, inspite of this assistance, some have expressed continued uncertainty about how the regulation applies to solutions that do not fall underneath the advisory impression. Even more clarification could enable businesses that present these goods have an understanding of regardless of whether the act and its disclosure demands are applicable.

Why GAO Did This Review

Thousands and thousands of individuals face boundaries to getting accounts and accessing credit history through standard banking institutions and credit history unions. In the latest decades, fintech has emerged as a prospective way of assisting some underserved buyers gain obtain to economic providers. However, it is unclear how lots of underserved shoppers use these merchandise, what risks they could pose, and to what extent present money products and services guidelines address individuals challenges.

The Dodd-Frank Wall Street Reform and Consumer Protection Act includes a provision for GAO to each year report on economic companies regulation. This report examines (1) the benefits, threats, and restrictions of chosen fintech solutions for underserved people, and what is identified about the extent to which underserved buyers have applied them, and (2) federal and state regulators’ steps to evaluate chosen fintech products. GAO reviewed studies by federal agencies, teachers, and sector groups analyzed data from chosen fintech businesses and interviewed federal and condition monetary regulators, shopper groups, business associations, and teachers.