Money Technological innovation: Merchandise Have Added benefits and Threats to Underserved Individuals, and Regulatory Clarity Is Necessary

What GAO Identified

Fintech refers to the use of technology and innovation to supply economical products and solutions (see figure for selected merchandise). Fintech solutions could offer rewards to underserved individuals, such as those people without the need of bank accounts or credit rating scores, but can also pose pitfalls. For example, digital deposit accounts publicize small or no costs and no minimum equilibrium needs. Nonetheless, individuals could be unaware that their resources are not remaining held by the fintech enterprise itself and could be perplexed about how to get well their cash if the corporation goes out of business enterprise. Earned wage accessibility purports to give customers entry to funds that has been gained but not however paid, potentially aiding reduced-money individuals meet up with economic obligations. But the fees of the solution may well not be transparent, and there could be dangers of unforeseen overdraft costs.

Overview of Chosen Fintech Goods

Some underserved shoppers could face limitations in accessing fintech products—for example, they may well lack internet accessibility or prefer the individualized or in-human being support of standard banking companies. Information on the extent to which fintech merchandise provide underserved customers are restricted. However, one particular business presenting digital deposit accounts instructed GAO just about 50 percent of its accountholders are underbanked (i.e., have bank accounts but use choice financial services like payday financial loans, which can be high priced) and 15 % were previously unbanked. Facts GAO been given from four attained wage access firms indicate that these merchandise were being made use of typically by individuals earning considerably less than $50,000 per year.

Regulators have taken some ways to address challenges that chosen fintech merchandise pose, but regulatory uncertainty exists for certain earned wage entry products. Condition and federal regulators have sought to far better recognize fintech goods by steps these kinds of as data-sharing agreements with companies. Federal money regulators are modifying their evaluation procedures to greater observe banks’ partnerships with fintech firms. The regulators have also issued steerage related to chosen fintech merchandise. For illustration, the Shopper Financial Defense Bureau (CFPB) issued an advisory view in November 2020 clarifying that attained wage entry items with distinct characteristics are not viewed as to be an extension of credit rating below the Reality in Lending Act. However, in spite of this guidance, some have expressed ongoing uncertainty about how the regulation applies to products and solutions that do not slide below the advisory opinion. Even further clarification could assistance organizations that supply these products recognize no matter if the act and its disclosure prerequisites are applicable.

Why GAO Did This Review

Hundreds of thousands of individuals face boundaries to obtaining accounts and accessing credit history by way of classic banking companies and credit unions. In new years, fintech has emerged as a potential way of supporting some underserved customers gain entry to economical solutions. Even so, it is unclear how quite a few underserved buyers use these products and solutions, what pitfalls they might pose, and to what extent current monetary providers laws deal with those threats.

The Dodd-Frank Wall Road Reform and Customer Defense Act incorporates a provision for GAO to each year report on economic expert services regulation. This report examines (1) the positive aspects, challenges, and constraints of selected fintech solutions for underserved people, and what is recognised about the extent to which underserved people have applied them, and (2) federal and point out regulators’ steps to evaluate picked fintech merchandise. GAO reviewed studies by federal organizations, academics, and field teams analyzed knowledge from picked fintech corporations and interviewed federal and point out fiscal regulators, shopper groups, industry associations, and academics.