The growth of “fintech” – the offering of financial services through technology, such as the Internet – is driving a call for “improving the framework” of regulation mandating banks’ services to the communities that they serve, the chief of supervision for the nation’s central bank said Monday evening.
Randal Quarles, Federal Reserve Board vice chairman for supervision, told an Atlanta audience that the growth of fintech in providing more financial services is driving calls for regulators to modernize the Community Reinvestment Act (CRA), the law mandating banks’ service to their local communities (an anti-redlining law).
“The arrival of new financial technologies, along with significant industry consolidation and other structural changes, has changed the way that financial services are delivered to consumers and the ways in which banks lend in communities,” Quarles told the Annual Meeting of HOPE Global Forums.
“We continue to study these shifts, and share the common goal of improving the current supervisory and regulatory framework for CRA to further the statute’s core objective of promoting access to credit and financial inclusion,” he said.
Quarles’ remarks to the group focused on consumer protection and small business access to credit to promote financial inclusion (that is, he said, access to affordable financial products and services that meet the needs of individuals and businesses and that are delivered in a responsible and sustainable way).
He said the Fed’s consumer compliance program “reflects our commitment to promoting financial inclusion and ensuring that the financial institutions under our jurisdiction fully comply with applicable federal consumer protection laws and regulations.”
But he also said that commitment can be met – and regulatory burden reduced on financial institutions – with a supervisory program balancing “tailored and risk-focused supervision.”
“Accordingly, we continue to seek opportunities to promote efficient, simple, and transparent supervision where possible, so that the institutions we supervise can focus on finding solutions that work for all consumers and communities,” he said.
Regarding promotion of financial inclusion through small business access to credit, the Fed’s chief supervisory officer said the central bank has taken note of three recent trends:
- Credit needs unmet for smaller, minority-owned firms: Although lending standards have eased since the recession and the financial condition of businesses has improved, some small business credit needs, especially for the smallest of firms and minority small-business owners, continue to go unmet.
- Growth of small business lending share for large banks: Shifts in the composition of commercial bank lending to small businesses has led to growth in large banks’ share of small-business lending, especially among the smallest loans. “Some of this trend may be due to industry consolidation, which has reduced the number of very small banks,” he said.
- Emergence of nonbank alternative lenders: Online alternative lenders that provide small-dollar business credit are growing rapidly; for example, some of the large technology firms are providing credit to their built-in customer base of merchants.
Speech by Vice Chairman for Supervision Quarles on the roles of consumer protection and small business access to credit in financial inclusion