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On January 14, 2025, the American Fintech Council (AFC) submitted a letter to the Ohio Department of Financial Institutions, urging it to re-examine its recent guidance on responsible bank partnerships and provide more clarity. The guidance, which outlines expectations for banks partnering with fintech companies, raised concerns among industry participants regarding its potential impact on innovation and competition in financial services.
The AFC's letter stressed the need for clear guidance to ensure a balanced approach that protects consumers and supports innovation and competition within financial services. In particular, the AFC is seeking more detail on how banks should conduct due diligence on their fintech partners, what data privacy and security standards should be applied to these partnerships, and how consumer complaints should be handled.
The AFC highlighted the following areas where it believes additional clarity is needed:
- Due Diligence Expectations. The letter seeks clarity on the specific due diligence requirements for banks partnering with fintech companies. This includes outlining the scope of due diligence reviews, the factors banks should consider when assessing fintech partners, and the documentation required to demonstrate compliance.
- Data Privacy and Security. The AFC also seeks clarification on data privacy and security standards to ensure fintech partnerships adequately protect consumer information. This includes specifying the data security measures banks and fintech companies must implement, the protocols for data sharing and transfer, and the requirements for notifying consumers in case of a data breach.
- Complaint Handling. Additionally, the AFC requested more detailed guidance on how banks and fintech companies should collaboratively handle consumer complaints related to their partnerships. This includes outlining the roles and responsibilities of each party in responding to complaints, the timelines for resolution, and the escalation procedures for unresolved issues.
Industry participants have expressed concerns that the current guidance lacks specificity and could lead to inconsistent interpretations and enforcement. This uncertainty may discourage banks from partnering with fintech companies, potentially stifling innovation and limiting consumer access to new financial products and services. The AFC argues that clearer guidance will foster a more predictable regulatory environment, promoting responsible partnerships while also encouraging continued growth in the fintech sector.
Putting It Into Practice: This development highlights the ongoing tension between fostering innovation in financial services and ensuring adequate consumer protection. Federal and state agencies continue to step up enforcement against bank-fintech partnerships and clarify existing rules and regulations (previously discussed here, here, and here). While states like Ohio seek to provide guidance for bank-fintech partnerships, striking the right balance between encouraging growth and mitigating risks remains a challenge. Banks and fintechs alike should review their compliance obligations to ensure alignment with applicable federal and state standards.
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