Introduction: A Deep Dive into Bank Partnerships

Robert Savoie: Thanks, Aaron. I’m Robert Savoie. I’m the chair of McGlinchey’s FinTech practice. And I think this deep dive is going to be really neat because there’s a lot of ground to cover. If you think about the context and ways in which depository institutions and non-depository institutions partner and come together to form the modern financial services ecosystem, it varies dramatically and ranges from programs that are incredibly benign to programs where there’s a lot more controversy. There’s a lot more legislation and even litigation action that impacts those programs.

I think we’ll see that certain types of programs can be more focused on soft items, like Unfair Deceptive Acts or Practices (UDAP) or customer service concerns about responsiveness, right? Neobanks and payment programs are more about the programs interacting with customers, and many of the substantive federal laws that apply to the banks are passed along through the non-bank entities via contract and vendor requirements, whereas consumer lending programs have been subject to greater scrutiny because federal agencies are focusing on enforcement against banks involved in that and holding their feet to the fire on regulatory compliance. Then, the state legislatures amend their laws to capture these programs. It seems to be an acceleration of a trend that we’ve seen for a number of years, expanding beyond the long-standing concept of regulating the non-bank entity that performs services for a bank.

If you think about the origin of that, with debt collection, right? Or servicing activity, there have been debt collection, licensing, and substantive regulations for decades and that’s certainly not a new concept. What’s been really interesting over the last few years is that there’s been a rise of so-called true lender legislation, or some people call it the predominant economic interest legislation, where the state legislatures are seeking to restrict the products that the bank offers via indirect regulation because they can’t regulate them due to the impact of federal law via a direct regulation, and instead of focusing on supervision and oversight of the activities of the non-bank.

Then, add a little flavor of Depository Institutions Deregulation and Monetary Control Act (DIDMCA) opt-outs that impact rate exportation for state charter depository institutions, and you get a really interesting maelstrom of wholly different activities and different requirements that play in.

Aaron will run through the different types of programs. The concerns that you have vary wildly based upon particular programs and contractual structures in terms of whether a particular requirement becomes a non-event because compliance is easy, or sort of a program existential question around, what does this mean? And what does it do for the future operation of the program?

Aaron Kouhoupt: Yeah, I think it’s going to be fun over the next few weeks to talk about these different programs and break it down into some relatively bite-size pieces of where the issues will come in. You have licensing issues that are primarily centered around the non-banks. You have program arrangement and sort of compliance management and how the banks are doing their vendor due diligence – to your point, how they’re operating their compliance systems. Because I think that the key that we’ll hear throughout all these programs and all these partnerships and probably a theme that, if somebody listens to all of these, you’re going to hear it every time, is that the bank in the partnership is the entity that is doing regulated activity. The non-bank is performing a function that is sort of on behalf of those regulated entities, and they might have their own requirements that kick in, but really, two distinct paths that you’re taking there as far as what you’re regulated under and why.

And I think that it can get really fun when you start to parse through those, then you throw in the enjoyment of, you know, how much you can interfere with the national bank and the difference between national banks and state-chartered banks.

And to add a ton of flavor to all that, we’re really excited that one of the webinars we’re going to do is going to be with a partner at a law firm that is based out of London, and he’s going to talk a little bit about how our structure is very different than what you see, and some of the challenges that you run into, when you’re not used to state banks and national banks and federal state overlay, and just all of the little nuances that come into play when you’re doing bank partner programs in the U.S.

Robert Savoie: One of the other interesting things I’ve always enjoyed, and I’d be remiss not to mention it, is that my entire time at McGlinchey, I’ve had the pleasure of working with senior partners that have worked on bank, non-bank programs in the consumer credit space, since the early 1980s and watching the evolution of the regulation of those programs over my career and learning about the regulation of that prior to me even becoming a lawyer has been really fascinating to see in terms of the shift and the change of the tenor of that regulation, even though these programs and the interaction between depository institutions and non-depository institutions and other elements of the economy is sort of a long-standing thing. But the ebb and flow of focus of different elements have been fascinating to see where changes in politics and changes in things that are going on in the economy more broadly sort of directly impact, you know, the intensity and the frequency of regulation and space.

Aaron Kouhoupt: So, we are looking forward to the next few weeks. I hope that everybody can join us for the different programs that we’re going to do.

As with all deep dives, there will be a mix of webinars and podcasts, some articles that will go out, and then we’ll end it with a Continuing Legal Education (CLE) event that people can come in, join, and earn continuing legal education credits. We look forward to it. Thank you for joining me today, Robert. There will be more to come.