Pub. 8 2020 Issue 3

ISSUE 3. 2020 15 consumer financial protection regulations, including fair lend- ing laws and Unfair, Deceptive, or Abusive Acts or Practices (UDAAP). If an effective CMS is not in place, how much hands- on guidance are you able and willing to provide? The central feature of a fintech lending platform is the credit model. Bank management should determine if the model is adaptable to the bank’s lending policies. Also, because the lending decision is made almost instantaneously, bank manage- ment should determine if the methods by which the applicant is identified as required by the USA PATRIOT Act comply with the bank’s customer identification program requirements. With the increasing use of alternative data, 3 which can introduce unin- tended fair lending risk, along with artificial intelligence, which may not allow for effective documentation as the model changes, strong model risk management practices are essential, including model validation and fair lending reviews. Bank management should understand and evaluate the results of validation and oth- er risk control activities before committing to the partnership. Another significant compliance consideration is marketing and advertising given the regulatory requirements covering advertis- ing not only with regard to the Truth in Lending Act but also to recent regulator focus on UDAAP if a loan’s terms and con- ditions are not clearly presented in marketing collateral. If the fintech will be engaged in marketing the product on the bank’s behalf, what expectations will bank management require for re- view and approval before advertising is published to any media? THE REGULATORY FUTURE OF FINTECH Because the speed of technology has far outpaced the regula- tions, there are a lot of gray areas when it comes to deciding to “We would not have been successful without these amazing humans that we’ve interacted with, including our banker and Mountain West Small Business Finance.” – Nikki Harris, A+ Elevators FINANCING YOUR AMERICAN DREAM As a small business, you have your own vision for the American Dream. Mountain West Small Business Finance can help you achieve it through an SBA 504 Loan. For operating capital needs, talk to us about SBA Community Advantage (7a) Loans. Utah’s Small Business Lender # 1 SBA 504 Loans • Purchase land and equipment • Buy, build, or remodel a building • Up to 25-year fixed rates • As little as 10% down 801.474.3232 | mwsbf.com Tracey is a director at CrossCheck Compliance LLC and a regulatory compliance and risk management professional with over 30 years of experience in the financial services industry. Having worked as both a prudential regulator and in banking institutions, Tracey has demonstrated expertise in compliance and the Community Reinvestment Act (CRA). Her expertise includes extensive knowledge of lending and deposit regulations, including fintech lending operations and the bank partner model. She is also experienced in financial institu- tion accounting and operations. Tracey can be reached at tlevandoski@ crosscheckcompliance.com. embrace the unknown. The regulatory agencies are beginning to address this with the implementation of innovation offices. And in recent months, the OCC announced it is working to evaluate advanced technologies and produce specific underwriting model guidance. The FDIC issued a request for information on stan- dard-setting and voluntary certification for models. Until these initiatives become a reality, banks will still need to evaluate potential partnerships with the right level of due diligence. n 1 FDIC FIL-44-2008: Guidance for Managing Third-Party Risk OCC Bulletin 2013-29: Third-Party Relationships: Risk Management Guidance OCC Bulletin 2020-10: Third-Party Relationships: Frequently Asked Questions to Supplement OCC Bulletin 2013-29 FRB Supervisory Letter SR 13-19/CA 13-21: Guidance on Managing Outsourcing Risk CFPB Compliance Bulletin and Policy Guidance 2016-02: Service Providers 2 From FDIC FIL-13-2014: Effective Practices for Selecting a Service Provider 3 Alternative data considers financial factors about a consumer not generally reported in the traditional consumer report such as cellphone, utility, and rent payments and cash flow data derived from bank account records, as well as non-financial factors such as whether the consumer is a college graduate, owns a cellphone, uses social media, or the type of email account the consumer maintains, etc.