It is important that state regulators strive to achieve greater harmonization, including considering drafting of model laws that could be uniformly adopted for financial services companies currently challenged by varying licensing requirements of each state. Treasury encourages efforts to streamline and coordinate examinations and to encourage, where possible, regulators to conduct joint examinations of individual firms. Treasury supports Vision 2020, an effort by the Conference of State Bank Supervisors that includes establishing a Fintech Industry Advisory Panel to help improve state regulation, harmonizing multi-state supervisory processes, and redesigning the successful Nationwide Multistate Licensing System.

At the federal level, Treasury encourages the Office of the Comptroller of the Currency to further develop its special purpose national bank charter, previously announced in December 2016. A forward-looking approach to federal charters could be effective in reducing regulatory fragmentation and growing markets by supporting beneficial business models.

Finally, Treasury encourages banking regulators to better tailor and clarify guidance regarding bank partnerships with nonbank financial firms, particularly smaller, less-mature companies with innovative technologies that do not present a material risk to the bank. Treasury believes it is important to encourage the partnership model to promote innovation. Further, Treasury makes recommendations regarding changes to permissible activities, including bank activities related to acquiring or investing in nonbank platforms.

Updating Activity-Specific Regulations

This report surveys a wide range of activities where specific recommendations for regulatory reform are suggested. The range of financial services includes:

Marketplace Lending

Marketplace lenders are expanding access to credit for consumers and businesses in the United States. Treasury recognizes that partnerships between banks and marketplace lenders have been valuable to enhance the capabilities of mature financial firms. Treasury recommends eliminating constraints brought about by recent court cases that would unnecessarily limit the functioning of U.S. credit markets. Congress should codify the “valid when made” doctrine and the role of the bank as the “true lender” of loans it makes. Federal banking regulators should also use their available authorities to address both of these challenges.

Mortgage Lending and Servicing

Treasury recognizes that the primary residential mortgage market has experienced a fundamental shift in composition since the financial crisis, as traditional deposit-based lender-servicers have ceded sizable market share to nonbank financial firms, with the latter now accounting for approximately half of new originations. Some of this shift has been driven by the post-crisis regulatory environment, including enforcement actions brought under the False Claims Act for violations related to government loan insurance programs. Additionally, many nonbank lenders have benefitted from early adoption of financial technology innovations that speed up and simplify loan application and approval at the front-end of the mortgage origination process. Policymakers should address regulatory challenges that discourage broad primary market participation and inhibit the adoption of technological developments with the potential to improve the customer experience, shorten origination timelines, facilitate efficient loss mitigation, and generally deliver a more reliable, lower cost mortgage product.

Student Lending and Servicing

The federal student loan program represents more than 90% of outstanding student loan volume and is managed by an extensive network of nonbanks for servicing and debt collection. The program is complex due to a variety of loan types, repayment plans, and product features that make the program difficult for borrowers to navigate and increase the difficulty and cost of servicing. Treasury recommends that the U.S. Department of Education establish and publish minimum effective servicing standards to provide servicers clear guidelines for servicing and help set expectations about how the servicing of federal loans is regulated. Treasury provides recommendations related to the greater use of technology in communications with borrowers, enhanced portfolio performance monitoring and management by Education, and greater institutional accountability for schools participating in the federal financial aid programs.

Short-Term, Small-Dollar Lending

While the demand for short-term, small-dollar loans is high, lenders have been constrained by unnecessary regulatory guidance at the federal level. Treasury recommends that the Bureau of Consumer Financial Protection (Bureau) rescind its Payday Rule, which applies to nonbank shortterm, small-dollar lenders, as the states already maintain the necessary regulatory authorities and the rule would further restrict consumer access to credit. Treasury also recommends that both federal and state banking regulators take steps to encourage prudent and sustainable short-term, small-dollar installment lending by banks.

Debt Collection

Debt collectors and debt buyers play an important role in minimizing losses in consumer credit markets, thereby allowing for increased availability of and lower priced credit to consumers. A variety of stakeholders have expressed concerns about the adequacy of loan information provided when a loan is sold or transferred for collection. When debt collectors and buyers do not receive adequate information, they are unable to demonstrate to the consumer that the debt is valid and owed. Treasury recommends the Bureau establish minimum effective federal standards for thirdparty debt collectors, including standards for the information that must be transferred with the debt for purposes of third-party collection or sale.

New Credit Models and Data

A growing number of firms have begun to use or explore a wide range of newer data sets or advanced algorithms, including machine learning-based methods, to support credit underwriting decisions. Treasury recognizes that these new credit models and data sources have the potential to meaningfully expand access to credit and the quality of financial services, and therefore recommends that financial regulators further enable their testing. In particular, regulators should provide regulatory clarity for the use of new data and modeling approaches that are generally recognized as providing predictive value consistent with applicable law for use in credit decisions.