Senate Democrats Urge Direct Oversight of Fintech and BaaS Service Providers

Senate Democrats Elizabeth Warren and Chris Van Hollen urged federal banking authorities to exercise their authority to directly regulate "Banking as a Service" ("BaaS") and fintech companies. The Senators highlighted the "threat posed to consumer deposits by the safety and soundness vulnerabilities" of these service providers.  

In a letter addressed to FDIC Chair Gruenberg, Federal Reserve Board Vice Chair Barr and OCC Acting Comptroller Hsu, the Senators raised concerns about partnerships between traditional banks and (i) BaaS providers such as Stripe, Finastra, Synapse and Marqueta; and (ii) fintech platforms like Venmo, Cash App and Chime. They noted the collapse of Synapse, a BaaS provider, which left over 100,000 consumers unable to access $265 million in deposits. In addition, they asserted many consumers were misled by claims that their money was FDIC-insured, even when it was not fully protected during transfer processes or if the fintech company collapsed. These failures, they said, exposed the risks to consumers and the banking system from insufficient regulation of these partnerships.

The Senators advised (i) banning the use of the FDIC name or logo for products only eligible for pass-through insurance and (ii) establishing clear rules for fintech and BaaS companies to ensure nonbank companies safeguard consumer funds.

The Senators also asked for a briefing by October 18, 2024, to explain how regulators planned to use their authority under the Bank Service Company Act to supervise BaaS providers and ensure compliance with federal laws.