Bank-Fintech Partnerships Win Key Battle, But War is Far From Over

Fintechs can more comfortably avoid state interest rate caps by partnering with banks after two recent court decisions — at least for now.

The Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency each scored big victories in the U.S. District Court for the Northern District of California on Feb. 8, when Judge Jeffrey S. White dismissed complaints brought against the agencies by attorneys general in states led by California, Illinois and New York.

The FDIC and OCC, led by Trump administration appointees when the lawsuits began in 2020, had issued rules to assure banks and fintechs they could continue to partner and do business across state lines after the 2015 court decision Madden v. Midlands Funding limited such activity. Under a typical arrangement, a bank funds a loan on behalf of its fintech partner that can then be deployed in other states that may have stricter interest rate controls.

But the states, with the support of many consumer activists, could appeal the judge's rulings. And it's possible the agencies, now led by Democratic appointees who have vowed to make consumer protection a priority, could change positions. “This is a big win for the bank model in the short term, but I don't think the war is over,” said Scott Pearson, leader of the consumer financial services practice at Manatt. (American Banker, Feb. 13)