COMPLY: The Marketing Compliance Podcast

Navigating BaaS Partnerships: Regulatory Insights with Christina Tetreault of the California DFPI

• PerformLine • Season 1 • Episode 32

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This week I sat down with a special guest, Christina Tetreault, with the California DFPI, to discuss: 

  • How partnerships between traditional banks and BaaS providers benefit both parties
  • The measures these institutions can take to ensure they meet regulatory requirements when offering banking services through a third-party provider
  • And how the California DFPI is taking a proactive approach focused on understanding your business to address potential challenges in the financial sector

Show Notes: 

Speaker 1:

Hey there, pie Podcast listeners, and welcome to this week's episode. This week I sit down with a very special guest, Christina Trol , with the California D F P I. Listen as we discuss how partnerships between traditional banks and bath providers benefit both parties, the measures these institutions can take to ensure they meet regulatory requirements when offering banking services through a third party provider. And how the California D F P I is taking a proactive approach, focus on understanding your business to address potential challenges in the financial sector. Thanks for listening and enjoy. Hi Christina , welcome to the Comply podcast. Thanks so much for being here.

Speaker 2:

Thank you. I'm excited to be here today.

Speaker 1:

We are excited to have you. So if you could, would you mind just giving us a little background on you , background and yourself and your current role?

Speaker 2:

Sure, thanks. So I am Christina Tero . My pronouns are she her. My title is Deputy Commissioner. I run the Office of Financial Technology Innovation at California's financial regulator. That's the Department of Financial Protection and Innovation, D F P I. And um, I came to the department two years ago, a little more than two years ago, to stand up the office. The office was created by the California Consumer Financial Protection Law, which Governor Newsom signed into law in , um, fall of 2020. And I'm really excited to be here today to talk to you and to share some insights from our office. However, I need to give a disclaimer first, which is , although I am trained as a lawyer, and although I am here because I work at the department, I am not providing legal advice and I'm not speaking on behalf of the department.

Speaker 1:

Perfect. All right , so let's get into it. So a topic that we talk about often on the podcast is banks, fintechs, their partnerships, that ecosystem is growing so quickly. So my first question for you, Christina , can you explain why it's crucial for financial institutions not to represent themselves as banks when they're not, and what are some potential consequences of doing so?

Speaker 2:

Sure thing . So California has very strict laws about who can use the term bank. Only financial institutions licensed as banks may use the term, and this applies to communications across the board. So the California Consumer Financial Protection Code essentially prohibits anyone from even letting their customers think that they're a bank unless they have the actual legal authority as a bank. So there are consequences , um, for using the term bank if you are not , uh, if you do not have that actual legal authority as a bank . And that can include a range of things , um, from a cease and desist order or other consequences. And , um, California has taken action in this area. There is an enforcement action , um, that's from a couple years back. Uh, the D F P I came to an agreement with Chime about their use of the term bank. Um, and so if folks want further details, including the citations to the California Consumer Financial Code , uh, you can find that on the DPI's website.

Speaker 1:

Perfect. So do you have any steps , um, for fintechs Sina for them to take to ensure transparency in their communication with their customers regarding their status as a financial service provider rather than a traditional bank?

Speaker 2:

A lot of the bank FinTech relationships can be very complex and the roles that various service providers play may not be clear to the customer. Ideally, each of the relationships is very clear to the end user, and the ideal situation is that the end user is actually consented to the agreement. The second best is that there's a disclosure. It is really not acceptable if there isn't any disclosure at all. So again, ideally there's an affirmative agreement in place , um, disclosure is the next best. Um, and then what is not good is obscuring the relationships of the various parties.

Speaker 1:

Makes sense. Can you elaborate on the role of the C F P B in enforcing F D I C insurance standards and how does this protect consumers in the financial industry?

Speaker 2:

I can't opine on behalf of the Bureau or , um, the F D I C, but I would point people to the C F P B circular from May of 2022. It lays out , uh, the various concerns around depictions of , um, F D I C insurance, the use of the logo and other things. Um, but really the emphasis here is on ensuring that consumers are protected and that , um, fair competition and open markets are protected as well. So again, that circular was issued by the Consumer Financial Protection Bureau in May of 2022.

Speaker 1:

Perfect. And I'm sure that is something that I can drop in today's show notes for anybody who would like to access that. So I'll be sure to do that as well. <laugh> . So as I started the episode with bank FinTech partnerships , something we talk about a lot on the podcast and in all of our content , um, thefor line puts out, so how do these partnerships between traditional banks and banking as a service, or is there now kind of more commonly referred to as BA providers benefit both of these parties? And then the second question to that is, what measures can institutions take to ensure that they meet regulatory requirements when offering these banking services through third party providers?

Speaker 2:

There are so many benefits to , um, the bank FinTech partnerships or , um, gosh, I mean, the whole FinTech ecosystem is really the result of some of the things that happened in the early days of prepaid, you know, literally decades ago. Um, I think two of the ones that I'm most excited about are the ability , um, of service providers to reach niche audiences to offer unique or , um, even bespoke products to particular audiences that otherwise aren't well served . And I think that's, that's the one , one of the benefits that I get really excited about. And then the other is just the amazing leaps forward that we've seen as a result of some of these partnerships, right, in advances in, in payments and savings and, and all sorts of , um, other areas. Um, so there's just a really exciting time in , um, financial services since the advent of these partnerships. It's a , it's an amazing opportunity for , um, innovation and , um, and, and service and reaching audiences that otherwise aren't well served .

Speaker 1:

It's definitely a , a , a fun time to be a part of this ecosystem. So that's, I totally agree. It's, it's cool to see them reach people they wouldn't normally be able to reach through these partnerships. But, sorry, I don't have you go on <laugh>.

Speaker 2:

I was gonna say, they , they , this is all very exciting. Um, but there are concerns. So I wanna emphasize that there is a prohibition on license rental, right ? Um, that only the regulated financial service provider can provide the regulated service. So what that means, right , is there's no such thing as licensed rental. Um, and if you have questions about the ways in which , um, these relationships work , um, and if you want to help us understand the ways in which your relationships work between financial service provider, FinTech , um, it's really helpful to have a conversation with your financial regulator, at least here in California. We want folks to come in, we want them to be transparent, we want them to roll up their sleeves and really provide us detail so that we can see, you know, what these relationships look like, kind of where the, where's the money going , um, what are the disclosures look like? And really try and understand , um, the ways in which these relationships are working. As I said, these are tremendous opportunities, particularly for meeting unmet needs in the marketplace. Um, and so, you know, the goal is to help people understand their obligations. Um, we do not provide legal advice through , um, the innovation office. Um, but we do really, really, really wanna learn from you about your business. We wanna understand what you're trying to achieve, and to the extent possible, we wanna match you with resources , um, to help you be , uh, compliant.

Speaker 1:

That's great. So finally, to, to wrap up, Christina , what kind of insights can the D F P I gain by focusing on understanding your business as you just talked about? And how does this proactive approach help in addressing potential challenges in the financial sector?

Speaker 2:

I think the most important thing that companies can get out of having a meeting with us is helping us understand what they are trying to achieve, because only they really know their business, right? The innovation offices here to engage with , um, all stages of entrepreneurs. And we really find it beneficial when people come with information about their products and services that we otherwise will not see. So for example, research in insights into your customers, the problems that you're solving , um, your place in the marketplace , um, some of the challenges that you are seeing, right? Um, uh, all of those things are really helpful for us for understanding your business. And they also help us piece together a better picture of the , um, of the marketplace. I think that that engagement component is really critical. Another role that , um, the innovation office plays at D F P I is trying to help our colleagues understand what's coming. So when people come and meet with us and they educate us and they help us understand some of these emerging products and services, if they help us understand the roadblocks that they're facing, it really helps us engage with our colleagues , um, to help the department better understand the ecosystem. Um, so we think there's a real benefit even in a meet and greet type of , uh, meeting with a , with a entrepreneur or service provider. Um, we also ask , um, folks, if there's someone else that they've been meeting with at the department, we're happy to include them in a meeting with us. Um, the only , uh, uh, hard stop is if a company is already talking to our enforcement team, we will not meet with that company. We're not an end run around enforcement. Um, but to the extent that , uh, that folks wanna do a meet and greet or they wanna do an education session with us, those are wonderful, wonderful opportunities for us to learn from companies about their business to help us better understand what they're achieving and what the marketplace is and some of the challenges and opportunities there.

Speaker 1:

That's awesome. That sounds like such a win-win opportunity for, for these fintechs. Um, and to learn more about things you guys can help with,

Speaker 2:

We try and make it easy. So I, you know, feel free to reach out to me on LinkedIn. The DPI's website has an intake form. Uh, you can shoot me an email. Uh, there's , uh, there's office hours for folks who are looking to just drop in. We have office hours on Tuesday mornings, we had office hours this morning. Um, and we only ask that people register ahead of time so we can send over the Zoom link. So we try and make it easy for you to come talk to us and , um, really , uh, we appreciate the engagement that we have. It's, it's helped me in a number of areas , um, to better understand the marketplace, to better understand some of the challenges. Um, and we really think that it's a , that having an ongoing dialogue between , um, entrepreneurs and industry and other stakeholders and um, California's financial regulator is uh , really critical. So please come meet with us.

Speaker 1:

That's awesome. And I am sure I'll be able to drop some of those awesome links in today's show notes as well for you guys that Christina just mentioned, this has been so helpful. Anything else you wanna, you wanna end with,

Speaker 2:

Thanks for the opportunity and I look forward to hearing from your listeners. Awesome.

Speaker 1:

Thanks so much. Thanks for listening to this episode of the Comply podcast. As I mentioned during today's podcast, you can check out the show notes on this episode to access some of the helpful links Christina mentioned during our discussion, including the C F P B circular that was issued in May of 2022 that lays out the various concerns of the F D I C insurance, as well as Christina's LinkedIn and the intake form from the D F P I website. If you're interested in booking a meeting with the department to help them better understand your business and the ecosystem, as always latest content on all things marketing compliance, you can head to content dot perform line.com . And for the most up-to-date pieces of industry news events and content , be sure to follow perform line on LinkedIn . Thanks again for listening and we'll see you next time .

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