Episode 32: Regulatory Insights with Christina Tetreault of the California DFPI

Episode Description

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:

• May 2022 CFPB Circular on FDIC Insurance: https://bit.ly/3RId6TY
• CA DFPI Meeting Intake Form: https://bit.ly/46dOvep
• CA DFPI Chime Financial Settlement Agreement: https://bit.ly/3LNSKoC
• Connect with Christina Tetreault: https://www.linkedin.com/in/christinatetreault/
• Connect with Ashley “AC” Cianci: https://www.linkedin.com/in/ashley-cianci/

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About COMPLY: The Marketing Compliance Podcast

The state of marketing compliance and regulation is evolving faster than ever, especially for those in the consumer finance space. On the COMPLY podcast, we sit down with the biggest names in marketing, compliance, regulations, and innovation as they share their playbooks to help you take your compliance practice to the next level. 

Episode Transcript:

Ashley:
Hey there, COMPLY Podcast listeners, and welcome to this week’s episode. This week I sit down with a very special guest, Christina Tetreault, with the California DFPI. Listen as we 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. Focus on understanding your business to address potential challenges in the financial sector. Thanks for listening, and enjoy. 

Ashley:
Hi Christina, welcome to the COMPLY podcast. Thanks so much for being here.

Christina:
Thank you. I am excited to be here today.

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

Christina:
Sure, thanks. I am Christina Tetreault. My pronouns are she/her. My title is Deputy Commissioner. I run the Office of Financial Technology Innovation at California’s financial regulator. That is the Department of Financial Protection and Innovation, DFPI. And 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 fall of 2020. I am 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 that 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 am not speaking on behalf of the department.

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

Christina:
Sure thing. 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. The California Consumer Financial Protection Code essentially prohibits anyone from even letting their customers think that they are a bank unless they have the actual legal authority as a bank. There are consequences for using the term bank if you are not, if you do not have that actual legal authority as a bank. And that can include a range of things, from a cease and desist order or other consequences. California has taken action in this area. There is an enforcement action that is from a couple years back. The DFPI came to an agreement with Chime about their use of the term bank. If folks want further details, including the citations to the California Consumer Financial Code, you can find that on the DFPI’s website.

Ashley:
Perfect. Do you have any steps for fintechs, 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?

Christina:
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 is a disclosure. It is really not acceptable if there is not any disclosure at all. Again, ideally, there is an affirmative agreement in place. Disclosure is the next best. Then what is not good is obscuring the relationships of the various parties.

Ashley:
Makes sense. Can you elaborate on the role of the CFPB in enforcing FDIC insurance standards and how does this protect consumers in the financial industry?

Christina:
I cannot opine on behalf of the Bureau or the FDIC, but I would point people to the CFPB circular from May of 2022. It lays out the various concerns around depictions of FDIC insurance, the use of the logo, and other things. But really, the emphasis here is on ensuring that consumers are protected, and fair competition and open markets are protected as well. Again, that circular was issued by the Consumer Financial Protection Bureau in May of 2022.

Ashley:
Perfect. And I am sure that is something that I can drop in today’s show notes for anybody who would like to access that. I will be sure to do that as well. As I started the episode with bank fintech partnerships, something we talk about a lot on the podcast and in all of our content that PerformLine puts out. How do these partnerships between traditional banks and banking as a service, or as they are now kind of more commonly referred to as BaaS 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?

Christina:
There are so many benefits to the bank fintech partnerships or, 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. I think two of the ones that I am most excited about are the ability of service providers to reach niche audiences to offer unique or even bespoke products to particular audiences that otherwise are not well served. And I think that is one of the benefits that I get really excited about. And then the other is just the amazing leaps forward that we have seen as a result of some of these partnerships, right, in advances, in payments and savings, and all sorts of other areas. There is just a really exciting time in financial services since the advent of these partnerships. It is an amazing opportunity for innovation and service and reaching audiences that otherwise are not well served.

Ashley:
It is definitely a fun time to be a part of this ecosystem. That is, I totally agree. It is cool to see them reach people they would not normally be able to reach through these partnerships. Sorry to interrupt. You go on.

Christina:
I was going to say this is all very exciting. But, there are concerns. I wanna emphasize that there is a prohibition on license rental, right? That only the regulated financial service provider can provide the regulated service. So what that means, right, is there is no such thing as licensed rental. If you have questions about the ways in which these relationships work, and if you want to help us understand the ways in which your relationships work between financial service providers and fintech. It is 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 is the money going? What do the disclosures look like? And really try and understand the ways in which these relationships are working. As I said, these are tremendous opportunities, particularly for meeting unmet needs in the marketplace. The goal is to help people understand their obligations. We do not provide legal advice through the innovation office, but we do really, really, really want to learn from you about your business. We want to understand what you are trying to achieve, and to the extent possible, we want to match you with resources to help you be compliant.

Ashley:
That is great. Finally, to wrap up, Christina, what kind of insights can the DFPI 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?

Christina:
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 office is here to engage with 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. For example, research insights into your customers, the problems that you are solving, your place in the marketplace, and some of the challenges that you are seeing. Right? All of those things are really helpful for us for understanding your business. They also help us piece together a better picture of them of the marketplace. I think that that engagement component is really critical. Another role that the innovation office plays at DFPI is trying to help our colleagues understand what is coming.

Christina:
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 are facing, it really helps us engage with our colleagues to help the department better understand the ecosystem. We think there is a real benefit even in a meet-and-greet type of meeting with an entrepreneur or service provider. We also ask folks if there is someone else that they have been meeting with at the department, we are happy to include them in a meeting with us. The only hard stop is if a company is already talking to our enforcement team, we will not meet with that company. We are not an end-run-around enforcement, but to the extent that folks want to do a meet-and-greet or they want to 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 are achieving and what the marketplace is and some of the challenges and opportunities there.

Ashley:
That is awesome. That sounds like such a win-win opportunity for these fintechs and to learn more about things you guys can help with.

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

Ashley:
That is awesome. I am sure I will 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.

Christina:
Thanks for the opportunity, and I look forward to hearing from your listeners. 

Ashley:
Awesome. Thanks so much.

Ashley:
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 CFPB circular that was issued in May of 2022 that lays out the various concerns of the FDIC insurance, as well as Christina’s LinkedIn and the intake form from the DFPI website, if you are interested in booking a meeting with the department to help them better understand your business and the ecosystem. As always, for the latest content on all things marketing compliance, you can head to content.performline.com. And, for the most up-to-date pieces of industry news events and content, be sure to follow Performline on LinkedIn. Thanks again for listening, and we will see you next time.