percent of the U.S. adult population lacked a credit score, limiting their

ability to access bank products such as credit cards and loans.

use traditional financial institutions, these consumers frequently turn to

costly alternatives, such as check cashing services and payday lenders,

potentially trapping them in a cycle of debt.

In recent years, financial technology (fintech) products have emerged as

a potential solution to help consumers underserved by traditional financial

to consumers and banks, and whether current financial services laws

address those risks.

Section 1573(a) of the Department of Defense and Full-Year Continuing

Appropriations Act, 2011 amended the Dodd-Frank Wall Street Reform

and Consumer Protection Act (Dodd-Frank Act) and included a provision

for us to annually review financial services regulations, including the

impact of regulation on the financial marketplace.

This report examines

(1) the benefits, risks, and limitations of selected fintech products for

underserved consumers and what is known about the extent to which

underserved consumers have used them, and (2) the steps federal and

state regulators are taking to assess selected fintech products.

For this report, we selected four types of fintech products to examine in-

depth: digital deposit accounts, credit builder products, small-dollar

For both objectives, we interviewed two academics and representatives of

five federal financial regulatory agencies; nine industry groups

representing fintech companies, banks, credit unions, or alternative

financial services; five research organizations; and four consumer groups.

We also interviewed representatives of a nonprobability sample of 15

fintech companies that offered the selected products. We selected these

companies to provide a range of different business models for offering the

We also interviewed representatives of six banks and one

which underserved consumers have been served by the selected fintech

products. We also requested information from the fintech companies on

characteristics of their users and the volume of services provided from

2019 through 2021. We assessed the reliability of these data by

examining for any missing data, assessing the presence and number of

outliers or obvious errors, and following up with the companies as

necessary to clarify our requests. We determined that the data were

For the second objective, we reviewed federal and state regulators’

procedures for conducting examinations as related to fintech products

and related guidance, and their procedures for information-gathering and

supervisory activity. We also interviewed representatives of a

because they had supervisory activity related to our selected fintech

products) and the National Association of Consumer Credit

methodology, see appendix I.

We conducted this performance audit from November 2021 to March

For the purposes of this report, we define underserved consumers as

those who are unbanked, underbanked, and credit invisible.

households as those in which no one has a checking or savings

account at a bank or credit union. It defines “underbanked”

households as banked households that also used one or more

nonbank financial products or services, such as payday loans, in the

past 12 months.

In addition, FDIC estimated that an additional 14.1 percent of

households and 9.3 percent of Hispanic households were unbanked,

that Black and Hispanic households were unbanked at higher rates

than White households across all income levels.

Bureau (CFPB) defines “credit-invisible” consumers as those who lack

this case, funds from each consumer would be fully insured up to

noted that partnerships with fintech companies can also pose a

variety of third-party risks to banks. With regard to fintech-bank

partnerships that offer digital deposit accounts specifically, they stated

that the fintech companies can pose risks to the partner bank if they

do not follow fraud prevention measures or Bank Secrecy Act and

Further, according to FDIC, these fintech companies could also pose

liquidity risks to banks if the banks rely heavily on them to facilitate

nearly half of its customers were underbanked, 15 percent were

before obtaining a deposit account from the company. The company also

conducted an analysis of its customers using census data and found that

it had higher numbers of active users in counties with higher proportions

of Black and Latino populations, which also corresponded to counties with

fewer bank branches per capita. Two other companies said their digital

direct accounts target unbanked consumers within Black and Latino

communities, but they did not have race or ethnicity data on their

Credit builder products help consumers develop positive credit payment

histories and can be structured as cards or loans:

secured credit cards offered by banks in that they require a consumer

to provide a deposit amount that is used to secure the card and that

amount becomes the card’s limit. As a result, the consumer can only

spend up to the amount provided as the deposit. The consumer

pay the balance in full in order to continue using the card. In addition,

two fintech companies we spoke to allow consumers to use the

security deposit to pay off their monthly bill.

installment loans where, instead of the funds being disbursed to the

amount into a certificate of deposit or savings account. The consumer

makes monthly payments, which consist of principal and interest on

released to the consumer. One fintech company we spoke to offered

for up to 6 months.

We spoke to five fintech companies that offer these products: two that

offer credit builder loans, two that offer credit builder cards, and one that

offers both.

a minimum credit score requirement to apply for the product. However,

while these products can improve a consumer’s credit history, they can

also worsen it if, for example, the consumer misses monthly payments.

In terms of cost, two of the three credit builder cards we examined were

less costly than traditional secured credit cards. Specifically, these cards

were advertised as not having any fees or interest. The third had an

annual percentage rate (APR) comparable to those of traditional cards

but a higher annual fee. Fintech credit builder loans may have higher fees

and interest than some traditional credit builder loans. However, the

traditional loans we reviewed are offered by credit unions that require

builder products or the extent to which the products have improved their

customers use these products to rebuild their credit, rather than to start

their credit history. One company noted that about 86 percent of credit

builder loan users had FICO subprime credit scores and about 5 percent

of users did not have a credit score at the time of application.

the fintech companies we spoke to provided data on credit score

improvements. Two of the five companies advertised on their websites

that credit scores improved by 30 to 40 points after 6 to 8 months of

positive payments, depending on the credit score model used, but we

could not verify this information.

We reviewed five fintech companies that offer fintech small-dollar loans.

by artificial intelligence or machine learning to analyze the additional data

variables and increase the speed of a loan decision. Using alternative

data in the underwriting process may extend access to credit to

consumers with poor, thin, or no credit files by including data that credit

reports do not typically capture.

Fintech small-dollar loans also may have lower costs for consumers

compared with payday loans, but they could still be more expensive than

payday loan amount of $350 has an average APR of 391 percent.

that, in 2021, their small-dollar loans for consumers with reported annual

institutions (CDFI) and credit unions—may also offer low-cost small-dollar

loans. These loans may be similar in cost to fintech loans, or in some

cases, less expensive. For example, the Department of the Treasury’s

CDFI Fund Small Dollar Loan Program does not support small-dollar

programs offered by certified CDFIs that have APRs that exceed 36

percent. Further, starting with the CDFI Fund Small Dollar Loan Program

fiscal year 2022 funding round, certified CDFIs are asked to provide an

explanation in their applications if they want to offer loans with APRs

subject to a maximum APR.

NCUA sets terms allowing federal credit

unions to offer PALs at an APR of 10 percentage points above the

maximum interest rate established by the NCUA Board of Directors plus

the actual costs associated with processing the application, up to $20. As

of October 2022, the maximum APR for PALs was 28 percent. However,

while PALs may be less expensive than some fintech loans, relatively few

credit unions make these loans. For example, we previously reported that

only 14 percent of credit unions issued at least one PAL in the second

There are a number of risks to consumers and bank partners associated

with lower rate caps.

where economic conditions were less favorable.

Similarly, another study

on existing accounts for more credit card offers, indicating that these

consumers already have access to credit.

We received data from two of the five fintech small-dollar loan companies

that we spoke with. These limited data indicate that in these cases,

fintech small-dollar loans reached lower-income consumers, but not

necessarily credit-invisible consumers. Between 2019 and 2021,

approximately 27 percent of one lender’s small-dollar loans and 57

percent of the other lender’s small-dollar loans were made to consumers

reportedly making under $35,000. For one lender, all consumers who

received small-dollar loans had a FICO credit score of at least 581, with

around 73 percent having credit scores between 620 and 719. The other

As previously mentioned, the two primary business models for offering

earned wage access are employer-sponsored and direct-to-consumer.

Between these two models, earned wage access services can be

structured in a variety of ways. For example, employer-sponsored earned

wage access companies generally recoup the accessed wages by

withdrawing funds out of a consumer’s paycheck when payroll is

processed. In direct-to-consumer models, the company generally

withdraws funds from consumers’ bank accounts after they receive their

paycheck. However, other features can be found in both models. For

example, one direct-to-consumer company and one employer-sponsored

company we reviewed offered access to wages for free, but charged

models that use them.

consumers are generally limited to accessing up to 50 percent of their net

earned wages or a set dollar amount per pay period.

However, one of

the four earned wage access companies we spoke with (a direct-to-

consumer company) allows consumers to temporarily increase the

amount they can access by referring others to use the product or asking

another user to “vouch” for them.

that they were not aware of any companies that offer our selected

CFPB previously provided companies with certain arrangements in part to

understand the benefits and risks of innovative products. Specifically,

CFPB granted compliance assistance sandbox approvals, which gave

companies a safe harbor under certain federal consumer financial laws in

order to test innovative products for a limited time while sharing data from

these tests with the agency. CFPB also offered companies no-action

conditions or limitations outlined in the letter, the agency would not take

enforcement or supervisory action related to the product under the

statutory and regulatory authorities detailed in the letter. CFPB previously

had arrangements with a fintech lender and an earned wage access

company until those arrangements ended in June 2022 at the request of

the companies.

CFPB rescinded the policies related to these arrangements as of

September 2022.

their stated objective of facilitating consumer-beneficial innovation. CFPB

also determined that the policies failed to meet appropriate standards for

transparency and stakeholder participation. For example, in its orders to

terminate arrangements with the fintech lender and earned wage access

company, CFPB expressed concerns that there was a risk that these

FDIC, the Board of Governors of the Federal Reserve System (Federal

conduct examinations and other supervisory activities to assess a

federally regulated financial institution’s safety and soundness, including

the adequacy of risk management practices. If fintech companies partner

with a federally regulated financial institution (such as a bank),

examinations could include some review of the extent to which the fintech

examine and regulate certain banking-related functions or operations

performed by third-party service providers of a financial institution to the

same extent as if they were performed by the institution itself.

Federal Reserve, and OCC issue matters requiring attention, matters

requiring board attention, or matters requiring immediate attention to

regulated financial institutions in order to convey supervisory concerns.

From 2017 through 2021, these regulators issued several of these

over underwriting and validation of third-party models, improve due

diligence procedures prior to entering contracts, and develop policies that

interagency guidance describes various stages of the third-party risk

management life cycle and identifies principles and factors applicable to

each, such as performing due diligence when selecting a third party,

performance, and developing contingency plans for terminating a

relationship with a third party. As of November 2022, the agencies said

they were considering and addressing comments on the proposed

In addition, some agencies are beginning to track significant third-party

relationships and reorganize supervision to better respond to risks third-

party partnerships pose to banks. For example, in January 2020, FDIC

started to track information on third-parties used by FDIC-supervised

products and services. This information includes third parties that provide

emerging or complex technologies that affect consumers, including some

of our selected fintech products. FDIC noted that this information is used

identified with a specific third-party company.

“novel activities” and significant partnerships with technology service

provide a more coordinated and consistent approach to overseeing these

complex institutions and relationships.

NCUA lacks authority to examine services provided by third parties that

partner with credit unions, including technology service providers such as

fintech companies.

As a result, NCUA does not have the ability to

examine fintech companies that partner with credit unions to identify

an industry group representing federally-insured credit unions, about 61

percent of the group’s members indicated that they already partner with a

Similarly, in September 2020, NCUA’s Office of Inspector General

effectively identify and reduce the risk these relationships pose to credit

unions in order to protect the National Credit Union Share Insurance

NCUA such authority. NCUA continues to seek congressional approval

for expanded authority over third-party vendors.

CFPB recently announced a plan to bolster oversight over nonbank

financial companies—including fintech companies—that pose risks to

after notice and a reasonable opportunity to respond, based on consumer

complaints or information from other sources. CFPB recently invoked this

authority in response to the rapid growth of consumer offerings by

nonbanks, and so that the agency can adapt quickly to changing market

In December 2022, CFPB issued a proposed rule that would require

certain nonbanks to register with and submit information to CFPB when

they become subject to certain orders from local, state, or federal

agencies or courts involving violations of certain consumer protection

laws that arise out of conduct in connection with offering or provision of a

In January 2023, CFPB issued a

proposed rule that would require nonbanks subject to CFPB’s supervisory

CFPB, FDIC, the Federal Reserve, and OCC have issued guidance and

taken action related to specific risks the selected fintech products pose:

processes to address claims of companies engaging in false

advertising, misusing FDIC’s name or logo, or making knowing

misrepresentations about deposit insurance.

The rule became

effective in July 2022. According to the final rule, nonbank companies

companies under its jurisdiction cannot misuse FDIC’s name or logo

(Regulation B).

The circular notes that a lender cannot justify

In October 2022, CFPB published an outline of proposals and

charges. If earned wage access products that are not covered by the

Although CFPB’s advisory opinion provides some clarification, some have

expressed continued uncertainty about how the Truth in Lending Act and

Regulation Z apply to certain earned wage access products. For example,

in a September 2022 written statement for a congressional hearing, a

representative of the Financial Technology Association (an industry

association representing fintech companies) noted that the advisory

opinion did not reference direct-to-consumer earned wage access

models, leaving it unclear as to whether these models are subject to

Regulation Z. Similarly, representatives of the National Association of

Consumer Credit Administrators (which represents state regulators

focused on consumer credit) said that its members would like further

and Regulation Z.

clarification regarding the application of the advisory opinion. In response

to New Jersey advocacy groups, in January 2022 CFPB acknowledged

that there is confusion about the scope of the advisory opinion, and the

CFPB that the agency consider how to provide greater clarity around

financial products or services under federal consumer financial laws.

Further, CFPB’s strategic plan calls on it to issue rules and guidance that

respond to emerging markets and products.

from CFPB, it is unclear under what circumstances earned wage access

products not covered by its advisory opinion are to be considered an

Millions of consumers face challenges in obtaining a bank account and

using traditional forms of credit from a bank, leaving them to turn to

expensive alternatives. Fintech products have the potential to improve

financial access for some consumers, but they also present potential risks

that regulators are still in the process of addressing. In particular, it

remains unclear how the Truth in Lending Act’s definition of credit should

be applied to earned wage access products, specifically those that do not

fall under CFPB’s November 2020 advisory opinion. CFPB has indicated

that it plans to issue further guidance to clarify this issue. Publishing

additional clarification would help companies that offer these products

understand whether the act and its disclosure requirements are

We provided a draft of this report to CFPB, the Federal Reserve, FDIC,

NCUA, OCC, and Treasury for review and comment. CFPB agreed with

the recommendation and said it intends to issue further clarification

CFPB, the Federal Reserve, FDIC, OCC, and Treasury provided

technical comments, which we incorporated as appropriate.

We are sending copies of this report to the appropriate congressional

committees, the Chairman of the Federal Deposit Insurance Corporation,

Chairman of the National Credit Union Administration, Acting Comptroller

of the Currency, Director of the Consumer Financial Protection Bureau,

Chair of the Board of Governors of the Federal Reserve System,

Secretary of the Treasury, and other interested parties. In addition, the

report will be available at no charge on the GAO website at

We assessed the reliability of the data gathered from this instrument by

examining the data for any missing data points, assessing the presence

and number of outliers or obvious errors, and following up with fintech

companies as necessary to clarify our requests. We determined that the

data we included in the report were sufficiently reliable for our purposes of

providing examples of the extent to which underserved consumers may

be using these products.

We also reviewed empirical studies by federal agencies and researchers

that measure or explore the extent to which our selected fintech products

are used by underserved consumers. To identify relevant reports, we

conducted a literature search in January 2022 for such studies published

For the second objective, we reviewed federal prudential regulators’

procedures and guidance for conducting examinations related to safety

guidance related to managing third-party risks to depository institutions.