By Jay Lotz, Consumers Union
Last week we wrote about tech companies that are looking to transform the financial services industry by creating websites and apps that provide an array of financial services. Because of their potential to disrupt the financial services industry and change the financial services landscape for consumers everywhere, these so-called fintech companies are drawing increased attention from federal regulators. Many federal agencies are looking into various aspects of the fintech industry; this blog will highlight some of their concerns and recent actions.
The Consumer Financial Protection Bureau (CFPB) recently began accepting complaints about marketplace lending companies and virtual currency products. In March, the CFPB used its authority to enter into a consent order with Dwolla, Inc., a mobile payments company, alleging the company had overstated its data security practices by claiming they exceeded industry standards when they did not. In 2015, the CFPB launched an enforcement action against PayPal.
While keeping a sharp eye on consumer protection, regulators are also working to preserve room for innovation. In November 2012, the CFPB launched Project Catalyst, its effort to encourage “consumer-friendly” innovation through engagement and collaboration with innovators. In February, as a part of this project, the CFPB finalized its No-Action Letter Policy. Under the Policy, companies developing financial products can receive clarification as to how CFPB regulations would apply to the proposed product. If the company can demonstrate a substantial consumer benefit, CFPB may grant them a No-Action Letter, stating that the CFPB has no intention to pursue a regulatory action against the product. However, the CFPB may revoke a No-Action Letter at any time, and maintains the right to take regulatory action against unfair, deceptive, or abusive practices.
The Office of the Comptroller of the Currency has its own effort to support “responsible” innovation, releasing a white paper last month that outlined the OCC’s efforts to evaluate new products created by OCC-regulated banks. The Treasury Department this month also released a white paper following a Request for Information on marketplace lending, making recommendations to businesses and regulators to ensure safe growth and access to credit.
Members of Congress are also interested in FinTech. Last month several Senators from the Senate Banking Committee asked the Government Accountability Office to update a 2011 report on marketplace lending, citing a growth in the fintech industry and a potential for these companies to “fall between the cracks” of federal regulation. An upcoming blog will discuss marketplace lending in more detail.