Fintech, Mobile Payments May See Regulatory Relief Soon?

How much regulation is too much? Some would say any is too much, and others would say that even too much was never enough. When it comes to financial technology (fintech), it’s a tough call; we want our money protected, but we want access to new tools. A new report from the Department of Treasury—sent our way by the Center for Responsible Lending—says that fintech may be getting regulatory relief, but at what cost?

The CRL report notes that the Treasury endorsed repeal of the “Payday Rule” from the Consumer Financial Protection Bureau (CFPB), which has been actively dialing down its own operations for some time now, based on earlier reports we’ve heard.

It also called for the creation of specialized bank charters geared toward fintech firms, as well as the establishment of “regulatory sandboxes” that keep startups from running afoul of certain consumer protection laws. These moves, and some like them, may ultimately override state-level protective measures, a point that has the CRL very concerned.

Additionally, Scott Astrada—federal advocacy director for the CRL—noted “…If its recommendations are adopted, more Americans would be pulled into deceptive, 100%+ APR loans with high-default rates. These products allow lender profits to soar as the borrower is pulled down into a financial free fall often resulting in involuntary bank account closure, a ruined credit score, and bankruptcy.”

The problem with the CRL’s assertions is that they fail to take into consideration some key points. To exempt startups from certain consumer protection laws isn’t exactly unfair; startups don’t have the resources for a lot of high-caliber legal guns, so offering them a note of protection from lawsuit isn’t so outlandish. The idea of overriding state laws for a more universal federal law isn’t so odd either; fintech operates in all 50 states. Why should one state have one law and another another that might force fintechs to structure their operations differently by state?

In the end, it all comes down to how people feel about regulations. Sometimes it’s a good plan to relax regulations so that innovation can rise unfettered by the demands of law. Sometimes it’s not, but when it comes to startup firms just getting the ball rolling, it might be worth considering.