The FT Lex Column published an interesting comment concerning the somewhat easygoing FinTech companies as far as regulations are concerned. Noteworthy are the comments that some of the FinTech companies are sloppy as far as data security is concerned. The Consumer Financial Protection Bureau came down hard on them.
Anticipating the behaviour of US financial regulators is a fiendishly difficult pastime. Even those that try to game their odds by greasing the revolving door between Washington and Wall Street often get it wrong. Back in 2012, banks thought the pendulum was moving back towards leniency. They thought wrong. The political winds changed, regulation stiffened and a barrage of fines and lawsuits followed.
Given this recent history, the non-bank, alternative lenders can sound remarkably blasé. OnDeck Capital on Wednesday breezily told a conference that the Consumer Financial Protection Bureau was looking at the sector but that this was a “good thing” and its mandate really only extended to data collection.
This on the same day the CFPB slapped Dwolla, a fintech money-transfer service, with a $100,000 fine for failing to safeguard customers’ data.
Ripple Labs, another fintech start-up offering a bitcoin alternative, was fined $700,000 last year for anti-money laundering failures. These are not giant sums but they are not giant companies either. Most of them have not yet faced significant litigation and state no reserves.
Granted, it could all still work out to the non-banks’ advantage. Social Finance, one of the most hyped start-ups with a valuation of more than $3bn, could eat more bank lunches with barely any of their compliance costs. Publicly listed OnDeck may find that the CFPB heeds its argument that small businesses are grown up enough to do without protection against usury. Lending Club may prevail in its own efforts to skirt state usury caps. It will be up to the Congress to step in if necessary.
But these are big bets for companies with razor-thin margins. As better-funded banks can attest, such wagers do not always come good.
Source: Financial Times