Fintech Companies Are Learning to Work with Regulators

By on April 24th, 2017 in Compliance, Industry Insights
TrueAccord Blog

This article, written by our In House Counsel Adam Gottlieb, first appeared in the RMA Insights Magazine

The word “startup” conjures images of stereotypical open offices, complete with ping pong tables, standing desks, and people in hoodies feverishly hammering at keyboards. Startups are often associated with high risk, scrappiness, and the ability to break things and move fast–all a stark contrast to the bureaucratic and highly-regulated environment that most debt buyers and collectors operate in. Yet, as startups begin venturing into the area of financial technology, they have had to adjust to new operating principles and new stakeholders, with the government chief among them.

Startups have not always been sophisticated about interacting with regulators. When Uber started expanding city by city in the US, it often took an aggressive approach with commissioners, undermining their authority and operating defiantly in the face of cease and desist letters. In debt collection, as we’re all painfully aware, the FDCPA and TCPA, as well as an army of plaintiff’s attorneys, guarantee that such behavior won’t go unpunished. Indeed, new players in fintech have had to take legal and regulatory frameworks into consideration as a first order of business. For example, my company, TrueAccord, hired a lawyer as our first employee and focused on policies and procedures as much as it did on writing code while building  our business.

Understanding and embracing the importance of regulation and the impact it has on our business forced us to adjust our view on how to deal with regulators. In the early days of fintech, startups relied on external compliance counsel and sporadic engagements with the CFPB and other regulatory bodies. This model was driven mostly by lack of experience in supporting policy decisions on the part of startup founders and their venture capital backers. In the past few years, however, fintech startups have started engaging with regulators significantly more often.

Startup founders and funders have begun participating in the Consumer Advisory Board; investors and founders such as Max Levchin have been part of the Bureau’s panels for the past two years. Project Catalyst, the CFPB’s outreach program for innovative financial products and services, has had a steady flow of fintech participants in both its East Coast and West Coast offices. Startups have also learned how to support policy development processes: small business lenders developed a code of ethics for lending with cooperation from the Obama Administration. The fintech firm Plaid and similar providers led the discussion on making consumers’ bank account data accessible to third-party applications, and small balance lenders led the commenting period on the CFPB’s proposed rule. (Many RMA member companies participated in the CFPB’s SBREFA panel for the new proposed debt collection rules.) We’re seeing tangible change in the industry’s relationship with government and we do not expect that trend to change. If anything, it will increase if the Trump administration takes a more “pro-business” approach as expected.

It took fintech startups several years to mature and understand the value of engaging with government, but now that they do, they approach this engagement the way they approach any aspect of their business: with rigor and focus on delivering a message of innovation through technology. We expect these efforts to yield tremendous progress in rules and regulations in 2017 and 2018.