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The financial institutions want to access the new fintech tools but they also want their money protected. According to the Department of Treasury, the fintech space might get regulatory relief; but at what cost?
The report from the Department of Treasury supports the abolishment of the “payday rule” from the Consumer Financial Protection Bureau (CFPB), which has been actively reducing its own operations for a while now. The department also talks about the formation of specialized bank charters suitable for the fintech firms, as well as the creation of “regulatory sandboxes” that keep startups from violating the various consumer protection laws. Such initiatives may ultimately override protective measures at state-level.
If such recommendations from the Department of Treasury are adopted, many U.S.-based financial organizations would be trapped in deceptive, 100 percent annualized percentage rate (APR) loans that have high-default rates. Such loans allow lender profits to increase while the borrower tumble downs into a financial free fall often resulting in bankruptcy, automatic closures of their bank accounts, and ruined credit records.
The problem with the assertions made by the Department of Treasury is that it fails to consider some key points. To liberate startups from some consumer protection laws is not exactly unreasonable; startups lack the resources for many high-caliber legal formalities, therefore, offering them protection from lawsuit is not surreal. The idea of dominant state laws for a more universal federal law is not strange either as fintech companies are operational in all the 50 states of the U.S. With different states following different laws, the fintech companies are forced to structure their operations differently.
In the end, it all comes down to how organizations view the regulatory regulations. Sometimes, it is a good plan to relax the regulatory rules allowing innovation to emancipate from the demands of law. Not abiding by the statutory laws is not always a good idea, however, when it comes to startups, just getting the business started, it might be worth considering.