Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28 Page 29 Page 30 Page 31 Page 32 Page 33 Page 34 Page 35 Page 36For more information, please visit or 29 28 In 2016, Goodwin reported on various government proposals to regulate the booming financial technology (FinTech) industry. In addition, Goodwin tracked several actions taken against FinTech companies, including government investigations, lawsuits, and settlements initiated by both Federal and state actors. As the FinTech industry has continued to grow, several governmental actors have emerged as potential leaders in the regulation and enforcement of the FinTech industry, including the Consumer Financial Protection Bureau (CFPB), the U.S. Treasury Department’s Office of the Comptroller of the Currency (OCC), and state attorneys general. Among these actors, the OCC has made the largest waves by taking several affirmative steps in support of an eventual regulatory framework for the FinTech industry, and by proposing offering limited national charters to FinTech companies. This increased scrutiny on the regulatory side has been coupled with increased enforcement actions against FinTech companies for alleged unfair and deceptive practices, among other things. If the 2016 trends continue, FinTech industry members should anticipate increased scrutiny and the implementation of targeted regulations in the future. However, the impact of the Trump administration on these trends could be significant. The President has vowed to reduce regulations and to scrap the Dodd- Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act)—though few concrete details have emerged. As a result, the degree of future oversight is uncertain. 2016 HIGHLIGHTS Increase in Enforcement Actions Against FinTech Companies. The CFPB initiated one of its first enforcement actions against a FinTech company in March 2016 when it issued a consent order against Dwolla, Inc. (an online payment provider) for allegedly misrepresenting its data security practices as “safe,” “secure,” “safer [than credit cards],” and “exceeding industry standards.” Then, in June 2016, the Bureau filed a lawsuit against a third-party payment processor, alleging that the defendant ignored customer complaints as well as signs that its customers were requesting illegal or fraudulent transfers. And in September 2016, the CFPB entered into a consent order with an online lender it alleged had engaged in deceptive marketing by obscuring the true cost of its loans from consumers. WHAT WE’RE WATCHING: 2017 EMERGING ISSUES Crackdowns on FinTech Companies by State Attorneys General. State regulatory and enforcement agencies from Vermont, Nebraska, and North Carolina all announced settlements with FinTech companies in 2016. These actions centered around allegations of usurious interest rates, but also included allegations of deceptive lending in connection with the use of tribal lending schemes. CFPB Began Collecting FinTech-Related Consumer Complaints. On March 7, 2016, the CFPB announced its decision to begin collecting complaints from consumers about online marketplace lenders, signaling its intention to more actively regulate the evolving and growing FinTech industry. OCC’s Framework for Responsible Innovation. On March 31, 2016, the OCC issued a white paper setting forth its vision of responsible innovation and signaling its increasing involvement in the FinTech space. The white paper lays out principles of how the agency intends to improve its understanding and evaluation of financial technology products and services, which include generally supporting responsible innovation and collaborating with other regulators. OCC’s Recommendations Concerning Responsible Innovation. In October 2016, the OCC released its “Recommendations and Decisions for Implementing a Responsible Innovation Framework.” The recommendations are largely consistent with the themes and principles developed in the OCC’s white paper published earlier this year, and they call for several concrete changes to help the OCC engage with banks and FinTech companies more effectively. The recommendations were approved by Comptroller of the Currency Thomas Curry in October 2016. OCC’s Decision to Consider FinTech Charter Applications. On December 2, 2016, consistent with its efforts to better engage with the FinTech industry, the OCC announced that it will begin considering applications from FinTech companies to become special-purpose national banks. It published a white paper in December 2016 exploring and seeking input on the charter process and supervisory and regulatory expectations of FinTech companies granted special- purpose national bank status. The OCC will likely formalize the charter application process early in 2017. Treasury Department’s Policy Recommendations for Online Marketplace Lending. On May 16, 2016, the U.S. Treasury Department released a white paper entitled “Opportunities and Challenges in Online Marketplace Lending,” in which the agency reviewed the benefits and risks of online marketplace lending and made policy recommendations to the government and industry participants. The white paper hints at areas of potential future regulation, including: ensuring reliable sources of credit data; increased transparency of transactions; adding protection for small business loans under consumer protection frameworks; and achieving strong customer service standards. LOOKING AHEAD TO 2017 Based on the CFPB’s increased scrutiny of the FinTech industry in 2016, the CFPB may intend to provide future rulemaking and informal guidance in connection with the industry. FinTech companies should anticipate that the CFPB will use its complaint database to analyze trends within the industry, and to identify red flags concerning a particular company and take action accordingly. Looking ahead, we expect to see the central themes that were developed in the 2016 white papers and policy recommendations from the Treasury Department and the OCC guiding future regulatory priorities. These themes include concerns about the accuracy and security of big data, how companies should manage third-party risk, the potential for lower-risk pilot programs to test new technologies with regulator assistance and oversight, and the need to continue prioritizing consumer protection. Finally, the OCC’s October 2016 recommendations included a series of concrete goals that may come to fruition in 2017, including the creation of an OCC Office of Innovation and a formal outreach and technical assistance program. Financial Technology (FinTech)