Blockchain & E-Transactions Law

Last month, the Treasury Department issued a 222-page report to President Trump on Nonbank Financials, Fintech, and Innovation in which it recommends large-scale regulatory changes to promote innovation in the realm of fintech. The report makes clear the view of the Treasury Department that "innovation is critical to the success of the U.S. economy, particularly in the financial sector." To that end, the Treasury Department's report seeks to identify opportunities to "modernize regulation to embrace the use of data, encourage the adoption of advanced data processing and other techniques to improve business processes, and support the launch of alternative product and service delivery systems."

The report recognizes the rapid growth of the fintech sector over the past ten years, which it attributes to both rapid development of financial technologies as well as increased regulation of the banking sector in response to the financial crisis, which "creat[ed] opportunities for emerging nonbank financial firms to address unmet market demands." According to the report, over 3,000 technology-based financial services firms were founded between 2010 and 2017, and lending by such firms now makes up for more than 36% of U.S. personal loans, up from less than 1% in 2010.

The Treasury categorizes its recommendations in the report into four areas: (1) adapting regulatory approaches to changes in the aggregation, sharing, and use of consumer financial data, (2) aligning the regulatory framework to combat unnecessary regulatory fragmentation, and account for new business models enabled by financial technologies, (3) updating activity-specific regulations across a range of products and services offered by nonbank financial institutions, and (4) advocating an approach to regulation that enables responsible experimentation in the financial sector, improves regulatory agility, and advances American interests abroad.

A few of the key recommendations included in the report are as follows:

• Endorsement of OCC plans to create a new federal bank charter for fintech companies so as to allow them to do business nationwide without the need for a bank partner (which the OCC has since affirmed it intends to act on)
• Creation of a uniform fintech regulatory 'sandbox' by federal and state regulators to allow firms to experiment with new products outside of a binary "approval or disapproval" framework, allowing companies to instead receive feedback from regulators during product development and testing
• Enactment of a federal data security law to provide consumers with timely notice of a data breach
• Adoption of uniform licensing requirements for financial services firms in order to provide relief for companies that must currently respond to varying state laws, including the creation of a Fintech Industry Advisory Panel to help improve state regulation and harmonization

The report also provides recommendations in the areas of payday lending, student loan servicing, mortgage servicing, and debt collection, among others. For example, the report advocates for changes to the Telephone Consumer Protection Act and the Fair Debt Collection Practices Act, such as the establishment of a reassigned numbers database, a safe harbor for calls to reassigned numbers, and clear guidance on how consumers may revoke consent under the TCPA, such as by adopting a revocation standard similar to the one in place under the FDCPA. The report also asks the CFPB to issue regulations under the FDCPA to allow for the use of reasonable digital communications in debt collection.