Treasury highlights ways to bolster financial tech companies

Greg Nash

The Treasury Department said policymakers should give financial technology companies more regulatory flexibility to innovate while improving data security protections for U.S. consumers in a report released Tuesday.

The Treasury suggested dozens of ways that regulators and Congress could bolster the growth of financial technology platforms, also called fintechs, while strengthening privacy safeguards amid cyber breaches.

Fintechs such as online lenders, mortgage and loan servicers, banks and payments platforms make up a swiftly growing share of the financial services industry. The recent explosion of cryptocurrencies has also drawn more regulatory attention to fintechs and their broad implications for multiple industries.


Fintech industry advocates insist they support strong regulation, but that companies need greater clarity to navigate overlapping and sometimes conflicting state and federal laws.

“American innovation is a cornerstone of a healthy U.S. economy. Creating a regulatory environment that supports responsible innovation is crucial for economic growth and success, particularly in the financial sector,” Treasury Secretary Steven Mnuchin said in a statement.

“America is a leader in innovation. We must keep pace with industry changes and encourage financial ingenuity to foster the nation’s vibrant financial services and technology sectors.”

The Treasury report proposes several ways to streamline the financial regulatory patchwork covering fintechs, and calls on policymakers to build a “sandbox” for startups to test new products without running afoul of the law.

Policymakers have struggled to keep up with advancements in fintech and the ways they could impact financial services. The report calls for federal policymakers to work closely with companies and industry advocates to adapt current financial regulations to fintech platforms.

Treasury also recommended that states work together to harmonize money transfer rules, which cover payment systems and cryptocurrency marketplaces, to help prevent unnecessary regulatory burdens.

The report encourages the Office of the Comptroller of the Currency to move forward with a special purpose charter that would give fintechs a license to operate nationally under the same standards as banks. Treasury said the charter could “provide a federal approach to reducing regulatory fragmentation and supporting beneficial business models.”

Some advocates for banks and credit unions have been skeptical of a special banking charter for fintechs. Critics of that approach say such firms are better suited to partner with traditional financial institutions, not compete against them.

Comptroller of the Currency Joseph Otting, a former bank president, has said he’s sensitive to those concerns and has not decided whether the charter will move forward. Otting also insisted that a special fintech charter would hold those companies to equivalent rules imposed on banks.

Fintech critics have also cited concerns with potential data security issues facing companies with large amounts of personal financial information.

The report calls on policymakers to work with industry leaders on implementing stronger online identity protections, developing a national data breach notification law and giving consumers more control over their personal information.

The Treasury report also makes several broader recommendations meant to expand access to financial services. The department called for repealing the Consumer Financial Protection Bureau’s (CFPB) payday loan rule, and supported the use of alternative data such as utility and rent payments to form credit reports for consumers with limited loan history.

Banking and fintech industry advocates had high praise for the Treasury report and said it balanced concerns from all portions of the financial services sector.

Financial Innovation Now (FIN), a tech industry coalition representing businesses such as Amazon, Apple and Google, said the report “is a strong step towards modernizing antiquated financial regulations.”

“We look forward to working with Congress and federal financial regulators on these necessary policy updates,” said FIN executive director Brian Peters.

Consumer Bankers Association President and CEO Richard Hunt said the report “hits all the right topics to promote innovation and empower consumers in a modern, increasingly digital banking system.”

“Consumer protections should not vary across institutions — regardless of size, location or business model,” Hunt said. “Any fintech charter should require the same strict consumer protection and market safeguards already in place at banks in order to offer a level playing field.”

Groups supporting stricter financial regulations panned the Treasury report, particularly its call to repeal the CFPB payday loan rule.

“This report calls for expanding debt traps and ripping up consumer protections at the state and federal levels,” said Scott Astrada, a director for the Center for Responsible Lending. “Consumer protection laws are critical to safeguarding Americans’ wallets. They should be upheld, and this report should be roundly rejected.”

Updated at 2:15 p.m.

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