July 12 CFPB published a consent order against a FinTech company for facilitating financial activities in retail outlets without consumer permission. The consent order requires the company to pay affected consumers up to $ 9 million in compensation and a $ 2.5 million fine.
The company uses vendors for marketing and receiving applications for loans from consumers at the point of sale. The CFPB claims, among other things, that sellers applied for loans without the knowledge of the consumer and entered their own email addresses as the consumer’s address in the loan application, resulting in the company sending loan documents to sellers rather than to the consumer.
In addition to civil fines and consumer damages, the consent order requires FinTech to (i) verify the identity of consumers; (ii) confirm consumer approvals prior to loan activation or loan disbursement; (iii) implement an effective consumer complaint management program; (iv) exercise effective oversight of third party trading partners; and (v) implement consistent standards governing illegal loan write-offs.
We put it into practice: This latest enforcement action is a set of important reminders for fintech companies. The order of consent includes two of the most subtle consequences:
- This action dates back to the Obama-era CFPB scrutinizing companies for the actions of their suppliers and trading partners, and signals a renewed regulatory expectation that companies must commit sufficient resources and staff to manage suppliers and comply with regulatory requirements, especially with regard to auditing. in order to ensure that legal requirements are followed and followed in accordance with CFPB guidelines (see CFPB Bulletin 2016-02).
- As investment in FinTech continues to skyrocket in 2021, private equity and venture capital funds with multiple options to partner with FinTechs are placing increasing emphasis on regulatory due diligence. As competition grows among fintech companies for investors, companies embarking on new rounds of funding will want to evaluate their processes for vetting and monitoring third-party relationships to satisfy potential investors.