Last Fall, in its 2015 Rulemaking Agenda, the Consumer Financial Protection Bureau (“CFPB”) signaled its intent to “to develop rules to define larger participants in markets for consumer installment loans.” Under the Dodd-Frank Act, the CFPB is authorized to issue “larger participant” rules to define entities in a particular market for consumer financial products or services. The issuance of such rules opens the door for supervisory and examination authority over such entities. Fast forward to Spring 2016, when the CFPB announced that it is accepting complaints from consumers regarding alleged problems with online marketplace loans, and it appears that the CFPB has marketplace lenders squarely in its sights.
On Monday, the United States Supreme Court issued its long-awaited decision in Spokeo, Inc. v. Robins, — U.S. — (No. 13-1339). In rendering its decision, the Court reiterated that to establish Article III standing, a plaintiff must plead an injury-in-fact that is both particular to the plaintiff and concrete. The Court explained that whether a plaintiff has pleaded sufficient facts to allege a concrete injury requires more than just examining whether the plaintiff has pleaded that the defendant violated a federal statute. In particular, the Court held that “a bare procedural violation, divorced from any concrete harm,” does not suffice to “satisfy the injury-in-fact requirement of Article III.” Slip op. at 9-10. As such, the Spokeo plaintiff’s allegation that the defendant’s actions had violated the Fair Credit Reporting Act, 15 U.S.C. §§ 1681, et seq., would not, by itself, demonstrate a plausible injury-in-fact. Rather, “Article III standing requires a concrete injury even in the context of a statutory violation.” Slip op. at 9.
U.S.-based digital banking startups have raised more than $10 billion since 2010, and investment in financial technology (“fintech”) companies has surpassed $24 billion worldwide. These firms are attempting to disrupt the banking value chain by providing services such as lending, bill payment, wealth management, and mobile banking. The significant federal and state regulation of these services create an obstacle for these fintech companies that technology companies in other vertical markets, such as social, internet infrastructure, and enterprise technology, do not face. It is critical for these companies, at the earliest stages of development, to understand how and when to engage with regulators and to build a culture of compliance, and it is critical for regulators to listen and adapt to the complaint from traditional banks and startups that the current regulatory framework stifles innovation and is unable to provide oversight for new forms of finance and banking.
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