FinTech Law TL;DR (May 7)

See also, Schrodinger's Bank

Hi all 👋

Shoutout to Andrew Cosgrove for being the 200th subscriber here! Go follow him!

BlueVine is still looking for a Product Counsel and BSA/AML Manager. Come work with me!

Also, next Thursday (10-11 AM PST) I’ll be on a panel about what fair lending and inclusivity look like for FinTechs, hosted by Goodwin.

Onto the top headlines from FinTech legal land...

Chime Settles Banking Claims

Chime had previously used “chimebank.com” and the words “bank” and “banking” in its ads in a way that implied it was a bank.

Slight problem: under California law you can’t claim to be a bank if you’re not a bank. 

Chime has now reached a settlement with CA’s financial regulator to stop doing this. There wasn’t a financial penalty in the settlement; Chime mainly just agreed to change its language.

One consequence: you may start hearing FinTechs that partner with banks use the words “neobank” and “challenger bank” less and less. 

Ron Shevlin @rshevlin

@jasonhenrichs @rexsalisbury Number of customers that will leave @Chime because of this: ZERO

Gensler Doesn’t Like Confetti

The SEC is preparing a request for public input on how to best regulate mobile trading apps like Robinhood.

SEC Chair Gensler specifically called out gamification, behavioral prompts, predictive analytics, and differential marketing in written testimony. 

How much confetti is too much? 8 pieces? 9? 🎉

The law has used behavioral psych insights to nudge people towards their long term interest (e.g., changing 401(k) contributions from opt-in to opt-out).

But we probably also want laws and regulations that say you can’t nudge consumers detrimentally. And financial services is a good use for nudge limits.

Gensler noted that investing isn’t like Netflix. A bad algorithm recommendation doesn’t just cost you an hour. It can cost you part of your retirement, and that may warrant guardrails.

Fed Accounts and Payments Guidelines

Some in FinTech have been clamoring that financial institutions without bank charters should be able to access things like the Fed’s payment rails (ACH and wire).

On Wednesday, the Fed proposed six principles to guide how Federal Reserve Banks¹ should evaluate requests to access Fed accounts and payment rails.

There was some commotion that this good for FinTech but...I don’t think it’s as significant as people think?

TL;DR:

• Accounts: the Fed offers accounts to banks, the federal government, and certain other institutions; those account are used to access things like the discount window.

• Payments: the Fed runs the ultimate rails that most ACH and wire transfers run on.

Generally, only banks can access Fed accounts and payment rails. And the new guidance seem to stick with this.²

What it does open up is that maybe, just maybe, a Figure-style OCC bank charter³ could access Fed accounts and payments.

But the Figure-style charter hasn’t been approved. And Biden’s OCC is likely to be less friendly to the idea.

So…practically, this new proposal doesn’t seem to do much for Fintech.⁴

Elsewhere…

• Two North Dakota trade groups have sued the Federal Reserve for failing to keep debit interchange fees at reasonable levels.

• Biden’s infra plan would require banks and P2P payment service providers to report annual flows to the IRS. Because, y’know, tax evasion.

• First of its cross-border kind: Singapore and Thailand have linked their real-time payment systems. 

• NY’s financial regulator issued a report following the SolarWinds hack, and identified ways companies should reduce supply chain risk. Vet your vendors.

• The Paycheck Protection Program ran out of funds this week (for most lenders).⁵

Sui Generis (Fun Finds)

Here’s a great Harvard Business Review piece: Banks with More Women on Their Boards Commit Less Fraud: 

“[B]anks with more female directors faced lower and less-frequent fines for misconduct, saving those institutions $7.84 million a year, on average.”

If you enjoyed this week’s update…

About

Hi. I’m Reggie. I’m a lawyer at BlueVine. Come say hi.

Any views expressed are my own (well, sort of? I mean, they’re based on laws and regulations, so they’re not really “mine”?). Nothing here is legal or financial advice.

Here are the foundational FinTech laws and regs if you want a closer look at anything.

1. The Fed has 12 regional banks. Which bank you have to use depends on where you are, and sometimes can depend on what you’re doing. E.g., the San Francisco Fed handles banks on the best coast.

2. For the lawyers, see Principle 1.a. of the proposal: “Unless otherwise specified by federal statute, only those entities that are member banks or meet the definition of depository institution under section 19(b) of the Federal Reserve Act are legally eligible to obtain Federal Reserve accounts and financial services.”

3. In the charter Figure is going for, they could lend, handle payments, and take custody of large deposits over $250K only from accredited investors. That last bit means Figure would not need FDIC insurance and thus not be regulated by the FDIC, and Figure’s parent would not be a Bank Holding Company supervision by the Fed. Banking trade groups don’t like this at all. See the TL;DR on banking options for more.

4. Please reach out if you disagree! This is a very fresh release and I’m still thinking it through.

5. Not newsworthy for most people but it’s been my life the past few months so I couldn’t not include it!