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Keeping FinTechs Litigation-Free

In a paper published on Bloomberg BNA on Monday, Buckley Sandler LLP Partner Elizabeth McGinn, Firm Counsel Antonio Reynolds, and Associate Jessica Shannon analyze what fintech firms should be cautious of.

With traditional lending systems such as banks not meeting the needs of consumers, fintechs and online lending platforms have become a much more valuable resource for investors and consumers. The Office of the Comptroller of the Currency expanded fintech ability by granting bank charters to qualifying companies.

The OCC would allow fintech firms to apply for special bank charters, and with that would come increased scrutiny. The paper notes that as fintechs become more and more popular, they should become more cautious of their security. Fintechs can use non-traditional data to underwriting and lending techniques to assess the credit worthiness of loan applicants using online information gleaned from social media, etc., notably loan applicants that may appear as “credit invisible” to other institutions.

The use of the internet brings security risks. “ FinTech firms should be aware of potential risks about the types of alternative data they collect and the means through which they obtain that data,” said the paper. This “alternative data” raises a number of fair lending and privacy concerns.

Fintech’s should ask themselves two questions when drawing information from a consumer, according to the paper: “Did the consumer actively provide the data to the FinTech firm or authorize the FinTech firm to obtain the data through review of consumer reports or other reports?” and “did the FinTech firm provide legally sufficient notice to the consumer relating to the terms of use of the website and the specific information that the FinTech firm would be collecting, as applicable?”

In order to reduce litigation and enforcement risks, fintechs must establish and maintain policies and procedures that ensure lawful actions when collecting data.

About Author: Seth Welborn

Seth Welborn is a contributing writer for DS News. He is a Harding University graduate with a degree in English and a minor in writing, and has studied abroad in Athens, Greece. An East Texas native, he also works part-time as a photographer.
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