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