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Regulators build fast lane for ‘new money’ ideas

Fred Williams

“Old money is stuck in the past,” PayPal’s Super Bowl ad declared. “New money gets better every day.”

PayPal’s app lets you send money to people via their email address or mobile number. Other new-money ideas are bolder still: Alternative credit scores based on social media might help young borrowers get lower interest rates. Peer-to-peer lending apps that match borrowers with lenders could help people avoid payday loans.

But if old money is stuck in the past, so is money law — law that protects you from surprise fees and interest, slanderous credit reports and other financial pitfalls.

On Thursday the U.S. Consumer Financial Protection Bureau announced a regulatory fast lane for new money. The consumer watchdog announced it will issue “no-action letters” — a provisional OK — for new financial technologies that weren’t anticipated by the Truth in Lending Act, the Fair Credit Reporting Act and other bedrock consumer protections.

“This new policy is designed to improve access to consumer financial products and services that promise substantial consumer benefits,” CFPB director Richard Cordray said in a statement.

Under the no-action letter policy, companies describe the idea they’re working on, including how it will affect consumers. The agency reviews the plan and decides if it merits a no-action letter. Companies that obtain a letter can move forward without fear of being pounced on by the watchdog agency’s enforcement office.

“There’s a gap between the rapid innovation coming out of Silicon Valley firms and New York, versus the patchwork quilt of old regulations,” said Jennifer Lee, a partner at the law firm of Dorsey & Whitney and a former CFPB enforcement attorney.

Lee called the agency’s no-action letter policy a step forward, but said that questions remain about how it will play out. The text of the policy suggests that only a few letters — one to three a year — will be produced. And companies will need to be sure that their trade secrets won’t fall into the public domain when they unveil their plans to the agency, she said.

The policy is part of the CFPB’s “Project Catalyst” launched in 2012 to trim red tape for financial technology firms. In 2013 the agency launched a trial disclosure waiver policy, giving flexibility to financial disclosure rules that were designed for a paper-and-ink world.

Bank industry groups were skeptical about Thursday’s announcement, but the Electronic Transactions Association, a trade group for payments and technology companies, gave a thumbs-up. “Regulatory uncertainty chills innovation,” CEO Jason Oxman said in a statement, “so a more flexible regulatory structure that supports innovation will benefit consumers and merchants.”

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