October 14, 2016

FinTech Startups Have to Play by the CFPB’s Rules, Too

Sometimes the values that define startup culture are at odds with the realities of regulatory compliance. Case in point: last month, the Consumer Financial Protection Bureau imposed a fine of several million dollars on LendUp after discovering that the financial services startup had misled consumers and failed to meet a host of regulatory requirements.

Meet LendUp – A VC Darling in the Financial Services Space

LendUp, a San Francisco-based company that offers alternative forms of small-dollar lending and installment loans, has won investment from prominent venture capital firms like Y Combinator, Google Ventures and Kleiner Perkins. The company has grown at a meteoric rate since its founding in 2012. Over the course of that relatively short history, it’s been featured in TechCrunch, VentureBeat and Time—which labeled LendUp’s services as “an innovative new payday loan banking model that’s more Silicon Valley than Wall Street.”

Is Fast Growth a Recipe for Non-Compliance?

That degree of growth and recognition doesn’t come easily. Like any emerging tech company poised for success, LendUp has had to embrace the hyper-competitive ethos Silicon Valley is known for. It’s a set of principles that compels founders to shun traditional business wisdom, pivot, go big or go home, fail fast and fail often. It’s an attitude that can make the experience of working for a startup electrifying, nerve-wracking and a lot of fun.

It’s also a recipe for noncompliance. Quoth Richard Cordray, director of the CFPB:

“LendUp pitched itself as a consumer-friendly, tech-savvy alternative to traditional payday loans, but it did not pay enough attention to the consumer financial laws.The CFPB supports innovation in the fintech space, but startups are just like established companies in that they must treat consumers fairly and comply with the law.”

Youth and Inexperience Don’t Give You a Free Pass

It’s an attitude that can make the experience of working for a startup electrifying, nerve-wracking and a lot of fun.

Startups like LeadUp don’t have to choose between scaling and ensuring regulatory compliance. An automated compliance program makes it easy for any company at any stage of growth to meet the CFPB’s requirements. Learn more about Compli’s solutions for financial services providers.