Over the past few weeks, the Trump administration has imposed deep cuts at federal financial regulators. The Consumer Financial Protection Bureau (CFPB) is on life-support with its staff locked out of their headquarters, supervisory exams on hold, and enforcement cases being dropped. The Federal Deposit Insurance Corporation fired 700 employees on the last day of February. Even the Office of the Controller of the Currency has endured job cuts.
With this degradation of federal oversight of financial services, it is reasonable for a lender of fintech to question how many resources it should still commit to compliance versus competing priorities.
For companies intentionally skirting the gray areas of the law, these cuts are thrilling. They now have a better chance to engage in these activities in the short-term without troubling questions from federal regulators.
But for the vast majority of companies, compliance should still matter, and here is why.
Key Reasons Compliance Should Still Be a Priority
- The States will fill in the gap: Regulators abhor a vacuum. There are 50 state regulators who are incentivized to increase their regulatory oversight if federal regulators dial back. Under the Dodd-Frank Act (see 12 U.S.C. § 5552), states (both financial regulators and the Attorney General) have authority to enforce certain federal consumer financial laws. Additionally, states already have their own independent laws to enforce consumer protection and are bulking up even further. New York State Attorney General Letitia James, for example, recently introduced the FAIR Act, which has provisions to address predatory lending, hidden fees, misleading subscription policies, online scams, and deceptive health care billings. More is sure to come.
- Private litigants can still go after companies for violations: A number of federal and state laws have a private right of action, including the Telephone Consumer Protection Act, the California Consumer Privacy Act, the Fair Credit Reporting Act (FCRA), the Equal Credit Opportunity Act (ECOA), and the Fair Housing Act. Defending individual actions and even riskier class actions can lead to substantial financial and resource expense for your business. An effective compliance program reduces exposure to these costly suits.
- Beware a future change in administration: A future administration under a different president may prosecute your company for current violations. Discrimination claims under ECOA can be brought as many as five years after the alleged violation, so your company’s action today could be subject to scrutiny by a new federal administration in 2028. Keeping a consistent compliance program enables companies to avoid regulatory risk that comes from shifts in political leadership.
- Good compliance programs reduce reputational risk. Even in the absence of federal or state enforcement, compliance serves a role in mitigating reputational harms. Nobody wants their business practices showcased in a multi-part expose in a metropolitan newspaper or a website that attracts millions of readers. Effective compliance operations can mitigate the risk that your business draws the press’s or the public’s ire.
- Effective compliance fosters consumer trust: Many government regulations exist as a direct result of known consumer harms in the marketplace. To wit, Congress passed the FCRA after years of egregious practices by credit bureaus where false, and even defamatory, information was put into consumers’ credit files. Thus, typically, when a company has a strong compliance program, it has built-in safeguards that protect consumers, foster consumer trust, and maintain the value of the company’s brand.
- Compliance is good for business: Irrespective of its role in addressing outside legal and regulatory risks, the compliance function is good for your business because it promotes good business hygiene. Predictable and consistent in-house compliance practices makes it easier to train newcomers and get alignment across teams. Compliance also operates as a forcing function to keep data assets organized, to understand and assess business processes, and to monitor business activities. This type of monitoring can have positive impacts on business strategy, operational efficiency, and customer experience.
Final Thoughts
So, my advice to companies reassessing their compliance function, is stay the course. Businesses will do well if they ignore the political winds and implement their established compliance programs with the same vigor as ever.
