Regulators on both sides of the Atlantic are proposing guidelines that may negatively impact the global sharing economy, according to a number of financial analysts. Framed as protecting the rights of individuals and small business owners, these statutes, if enacted, would restrict U.S. fintech firms from freely trading in select markets where they currently operate at scale.
The European Union and the U.S. Consumer Financial Protection Bureau are reviewing proposals that some fintech companies view as unfriendly to business; legal analysts cited recent developments with Uber and payday lenders as examples of how rapidly regulatory agencies can transform ideas into law.
"It didn't take long for European authorities to regulate Uber, but licensing is a tangible issue; you either have a license or you don't," said Paul A. Rianda, a California-based attorney specializing in payments and alternative lending. "Alternatively, the CFPB expanding its reach beyond payday lenders who overcharge consumers to cash advance companies providing services to merchants may blur the lines between consumers and small business owners."
"The CFPB may be thought of as the 'consumer bureau,' but there are good reasons why anyone in commercial lending should be paying attention to the CFPB," said Jonathan Pompan, Partner at Venable LLP and co-chair of the firm's CFPB Task Force. "For one, the bureau takes a very broad view of its jurisdiction and the markets it regulates; on top of that, many of the statutes it enforces ‒ including prohibitions of unfair, deceptive, and abusive acts or practices and the Equal Credit Opportunity Act ‒ give the agency a toehold into certain commercial lending transactions."
Other areas where commercial and private sectors overlap include debt collection, payments and the push to regulate small-dollar loans, Pompan added. "Fintech marketplaces are a great example of how consumer and commercial loans are offered sometimes at almost the same time," he said. "This can result in a scenario where the CFPB's scrutiny on the consumer side can cascade to an impact on the commercial side."
CFPB Director Richard Cordray suggested that some commercial loans are structured on a particular lender's "ability to collect" versus a borrower's "ability to repay." These technology-fueled models enable lenders to electronically access consumer checking accounts and merchant processing accounts, potentially creating spiraling debt cycles, he said.
Capping renewals on short-term credit markets and requiring lenders to present affordable repayment options would protect consumers and small business owners, the CFPB stated. While these proposals are under review, consumers and small business owners are encouraged to file complaints against commercial lenders on the CFPB website.
An EU strategy paper outlined a two-year plan to create a single digital economy that would "restore Europe as a world leader in information and communications technology." The paper alludes to technology platforms that have "profoundly challenged the status quo" and makes a case for creating favorable economic conditions to facilitate innovation and commerce across all 28 member countries.
The plan would harmonize cross-border tariffs and copyright laws by creating a single audit for companies that sell across borders. The plan also calls for creating a uniform telecom infrastructure to foster competition and innovation in that industry. The EC plans to amend its electronic privacy directive, which governs telecom companies' handling of personal data, in mid-2017.
The impact of EU initiatives on U.S. firms that operate internationally is still unknown. U.S. companies had mixed reactions to Europe's efforts to align its disparate economies. In a May 3, 2016, conference in Brussels, Jeffrey Immelt, Chief Executive Officer at General Electric Co., said the initiative would help Europe compete in the global economy. James Waterworth, Vice President, Europe for the Computer and Communications Industry Association, found merit in some of the proposals and called others "ill-conceived."
The European Commission is evaluating how technology platforms access and publish copyrighted material, the CCIA stated. Ancillary copyright laws in Spain and Germany are rumored to be models for an overarching European law that would force Google and other search engines to pay a user fee for publishing copyrighted material. Google stopped doing business in Spain in 2014, when the so-called Google tax was enacted.
"Internet companies have been gnashing their teeth over the European Commission's concerns over online platforms," wrote EurActiv journalist Catherine Stupp, who noted that Spanish and German news editors have criticized the Google tax as a "broken law" and a bold-faced effort to "extort money out of Google."
An open letter to the EU signed by 47 leading technology companies and published Feb. 6, 2016, urged the EU legislative body to enact reforms that would remove obstacles and enable commerce in the European market without marginalizing U.S. technology firms. Signatories included Uber, Airbnb, GrubClub and DogBuddy.
"As innovators, we are challenging more established methods of product and service delivery, and those whose businesses are based on them," the collective authors wrote. "This new way of operating is making better use of resources, allowing more efficient allocation of supply and demand, creating new sources of income, promoting micro-entrepreneurship and flexible working and offering greater market choice and convenience."
The letter suggested collaborative economy innovators could play a pivotal role in Europe's Digital Single Market Strategy, including "guidance on how existing European law applies to our innovative business models."
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