Last year, the Federal Trade Commission stepped up its involvement in fintech by launching a FinTech Series to explore how new technologies and services impact consumers—and offer guidance on how to best serve them. Over the past few years, for instance, the FTC has settled cases with everyone from Bitcoin mining operations to retail tracking firms to Amazon for deceiving customers; helped bring the issue of mobile phone “cramming” to the forefront; hosted public events about peer-to-peer payments, mobile security, and big data; and funded reports about mobile payments and the Internet of Things, among others.
Overall, the FTC has brought its mission of protecting consumers and promoting competitive practices to bear across all sorts of consumer services—indeed, it’s the regulator that all businesses and startups share—but it has special relevance for fintech. Here’s why.
A short history of the FTC
The FTC was established in 1914 by the Federal Trade Commission Act, signed by Woodrow Wilson, which was designed to reform business practices. The FTC’s predecessor, the Bureau of Corporations, was created several years earlier in response to an unconstitutional railroad merger that threatened to monopolize train traffic throughout the country and nearly crashed the stock market. The FTC absorbed the Bureau of Corporations’ responsibilities—enforcing antitrust laws and ensuring competition—and also became responsible for challenging unlawful methods of competition and enforcing regulations against price discrimination, stock acquisitions, and the ability of directors to serve on multiple boards.
In the century since its founding, the FTC’s role has expanded as major innovations like television, radio, the Internet, and smartphones have changed the landscape of commerce in the country—but its goal remains the same: to promote honest business practices and ensure consumers have choices.
What the FTC does, exactly
At its most basic, the FTC focuses on protecting customers and businesses from fraud. What that comes down to in practice is a variety of different actions divided into the purviews of three bureaus: the Bureau of Competition, the Bureau of Consumer Protection, and the Bureau of Economics.
The Bureau of Competition has the authority to enforce antitrust laws, which ensure lower prices, prevent monopolies, and guarantee choices for consumers. This bureau also facilitates government review of mergers.
The Bureau of Consumer Protection focuses on enforcing federal laws and trade regulation rules to guard against fraud, false advertising, or other deceptive practices. This bureau conducts investigations, sues companies that break the law, and makes rules to maintain a fair marketplace. As new technologies come on the market, this bureau studies them and evaluates relevant practices to see how they impact consumers—and whether the FTC needs to intervene. The FTC collects customer complaints about the Do Not Call registry, data security, and false advertising, for example, and sends data to law enforcement agencies when necessary.
Finally, the Bureau of Economics is responsible for conducting studies and generating reports specifying what economic impacts various business practices have on customers.
The FTC also places a significant emphasis on investigating identity theft—its number-one customer complaint—emerging from anything from stolen mail to payment card fraud. It aggregates complaints on the matter and from there determines what federal action would be the most appropriate. For example, the FTC recently settled with a healthcare company after determining that the company’s laptop and data security policies led to a data breach exposing 23,000 patients’ personal information. As a result, the company must implement a comprehensive data security program that gets evaluated every two years.
How fintech fits in
It’s no surprise that the FTC has a growing interest in fintech, given the fact that advances in the sector touch consumers’ lives in so many ways—from making purchases to viewing advertisements and sending money. And because so many fintech companies bring wholly new approaches and even influence consumer behavior, the FTC’s understanding of this space is critical. So far, the FTC has made its interest known in how customers use fintech tools like virtual currencies, crowdfunding platforms, and mobile payment options, for example. The FTC also conducts workshops for businesses and customers, conducts investigations when necessary, and writes reports. In short, the FTC’s mission applies to fintech just as much as it applied to older technologies or means of interacting with customers.