Cred’s General Counsel weighs in on the state lending license acquisition process.
At Cred, our job is to build the best company for our customers. That means top-notch security, risk management, and legal/regulatory compliance. As our name suggests, we are in the business of providing different credit products to the blockchain community. Our best-known product is a crypto-secured line of credit in which we allow our customers to earn a yield on the crypto they pledge as collateral. Acquiring a state lending license is an arduous process. As General Counsel of Cred, my job is to work with regulators to educate, inform, and secure a lending license by working with regulators on an ongoing basis.
Prior to becoming the newest member of the Cred team, I was a partner in a large law firm and represented banks, fintech companies, credit unions, and other financial institutions during their most important challenges for 22 years. I joined Cred because their business model is exciting and ambitious and I wanted to educate regulators on Cred’s goals, products, and clientele.
Every state in the United States regulates lending in some way. Some states require us to acquire a state lending license before we can offer Cred in their state. It is taking longer than we expected for some states to understand what we are doing. Some, like California, were quick to understand. However, we are optimistic that all states will be on board soon. Cryptocurrency regulation in the United States is still evolving. It can take time and patience to work with regulators to help them understand how we safeguard customer assets and how we ensure that our business practices comply with all State and Federal regulations.
Most states’ lending licensing laws are poorly written and are hard to understand. Most were written decades ago. Most state regulators have an incomplete grasp of fintech, blockchain, and cryptocurrency and struggle to apply their archaic laws to technology and products they barely understand.
As a result, the process of obtaining a license is lengthy and typically involves the following:
- The fintech company first analyzes archaic state laws to decide whether they apply at all, and if so, whether a license is required, what type of license is required, and how the product can be offered as a licensee.
- The company then applies to the state for a license. Application involves explaining the product to regulators in a way they understand. It also involves explaining to the regulators how their laws should be interpreted to an innovative financial product. This usually requires multiple rounds of calls, changes to the product and revisions to the numerous documents involved.
- Once the license is granted, the company has to submit to an examination by the state and find a way to offer its product while complying with byzantine rules designed decades ago for products that are now obsolete. If the company makes the slightest technical error in complying with those rules, the state will typically demand fines and impose an embarrassing public consent order on the company. A company like ours has to track and follow regulations in all 50 states, which is a complex task.
It is no secret that obtaining and keeping a license is an expensive, time-consuming and frustrating process. For that reason, some of our competitors find it easier to take a minimalist approach to compliance or simply ignore the laws altogether. That is their choice but it is not ours. We are building a world-class enterprise for long-term success. It can take time to do things the right way.
We understand that members of the community and Cred platforms users have been frustrated that Cred cannot provide a product because of the state in which you live. We understand that your frustration is motivated by enthusiasm for our product and we appreciate your enthusiasm. We do look forward to serving you in your state as soon as possible!