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possibility for a one-year extension. Up to 10,000 Arizona residents can use a Consumer advocacy groups have
participant's product or service, although a participant may be able to serve up expressed concerns that these
to 17,500 Arizona residents if it demonstrates sufficient capitalization and risk programs could put customers at
management. A participant may also enter into transactions with an Arizona risk of predatory or failed fintech
resident of up to $15,000.00, and up to $50,000.00 in aggregate transactions per products. Moreover, not all states are
Arizona resident. eager to allow sandbox programs in
their jurisdictions.
The Arizona Consumer Fraud Act also remains applicable to program
participants, as do all statutory limits and caps in Arizona law related to Maria T. Vullo, the head of the
financial transactions. For example, payday lending is prohibited in Arizona, Department of Financial Services of
and other small dollar loans are capped at a 36 annual percentage rate. New York, stated, "The New York State
Department of Financial Services
Promising opportunities fiercely opposes the Department of

One promising provision of Arizona's program is "passporting" (which is Treasury's endorsement of regulatory
currently available under European Union law between Member States) which 'sandboxes' for financial technology
will allow a participant in Arizona's program to operate in other jurisdictions companies. The idea that innovation
with similar programs, and likewise allow participants in another state's will flourish only by allowing
sandbox to enter into Arizona's sandbox program. Once additional states companies to evade laws that
establish comparable programs, that provision will allow participants in protect consumers, and which also
Arizona's program to operate in other jurisdictions with similar programs, safeguard markets and mitigate risk
which will provide additional markets and opportunities. for the financial services industry, is
preposterous."
Despite the obvious business opportunities that sandbox programs offer
innovative fintech entrepreneurs, the programs are not without controversy. Nevertheless, other states will explore
sandbox programs as a way to attract
and support fintech innovators to
develop their own fintech ecosystems.
As the first U.S. sandbox program,
Arizona's program may serve as a
model for other states looking to
implement similar programs.

The potential business opportunities
presented by state-level fintech
regulatory sandboxes are obvious.
Innovative fintech entrepreneurs
have an opportunity to launch and
test new products, services, business
models and delivery mechanisms
without incurring the typical
regulatory costs and burdens. Now
is the time to reap the benefits of
playing in the "sandbox."

Josh Herndon is an attorney at the Global
Legal Law Firm, whose attorneys are well
recognized as top payments industry experts.
Herndon works in the compliance field
helping electronic payment companies avoid
violating rules, as well as avoid being fined,
arrested or sued from internal or external
threats. He is also involved in litigation in
the payments space. He can be reached at
jherndon@attorneygl.com.

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