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Vol. 9: CFPB Sets Agenda, FTC Digs in to Data Privacy

Welcome to the newest installment of Fintech News and Notes! A thoughtful summary of the most important trends and updates across Fintech, written by our very own Eric Weingarten.

Eric Weingarten
Published
October 14, 2021
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3 Things on Our Radar

New CFPB Chair Message to CFPB Staff

-Rohit Chopra sent an introductory email - posted on the CFPB website - to CFPB staff immediately after he was sworn-in earlier this week.

-Chopra framed the current circumstances facing the CFPB as a “fragile moment for our economy and country”, emphasizing the “uneven recovery” out of the COVID pandemic and how that uneven recovery has “put into clearer focus the longstanding systemic and structural barriers we must overcome to build a more inclusive economy.”

-Chopra identified the following fundamental goals “to fulfill [the CFPB’s] mission”:

  • Ensure the financial marketplace meets the needs of all families, workers, and communities. Promote competition and shifting market power toward consumers and law-abiding businesses.
  • Strive for a marketplace where families are treated fairly and can seek help when they’re in trouble.
  • Anticipate emerging risks so that the CFPB can act before a crisis, rather than acting after it is too late.

-We read the above as first order principles that will guide the CFPB’s actions under Chopra.

-Chopra will be speaking in front of Congress at a House Financial Services Committee oversight meeting on October 27. We expect that he will touch on the themes above. We look forward to providing highlights of his discussion with Congress.

FTC Report to Congress on Data Privacy and Security

-Last month the FTC delivered a report to Congress providing an overview of the FTC’s authority over data privacy and security, their recent efforts regarding the same, and focus areas going forward.

-The FTC regulates data privacy and security pursuant to a variety of statutes, including (a) protecting against unfair and deceptive business practices under the Federal Trade Commission Act, (b) the financial data privacy protections under the Gramm-Leach-Bliley Act (GLBA), and (c) the consumer credit protections under the Fair Credit Reporting Act (FCRA).

-The FTC highlighted that recent enforcement efforts have focused on “addressing the types of privacy concerns that may be heightened by the pandemic and addressing technologies or types of data that may exacerbate existing racial inequities.”

-The FTC lists four focus areas related to data privacy and security going forward, (1) integrating competition concerns into their review, (2) expanding remedies for consumers, (3) focusing on digital platforms, and (4) expanding their understanding of algorithms and how those impact consumers.

-The FTC requests expanded staffing to more fully focus on these areas, which it states would enable it to: (1) expand capability to holistically address privacy violations, (2) develop additional privacy related rules, (3) expand ability to investigate and litigate, (4) increase monitoring of compliance with existing enforcement orders, and (5) expand analytics capabilities.

-As we’ve reported in this space previously, new FTC Chair Lina Khan has signaled numerous times that the FTC will be very proactive in protecting consumers against abusive use of technology - this is a similarly strong signal.

Money20/20 Conference

-One of the most significant US-based annual fintech conferences, Money20/20 will be held this year October 24-27 in Las Vegas, Nevada.

-While fundamentally a networking and go-to-market driven conference, the core themes to be covered during the conference sessions are a fascinating narrative of the most important issues in fintech today:

  • Product innovation edges

  • Data privacy, security, and compliance

  • Decentralized finance and tokenization

  • Tech stack modernization as fundamental infrastructure

  • Our team will be attending Money2020 - we’d love to meet with you in person if you are there- visit us at booth 1005 near the west entrance!

One Big Thing

Continued Congressional Engagement on Fintech

-Fintech is front and center in DC policy discussions, whether in Congress itself or at various regulators - e.g., at the CFPB (Section 1033 rulemaking), OCC (Saule Omarova nomination), SEC (Gensler’s increased focus on regulating crypto), FDIC (Tech Sprint and related innovation efforts), and FTC (direction from President Biden to look at competition and consumer protection impacts of non-banks entering financial services markets).

-The US Congress continues to focus on fintech from a variety of angles. There are a number of relevant hearings and talks just in October.

-Yesterday (October 13, 2021), the House Financial Services Committee Task Force on Artificial Intelligence held a hearing entitled Beyond I, Robot: Ethics, Artificial Intelligence, and the Digital Age

-Today (October 14, 2021), the House Financial Services Committee Subcommittee on Oversight and Investigations holds a hearing entitled Cashed Out: How a Cashless Economy Impacts Disadvantaged Communities and Peoples

-Also today, the US Chamber of Commerce holds a “tech talk” with Representative Jay Obernolte (R-CA) focusing on data privacy, artificial intelligence, and other tech issues.

-As noted above, new FTC Chair Rohit Chopra is expected to speak at the House Financial Services Committee’s semi-annual CFPB oversight hearing scheduled for October 27 entitled “Bringing Consumer Protection Back: A Semi-Annual Review of the Consumer Financial Protection Bureau.” We expect the CFPB’s fintech oversight to be one of the primary topics addressed, with specific focus paid to the CFPB’s pending Section 1033 rulemaking.

-Fintech is top of mind for policy makers in Washington, DC. While there are a variety of legislative initiatives being discussed during these events, we think the most salient observation is the high level of engagement from all sides. Fintech isn’t a single party issue. While legislators and various lobbying groups are not necessarily in agreement on how best to foster innovation, ensure competition, and increase consumer protection, all constituencies appear to broadly agree on these goals as a foundation. That in and of itself is not always a prerequisite to debate in DC, and may point towards a real possibility of more clarity in how fintech is regulated going forward.

What We’re Reading:

Use of Machine Learning in Credit Underwriting

Another timely report by FinRegLab in a series of empirical studies looking at the use of AI in financial services; this report surveys market practice using ML in underwriting, providing an informative overview of current questions, debates, and regulatory frameworks.

Regulation of Digital Banking

A report by McKinsey providing an overview of how digital banking is regulated in different ways around the world, highlighting different approaches to KYC, licensing, and implementation of regulatory frameworks.

OCC Nominee's Views of Fintech

Following-up on the nominee to head the OCC, this article published in Roll Call provides an accessible summary of Saule Omarova’s thinking on fintech and how that thinking is viewed by both proponents and critics of her nomination.

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