Vol. 1: Credit Reform, Fintech Charters and the Van Buren Decision

The identity platform we are building at Truework is part of a larger movement within fintech to broaden access to financial services for a greater number of individuals. Individuals that - for a variety of reasons - face structural barriers to opening a bank account, building savings, credit, investing, growing wealth, etc.

While there are an unlimited number of fintech products and services being developed, all of these invariably thread back to financial inclusion.

There is lots of news in this space, coupled with even more noise. We want to help you cut through all of that and stay up-to-date on what matters. That’s why we’re starting this blog series.

Every two weeks we’ll publish a curated look at what matters in fintech as it relates to personal data and identity.

Our objective is to inform, so our editorial principles are simple:

1. Fact-based
2. Observational
3. Accessible
4. Non-partisan

Our format will be consistent:

1. Three hot-button topics on our radar
2. One big question we can’t stop thinking about
3. A must-read list of relevant content

Let’s get started!

3 things on our radar

The fight for consumer access to payroll data

-There is an ongoing debate and potential rule making in the US regarding consumer rights to access their financial data.

-An important step was made earlier this month when the US Supreme Court determined (Van Buren v. United States) that a police officer using authorized access to a law enforcement database for non-authorized purposes did not violate federal criminal law (the Computer Fraud and Abuse Act) intended to deter unauthorized access to computer systems (i.e., “hacking”).

-While this decision doesn’t specifically reference payroll data, it raises interesting implications for consumers who access their own payroll records for things like identity verification during a loan application. See below for a more detailed discussion.

“Fintech charters” opening financial access to those who need it most

-Fintech firms are increasingly offering new payment, credit, and related financial products, including instant money transfers, buy-now-pay-later credit, early wage access, and other new kinds of short-term financing. Such products are often utilized by the under- and unbanked, and individuals that find it difficult to demonstrate creditworthiness regardless of their ability to pay.

-These firms are licensed and regulated in a variety of ways, but often at a State-level. That requires them to obtain licensing in every state they operate. This is expensive and time consuming.

-In order to simplify their regulatory requirements and lower costs - which will allow for wider reach to consumers that most need these products - many of these firms are seeking a national regulatory framework. In 2018, the US Office of the Controller of the Currency (OCC) announced an initial “fintech charter” program, with an expanded proposal floated in 2020.

-This month a US Appellate court rejected New York State’s financial services regulator’s argument that the OCC’s fintech charter encroached on activities reserved for State financial services regulators. The court’s decision is by no means the end of this discussion, as there remain serious challenges from State attorneys general, legislators, regulators, and a variety of advocacy groups. While we expect an increasing push for innovative financial charters as demand for new financial services rises, the future of these charters is unclear. This is something we will continue to watch.

All eyes on credit reform in DC:

-The Biden Administration, representatives in Washington, DC and various agencies, including the Consumer Financial Protection Board and the Federal Trade Commission, are considering reforms to how credit is regulated in the United States, including revising the Fair Credit Reporting Act.

-As part of this discussion, we expect a focus on how credit is reported, assessed, and verified.

-On June 29, the US House Financial Services Committee will hold a hearing focusing on credit reporting: A Biased, Broken System: Examining Proposals to Overhaul Credit Reporting to Achieve Equity. We will be there, so stay tuned for more thoughts!

One Big Thing

How does the Van Buren decision impact consumer access to payroll data for the purpose of identity verification?

-Van Buren didn’t deal with payroll data. It also didn't deal with an individual giving their credentials to a third party. That said, read broadly, the case could protect this access because credentialed access typically doesn’t reach into areas that are 'off-limits' to the consumer. Simply stated, a consumer in these circumstances is merely accessing their own account and data.

-A key factor then is the level of involvement and knowledge of the consumer when they are directing the third party. If the consumer doesn't understand what information the third party is accessing or for how long they are accessing that information, such access could violate the law because it isn’t authorized. We feel that if a consumer is legitimately using their credentials for personal reasons, courts will be reluctant to criminalize that conduct (for the consumer or the third party accessing at the direction of the consumer).

-This is the main take away from Van Buren: the Court really didn't want to criminalize the defendant's actions. They didn’t think that sort of criminalization was the intent of the statute and to do otherwise would be unjust. If anything, we think the Court is sending a message to legislators to update/fix the statute. This is an interesting situation where typically different viewpoints on the Court appear to have found common ground.

What We’re Reading

1. Zero Knowledge Proofs - this technology allows someone to prove that they know or have something without giving up any information about what they know or have, which has interesting implications for verification of sensitive identity information.
2. Shopify & Affirm Partnership - these two companies are partnering on a product to allow Shopify merchants' customers to pay in installments, streamlining the purchasing experience, lowering costs (for the merchant and the customer), further challenging more traditional means of credit.
3. Decentralized Finance: What It Is, Why It Matters - an easily accessible primer on how blockchain technology is decentralizing core banking functions like savings and lending, making them more accessible to a wider range of individuals.
4. Public Banking - an interesting interview regarding the creation of public banks in the US (currently proposed in Congress), which advocates argue would promote competition, facilitate inclusion, and foster bank system resilience.