Fintech is a shiny new toy that offers promise, but also poses threats to consumer protection. Yesterday, we joined leading consumer organizations to criticize a proposal by the chief national bank regulator known as the Office of the Comptroller of the Currency. OCC proposes that, in addition to chartering national banks, it would also charter non-bank fintech companies. We called the idea both illegal and a gateway for online predatory lenders to enter states where high-cost payday lending is banned. Leading state officials also opposed the charter move and also strongly criticized certain other recommendations in a controversial Treasury Department fintech report released the same day.
From the consumer group release:
"The Office of the Comptroller of the Currency’s (OCC) plan, announced today, to accept applications for “fintech” national bank charters, is both outside its authority and risks an expansion of predatory lending across the country, according to advocates at the National Consumer Law Center, Americans for Financial Reform, the Center for Responsible Lending, the Consumer Federation of America, and U.S. PIRG. National banks can ignore state interest rate limits, and the OCC is now planning to grant “national bank” charters to lenders that do not take deposits or otherwise function as traditional banks."
A release from Maria Vullo, superintendent of the New York State Department of Financial Services, was sharply critical of both the OCC charter proposal and a recommendation of the Treasury report to unleash light touch "sandbox" regulation for fintechs:
"The New York State Department of Financial Services fiercely opposes the Department of Treasury’s endorsement of regulatory ‘sandboxes’ for financial technology companies. The idea that innovation will flourish only by allowing companies to evade laws that protect consumers, and which also safeguard markets and mitigate risk for the financial services industry, is preposterous. Toddlers play in sandboxes. Adults play by the rules."
John Ryan, chief of the Conference of State Bank Supervisors (CSBS), was also critical in a statement:
"An OCC fintech charter is a regulatory train wreck in the making. Such a move exceeds the current authority granted by Congress to the OCC. Fintech charter decisions would place the federal government in the business of picking winners and losers in the marketplace. And taxpayers would be exposed to a new risk: failed fintechs."
In response to a February 2017 presidental executive order, yesterday's Fintech report is the fourth and final report in a series on modernizing the financial system. In March 2017, a senior official with Treasury, Craig Phillips, counselor to Treasury Secretary Mnuchin, and also the principal author of the new report, held a perfunctory meeting with consumer and civil rights organizations. He and other officials have likely held innumerable meetings with bank industry and trade associations. Last year, a study by Americans for Financial Reform found that one of the previous reports in the series had practically copied the recommendations of the Clearinghouse Association, a powerful big bank lobby. None of our recommendations were included then, or in the new report. We are doing a much deeper dive into the report, but here are a few observations from 10,000 feet on some of its more questionable proposals:
- It recommends preempting stronger state data breach notification and data security laws with a weak federal law focused only on very narrow economic harms.
- Despite abusive and anti-competitive practices by big-bank dominated credit and debit card networks that harm merchants and consumers, the report makes a "no action" recommendation.
- It recommends allowing debt collectors easier ways to communicate with already-harassed debtors and alleged but non-debtors, without any proposals to clean up the debt collection industry (where the leading consumer complaints include "not me" or "not my debt" or "it is illegal for you to collect that time-barred debt").
- While its extended discussion of the positive potential of artifical intelligence and machine learning makes passing reference to the negative potential for baking bias into machine algorithms that would perpetuate violations of the Equal Credit Opportunity Act (ECOA) and other anti-discrimination laws designed to expand economic opportunity fairly, its actual recommendations take more of a fanboy approach to AI, which is among the shiniest of the new fintech toys.
U.S. PIRG and U.S. PIRG Education Fund maintain a Fintech/Big Data project page on our investigations of "big data" and "fintech" firms. Watch for further updates and comments. Here's an excerpt from the project page:
Our use of mobile phones, social media, “apps,” and other online tools have created new ways for us to spend, save and borrow money. Powerful forces are at work, however, that can undermine a consumer’s ability to make the best choices and may place those already financially at risk even more vulnerable. The digital data-driven economy continually gathers vast amounts of information on individuals, online and offline, which is used to create a “profile” about our spending habits, behavior and our geo-location. These profiles can be “scored”—an invisible measure known only to the marketer and data brokers—that can determine whether we are offered high interest credit cards, payday and for-profit college loans and even what we may pay at retail and grocery stores. The uses of the information can be positive or, absent any regulation or meaningful protections, lead to discrimination, price manipulation or denied opportunity.