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CFPB asks for feedback for consumer taskforce
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Consumer Protection
Friday, April 10, 2020
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While business disruption continues in the wake of the COVID-19 pandemic, the Consumer Financial Protection Bureau is requesting information to help its Taskforce on Federal Consumer Financial Law do its work.
The CFPB issued a request for information on recommendations on harmonizing, modernizing, and updating the federal consumer financial laws.
The taskforce said it was looking for help identifying areas of consumer protection on which it should focus its research and analysis during the balance of its one-year appointment. This request will be one of multiple opportunities for the public to provide feedback directly to the taskforce, the CFPB said in its announcement.
The request focuses broadly on a group of topics:
- Expanding access to consumer financial products and services;
- Protection and use of consumer data;
- Regulations the bureau writes and enforces;
- Federal and state coordination; and
- Improving the market for consumer financial products and services.
Comments on the request are due by June 1.
The request stated that the taskforce is charged with examining the existing legal and regulatory environment facing consumers and financial services providers and reporting its recommendations for ways to improve and strengthen federal consumer financial laws to the CFPB director.
The request features 23 questions, broken down by topic, beginning with potential obstacles to financial inclusion.
- Millions of U.S. households lack a bank account. Should the bureau promote greater access to banking services and, if so, how? Are alternatives to deposit accounts, such as prepaid cards and peer-to-peer electronic payments, sufficient when compared to traditional banking products? What is the evidence regarding consumers’ understanding of, and experience and satisfaction with, these products?
- One important reason for access to a bank account is to facilitate transactions. To what extent is it necessary to tie transaction services to the banking system? To what extent could transaction services and the banking system exist independently, and would independent existence raise new consumer protection risks that regulators should consider? Would reducing clearance times impact the demand for alternative products, such as check cashing, small-dollar loans, and overdraft protection? If so, to what extent?
- What steps could be taken to promote greater competition among providers of services such as payments, financial advisory services, and savings accounts? How do third-party applications, sometimes referred to as “open banking,” affect the competition? To what extent do third-party applications raise new consumer protection risks that regulators should consider?
- There is consumer demand for short-term, small-dollar credit. What impediments exist for expanding access to short-term, small-dollar loans and ensuring that this market is fair, transparent, and competitive? What has been the impact of state and federal efforts to regulate such credit? Is the annual percentage rate a meaningful measure for a very short-term loan? If not, what other measures might be more useful to help consumers in understanding and assessing the cost of short-term credit?
- Some creditors are supplementing or replacing traditional methods of underwriting (which often use income, debts, credit history, and stability factors) by employing “alternative data.” Some types of alternative data clearly expand the sources of financial information, such as payment histories for rent, utilities, and other consumer obligations, and other types of alternative data appear to have little in common with traditional underwriting information. What role should the bureau play in regulating the furnishing, reporting, and use of alternative data, and what should the bureau consider in developing policy in this area? How should the bureau consider alternative factors which creditors find helpful in predicting risk, but which may lack an obvious relationship with creditworthiness or have differential impacts on some consumers or groups of consumers?
- Should the bureau clarify its position on disparate impact theory under the Equal Credit Opportunity Act? If so, what should be the bureau’s position?
The next group of questions looked at the protection and use of consumer data.
- Both the Fair Credit Reporting Act (FCRA) and its implementing Regulation V and the Gramm-Leach-Bliley Act and its implementing Regulation P contain important protections of consumers’ personal information. Are these protections sufficient? Why or why not? If not sufficient, what further protections should the bureau or Congress consider? Are there obligations in these regulations or statutes that impose a burden not justified by the corresponding consumer benefit?
- The FCRA requires consumer reporting agencies to “follow reasonable procedures to assure the maximum possible accuracy;” requires these agencies to disclose to a consumer the contents of the consumer’s file; contains procedures for consumers to dispute the accuracy of information in these agencies’ files; and requires notifications when information from these agencies’ files has contributed to a user’s adverse action. In addition, the FCRA’s implementing Regulation V requires that data furnishers implement and maintain reasonable written policies and procedures concerning the accuracy of the data they furnish. Are these provisions designed to ensure accuracy sufficient? Why or why not? If not, what further protections should the bureau or Congress consider? Are there obligations in these laws that impose a burden not justified by the commensurate consumer benefit?
- Most states have enacted laws that afford consumers certain protections in the event of a data breach. There is considerable variation among these laws, including the triggering events for coverage by the law and the requirements and remedies relating to a breach. Would federal legislation, regulation, or guidance addressing data breaches be desirable? Why or why not? Would it be desirable to have a uniform national standard for data breach obligations? Why or why not?
- Financial technology, or fintech, companies often use consumer data to provide new or enhanced financial products and services, but this can raise concerns about consumers’ ability to protect privacy and control the use of their data. With respect to consumer data, how best can the bureau or Congress balance between facilitating fintech innovations that increase consumer choice and ensuring consumer protection? Do any existing technologies or practices, such as zero-knowledge proofs, raise fewer consumer protection concerns or have the potential to help regulators resolve the balance between consumer choice and consumer protection?
The next section looked at regulations, and encouraged specific examples from commenters in their responses.
- Are there gaps in consumer financial protections that should be filled by strengthening the bureau’s regulations? What type of protections are needed (e.g., additional disclosures, substantive requirements)? How should the costs and benefits of the proposed changes be evaluated?
- Uncertainty can increase compliance costs and litigation risk without benefitting consumers. Are there areas of significant ambiguity or inconsistency in the regulations? Where would regulations benefit significantly from increased clarity or harmonization — both with respect to the bureau’s regulations and with respect to overlap, duplication, or inconsistency with regulations issued by other federal agencies? Please explain the lack of clarity and how the regulations should be clarified.
- Where have regulations failed to keep up with rapid changes in consumer financial services markets? Are regulatory changes needed to address new products and services and the way consumers obtain them? Are there regulations that have outlived their usefulness? Are there new regulations that might be needed? Are there regulatory areas or specific regulations now sufficiently so overlapping as to be redundant?
- Some stakeholders favor regulations with specific requirements, which draw bright lines for a company’s compliance obligations but can apply a one-size-fit-all approach. Others favor “principle-based” regulations, which can provide a company with flexibility but can create compliance uncertainty. Federal regulations currently employ both approaches (e.g., Regulation Z’s highly specific disclosure rules, and Regulation V’s requirement that data furnishers implement and maintain reasonable written policies and procedures concerning the accuracy of the data they furnish). Which approach is preferable, and does this depend on the industry, the statute, or other considerations? Please explain.
The next group asked questions regarding overlapping supervisory and enforcement responsibilities the CFPB has with other federal agencies.
- With respect to institutions and laws currently within the bureau’s jurisdiction, the bureau’s supervision or enforcement authority may be exclusive or shared with other regulators, depending on the institution or law in question. Have the agencies been cooperating appropriately in areas of shared jurisdiction, and are there ways in which their cooperation could be improved? Is more clarity needed about how the agencies are cooperating in areas of shared jurisdiction? Do the bureau and other agencies act jointly in appropriate circumstances?
- Are changes to the shared-jurisdiction framework desirable (e.g., by legislation)? In what way? For instance, would it be beneficial to assign to one agency sole (or primary) responsibility for supervising or enforcing some or all the consumer financial protection laws? Would having a single source of authority enhance or detract from competition and consumer welfare? What are the costs and benefits of overlapping enforcement jurisdiction for nonbank creditors?
- State financial regulators typically examine a financial institution’s compliance with state law, but they can also bring cases under certain federal consumer financial protection laws. For example, a state may initiate its own action to enforce the Dodd-Frank Act and certain enumerated consumer laws. In addition, once the bureau has decided to bring an enforcement action, the bureau may invite states to join in the action. What are the costs and benefits to consumers and financial institutions of overlapping enforcement powers?
- Given the jurisdictional overlap between state and federal regulators on consumer financial markets, are there quantifiable examples of whether this overlap has led to disproportionate compliance costs for small financial institutions, such as community banks or credit unions?
Finally, the last group of questions looks into the performance of consumer protection activities.
- Which markets for consumer financial products or services are functioning well — that is, which markets are fair, transparent, and competitive? Which markets might benefit from regulatory changes that could facilitate competition and materially increase consumer welfare?
- What types of disclosures regarding consumer financial products or services are effective and what types are not? Could the content, timing, or other aspects of disclosures be improved and, if so, how?
- How should the bureau determine an appropriate remedy for a law violation, considering the need to correct and deter violations without creating adverse effects on competition and other unintended consequences?
- What is the optimal mix of regulation, enforcement, supervision, and consumer financial education for achieving the bureau’s consumer protection goals?
- How can we best assess the efficacy of the federal consumer financial protections in achieving their goals?
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