American Consumer Financial Information May Be Facing Regulation Changes By The Consumer Financial Protection Bureau (CFPB)
American consumer financial data: On route to legislative changes or maintaining the status quo?
The Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law by President Barack Obama back in 2010. Responding to the ‘Great Recession’, Dodd-Frank aimed to regulate the financial industry, preventing companies from taking advantage of the average American consumer.
Old news, right? Wrong!
The legislative status quo may change in the near future having huge implications for businesses in the financial sector who collect and rely on consumer data sets.
The Consumer Financial Protection Bureau (CFPB) is now seeking comments to implement section 1033 directly pertaining to how consumer financial data is regulated. The proposal which was made on the 22nd of October is subject to a 90-day commentary period before the CFBP can make any final decisions on the matter.
Who is behind the bid, and what could change?
The U.S. Consumer Watchdog who initiated the proposed rule change regarding accessing borrower and consumer financial data says its bid is meant to:
‘Ensure online banks, financial technology firms, and data aggregators act in a consumer’s best interest when collecting their data’.
Meaning the way in which companies access consumer’s financial records, bank account information, financial statements, and more would be subject to clear government legislation. This creates corporate accountability to the American legal system while simultaneously creating new opportunities for both companies (think products based on consumer financial trends) and consumers (think customized financial services).
Winners and losers
Clear legislation and standardization regarding consumer financial data will bring clear benefits to some while detracting from others:
Who stands to benefit?
Fintech apps and startups are particularly positioned to gain an industry advantage when granted access to consumer financial information. Many will be able to become more competitive by increasing User Experience with user-data enhanced products such as personalized financial planning, savings plans, and investment tips.
Don’t wait for legislation:
Who stands to lose?
‘Incumbent’ financial institutions appear to be the biggest losers as fintech solutions increase competition for digital-native consumers seeking financial services that respond to modern banking needs. Those who chose to collaborate with third-party fintech solutions will be able to leverage development to increase their market share instead of becoming irrelevant. A good example of an incumbent financial institution that is embracing changes in global financing is MasterCard who has recently accelerated its Crypto Card Partner Program.
Don’t be left behind:
What about consumers?
Consumer advocacy groups are carefully optimistic. On the one hand, financial data collected and hoarded by financial behemoths is terrifying to privacy-obsessed Americans who are concerned with the type of power this would give such corporations.
On the other hand, AI-powered credit scores and lending models may very well replace or enhance traditional Fair Isaac Corporation (FICO) ratings helping lenders make more informed decisions. Optimists say this can help under-served groups in society get microloans, business funding, and access to other financial lending instruments, while pessimists believe it will become a tool of bias and discrimination.
The Bottom Line
We will only know the outcome of the CFPB’s request for commentary on Dodd-Franks’s 1033 pertaining to the regulation of consumer financial data, in a little under 90 days. Companies with a vested interest in the regulation of consumer financial data in the U.S. should brace themselves and see how their business models can benefit from such legislation:
This is a bold example
Financial institutions: See what new services you can offer customers as well as which fintech players you can partner with.
Fintech companies, startups, and apps: Be sure you are prepared to ingest such large amounts of consumer financial data. Be sure to have your legal team prepare ‘financial data consent forms’, be sure your data science team has the proper receptacles to hold and analyze such large quantities of data, identify additional services you can offer existing customers based on personalized data, and look into collaborations with banks, lenders, and other mainstream payment processing services.