CFPB Inquiry Could Mean Big Changes For Data Aggregators

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Digital records are giving consumers tremendous new
opportunities
, Richard Cordray, director of the Consumer Financial Protection
Bureau (CFPB) told participants attending a field hearing in Salt Lake City on
Thursday, but there are also a lot of questions about their access to those
records and their safety. 

Cordray told his audience that CFPB is launching an
inquiry into the digital records issue, opening a 90-day period of public
comment.
The results will be used to assist, “market participants
and policymakers to develop practices and procedures that enable consumers to
realize the benefits associated with safe access to their financial records,
assess necessary consumer protections and safeguards, and spur innovation.”

The digital
records CFPB is concerned about are financial ones.  Whenever consumers make deposits, withdraw
funds, or make payments using their various financial accounts, they leave a
digital trail that becomes part of their financial record. Cordray said this data
can provide enormous insight, empowering consumers to make decisions and
improve their financial lives as well as enabling great efficiencies.  He said that where once a consumer might have
lugged a shoebox of information to a loan officer or financial advisor, today
they can just provide those individuals with access to relevant digital
records.

FinTech
companies are responding to this by providing a growing number of websites and
mobile applications that, for example, help consumers monitor relationships
with multiple financial institutions in one place, allow them to make spending
decisions and manage their money while on-the-go, or spot spending patterns and
possibly make beneficial changes.

Cordray says
access to digital financial records can be especially important to consumers who
lack the credit history or a score that accurately reflects their
creditworthiness.  Creditors with access
to their records may be able to extend credit at a fair price.

These
benefits often depend on the access consumers can authorize and Cordray said there
are data aggregators or account aggregators who collect information from other
providers and consumers who often have no idea how this works. Congress provided
the right in the Dodd-Frank Act for consumers to have access to their digital
account information including transactional information including “costs,
charges and usage data” made available in an “electronic form. Rulemaking
authority over this issue lies with the Consumer Financial Protection Bureau.,

As the
technology develops there are many unanswered questions about how digital information
is being shared, by and to whom, and how safely and, as with any emerging
industry, Cordray said, CFPB is hearing about some bumps in the road. FinTech
companies, financial institutions, and consumer groups, are reporting on the
various challenges, risks, and technological obstacles to further progress in
this area.  

CFPB’s
inquiry will address three specific issues. First, what is happening right now,
especially the extent to which consumers are authorizing access to their
financial records?  Second, the Bureau
wants more insight into the process for sharing; whether it is or can be made
safe, and what assurance consumers and providers will have that it is. The
third issue is transparency and how much control consumers have over their own
financial records. “Our main goals are to encourage innovation that
promotes opportunity and to protect consumers as these new and promising technologies
continue to develop,” he said. 

If financial
institutions that house digital financial records make it difficult or
impossible for consumers to authorize access or share their information, that
blocks opportunities for consumers to benefit from this information. It could
thwart new entrants from entering the market with consumer-friendly products
and services, even those not currently being offered by the financial
institutions themselves. And without the pressure of competition, it could also
reduce incentives for financial institutions to innovate on behalf of their own
customers. Blocking access to a customer’s records makes it more difficult for that
customer to shop for an alternative provider with more favorable pricing. No
company should be able to hoard customer information in order to deprive
consumers the benefits of fair market competition. 

Cordray said
the Bureau wants to hear more about the operational concerns of banks, credit
unions, and others that house this information. Does the sharing of financial
records impose burdens on staff time or other resources? Are there
legitimate concerns that the number and frequency of these requests could
overwhelm the servers at financial institutions? 

The Bureau
is also seeking more information about competition between established
financial institutions and prospective entrants to offer new financial products
and services.  Are there technological or
other obstacles that may be hindering access and use of digital records?

The second area of concern is that access and use must be
safe. Customers should know that their financial records are secure and
that they will not fall into the wrong hands. 
Financial institutions should be confident that they will not be exposed
to unauthorized or fraudulent transactions because of their efforts to provide
access to customer information. 

Some
financial institutions have suggested that providing such third-party access can
create significant operational risks and could undermine account security.
There may also be complexities around privacy protection and the assumption of
liability for breaches that can occur whenever data is being shared. 

Cordray
noted that not all third-party service providers that access records are
created equally.  Some have more robust safeguard in place than others and the differences
may create difficult challenges. Scammers and fraudsters pose problems here
too, as they do in virtually every market. 

CFPB’s
inquiry seeks more information about how financial records are obtained, stored,
and used
by third parties and it wants to hear from all relevant stakeholders –
including consumers, financial institutions, information users, data
aggregators, and technology providers – about options to ensure that consumers
can safely access, use, and share digital financial records. “One thing we know
for sure”, Cordray said, “is that the technologies are developing rapidly, and
it seems likely that workable solutions will emerge (if they do not already
exist) to enable information transfers to occur smoothly and
safely. Through our inquiry, we are aiming to understand this process
better and to prod it along as we can.” 

Third, the
Bureau wants to make sure that the access and use of financial records is
transparent and that consumers can direct the sharing and use of their personal
financial data. Safe access is not enough; the Director said, consumers must be
able to control how each company that accesses their records will use that
information to benefit them.

Consumers
should be able to dictate exactly what access to their accounts means; what
information can be shared, how frequent can the access be, and how long it will
last. They should be able to terminate access on their own terms.

Cordray said
CFPB wants to better understand what is happening here and now, but its sights
are set firmly on the future and will not sit passively by watching
technologies develop. It will keep an eye out to protect consumers while
encouraging providers to innovate and open more opportunities for them. While
the natural reaction may be to shore up fortresses around consumer information,
he concluded, there could be significant business opportunities from sharing
information more readily with new financial innovators. 

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