Nothing is so certain and death and taxes, they say.
And when it comes to explosively growing payments and credit innovations, especially buy now, pay later (BNPL) – perhaps the certainty is that regulators will come knocking, at least when it will be about making sure that companies back up their claims about what they are innovating, and for whom.
Right now, you could say that the Consumer Financial Protection Bureau (CFPB) is a bit on hold, at least in terms of staff. After all, the Biden administration is still in its infancy, as Dave Uejio remains interim director. The debate continues on how the CFPB, as an agency, should be structured.
But to get a sense of what’s on the horizon, it makes sense to get the perspective of someone who’s been on the ground, so to speak. Bryan A. Schneider, who joined Manatt Financial Services from Manatt, Phelps & Phillips LLP as a partner in his consumer practice last month, previously served as Associate Director in the Supervision, Enforcement and Fair division. Lending from CFPB.
And as he told Karen Webster in a recent interview – with the holistic vision forged of having been on the regulatory side and now advising clients on the regulatory climate – the CFPB can be counted on to be, by- above all, very aggressive, even “aggressively pushing the limits of what their authority can be.
“They are strengthening their staff and adding lawyers,” he explained.
We are already seeing a liquidation of actions, lawsuits and claims of consumer harm – and we affirm that some financial innovations are within the purview of the CFPB. He pointed to CFPB’s announcement this month that the revenue sharing agreements are, in fact, extensions of credit. Elsewhere, the CFPB sued LendUp Loans, alleging that the online company violated a 2016 consent order and misled borrowers about the cost of loans.
Read also: CFPB sues LendUp alleging online lender breached consent order
These types of actions, he said, show how the agency sees innovative financial products, namely that the CFPB is going to become much more active in the consumer space.
Various claims will be scrutinized such as whether tuition loans will be easier to carry as borrowers will earn more money over time to repay this debt with ease. BNPL providers, depending on where you look, may argue that it may be better to pay for a hypothetical $ 200 blouse in four equal installments rather than hold on to longer term credit card balances. These claims will need to be substantiated in a demonstrable way (with data), he said.
But for all companies under its regulatory control – these same innovators – it is imperative to prioritize innovation, yes, but also how to assess how this innovation will be perceived not by the market but by the regulator.
As he told Webster, at BNPL firms, newbies to digital financial services (regardless of vertical) need to think about:
“How do you find yourself in this new world where everything is seen a little with suspicion?” “
That suspicion, a desire to go under the hood and see what isn’t working for large swathes of the population, will envelop credit assessment processes, Schneider said. The pandemic, and by extension the CARES Act, has had an impact on the way businesses report payment information.
“Any aspect of [credit reporting] which touches the protected classes or a group of economically disadvantaged people will be seen with a particularly strong objective ”, he declared.
Slow Grind Towards New Laws
This doesn’t mean that everything will turn out in no time. Rule making can be a slow process – evidenced by the fact that Section 1071, which under the Dodd-Frank Act requires financial institutions (FIs) to collect data on minority-owned businesses and to women serving small business loans, will take years to implement (small business loans are basically consumer loans by a different name, he said, and therefore fall under government oversight. CFPB), mainly through the Equal Credit Opportunities Act (ECOA).
Eternal vigilance is essential, he said, and no matter what the company does or where it operates, the CFPB will first look at them through the lens of COVID-19 and how they fit in. promoting financial inclusion and racial equity.
These are the prisms through which the office will examine the company’s activities over the next 18 to 24 months, Schneider said, with a particular focus on violations of the CARES Act (related, for example, to service mortgage loans or student loans, where the moratoriums expire). He predicted that about half of all oversight resources will likely be spent on fair reviews of loans and loan servicing.
For traditional lenders and FIs (payday lenders among these companies), the CFPB will be less willing to accept the argument that things are going well, simply because certain lending activities are an integral part of the way it has always been done. .
He said the stacking, whether done with traditional payday lenders or with BNPL, will get the Bureau’s attention.
The same will be true of the actual footprints of bank branches in underserved communities.
Aggression against innovation
But he warned that regulators should be wary of acting so aggressively that they kill innovation. Open banking is in its relatively embryonic stages here in the States, and the protections afforded to consumers when they allow the sharing of their data (and the liability of banks) will require repeated discussions between banks, the Federal Trade Commission and others. ‘other stakeholders. .
Crypto? Well, this is largely an arena in which the wealthiest consumers and speculators play, Schneider argued. At least for now, the CFPB is relatively more concerned about inequality, but it would be a mistake to think that crypto, while it may not be at the top of this list, will not gain attention. (especially as consumers, as detailed in PYMNTS research) want to use bitcoin and other cryptos in everyday trading.
Read more: How Consumers Want to Use Crypto to Buy and Pay in 2021 and Beyond
Asked by Webster whether the CFPB aggression could hold back innovation, Schneider said, “I’m still worried. I think sometimes that’s the hardest thing for a regulator to do, because you see some evil in front of you – well, you want to prevent you wanting to fix it. “
In the current environment, he said of the CFPB, “they are willing to opt more for redressing what they have observed to be present or very likely harm than for” well, we are going to leave it there. innovation plays a bit. “
See also: Almost 60% of Consumers Want to Buy Stuff with Crypto
Conventional wisdom may be that the big players in tech – the Amazons, Apples and Googles and others could be in danger. After all, their new products and services are driven by artificial intelligence (AI) and machine learning (although regulators look closely for bias in credit decisions and other models).
Among these companies, he said, “I would be concerned, I would be vigilant,” he said, of interactions with the CFPB.
“But I wouldn’t back down, because it’s the way of the future. It is not about fear, but vigilance and preparation, ”he said.