Earlier this week, we attended the LendIt USA conference in New York City, a leading annual fintech conference, at which both CFPB Director Richard Cordray and Comptroller of the Currency Thomas Curry spoke.
Director Cordray began his remarks by returning to his familiar “level playing field” theme, observing that “[e]venhanded oversight of all providers” regardless of size “is a basic rule of the road for effective regulation of the financial marketplace” and that “[n]obody gets a free pass to exploit regulatory arbitrage; everyone must be held to the same standards of compliance with the law.” He then discussed the CFPB’s two most recent requests for information.
The first RFI, issued in November 2016, seeks information about market practices related to consumer access to financial information. Director Cordray reported that the CFPB has received about 70 “extensive and thoughtful” comments from financial institutions, data aggregators, companies that use aggregated data, trade associations, consumer groups, and individuals. He observed that “[c]ertain perspectives presented in the comments are not surprising,” with banks and other financial companies raising concerns about consumer data security and aggregators and users of the data recommending less fettered access and greater freedom to store and use collected data. He commented that the CFPB is “keenly aware of the serious issues around privacy and security, for consumers and providers alike,” and noted two “pressing” issues facing the CFPB: how to satisfy the demands of consumers without exposing the providers that maintain consumer data to undue costs and risks and how to prevent consumers from subjecting themselves to undue risks, including the possibility that their data could be misused. Echoing comments he made in October 2016, Director Cordray also stated that the CFPB “remain[s] concerned about reports of some institutions that may be limiting or restricting access unduly.”
The second RFI discussed by Director Cordray was the RFI issued last month seeking information about the use of alternative data and modeling techniques in the credit process. He indicated that the CFPB’s goal in issuing the RFI is “to learn more about issues raised by new technologies and new uses of data” and, in particular, to obtain information “about the potential benefits and risks of using, applying, and analyzing unconventional sources of information to predict people’s creditworthiness.” He reviewed the main inquiries posed by the RFI, with emphasis on the CFPB’s interest in learning how the use of alternative data might impact so-called “credit invisibles,” meaning consumers with no credit history or credit histories that are too limited to generate a reliable credit score, and the application of fair lending laws to alternative data.
In addition to not providing any meaningful new insights into the CFPB’s views on fintech issues, perhaps the most disappointing aspect of Director Cordray’s remarks was his touting of the CFPB’s no-action letter (NAL) policy in his discussion of Project Catalyst, the CFPB’s initiative launched in November 2012 for facilitating innovation in consumer-friendly financial products and services. The CFPB’s NAL policy, which was finalized in February 2016, stated that the CFPB would publish NALs, along with a version or summary of the request, on its website. Since we could find no NALs on the CFPB’s website, we assume no NALs have been issued.
Indeed, even if any NALs have been issued, they would be of marginal value to the recipients. As we observed when the NAL policy was finalized, the NAL policy provides no immunity against private litigation or enforcement actions by other federal and state government agencies. (In fact, the CFPB stated in the policy that an NAL can be revoked or modified at any time.) To make matters worse, an NAL will receive no deference from the courts and may only cover one or more of the “enumerated consumer laws” and not UDAAP which is often of the greatest concern to banks and companies because of the lack of clarity as to what constitutes an “unfair,” “deceptive” or “abusive” act or practice. Perhaps the reason no NALs have been issued is that none have been requested because of their marginal value as well as the potential for publication of an NAL to give competitors access to important confidential strategic information.
Comptroller Curry’s remarks focused primarily on the OCC’s fintech charter proposal, which he defended against a number of attacks from state regulators, consumer advocates, as well as industry opponents. Comptroller Curry said that the OCC definitely has authority to grant special purpose charters without new legislation. Companies obtaining these charters should not expect “light touch” supervision, as the OCC will supervise them in the same manner that it supervises full-service banks. Furthermore, the OCC will not grant charters to companies engaging in practices considered to be predatory or abusive.
Comptroller Curry also said that there will be “appropriately calibrated” capital and liquidity standards, as well as financial inclusion requirements for obtaining a charter. Details on the requirements will be outlined in a forthcoming supplement to the OCC’s licensing manual. He added that national banks are subject to state law to a much greater extent under Dodd-Frank than previously was the case, so concerns about excessive preemption are misplaced. Comptroller Curry said that companies will benefit from the OCC’s high standards and “rigorous supervision,” as it adds value to the companies.
Unlike Director Cordray, Comptroller Curry took questions from the audience, including questions from us. Although he did not indicate whether there has been any contact between the White House and the OCC concerning policy, he said that the OCC intended to comply with the spirit of the recent executive orders concerning deregulation, although it is not required to follow them as an independent agency. He noted that the OCC already had completed a recent decennial review of its rules as required by the Economic Growth and Regulatory Paperwork Reduction Act of 1996. Asked whether the OCC would issue an interpretive opinion concerning the Madden v. Midland Funding case consistent with its amicus brief, Comptroller Curry said that it would not, since the agency cannot overrule the Second Circuit.
We strongly disagree with Comptroller Curry’s refusal to author an interpretive opinion which certainly would be helpful outside the Second Circuit (and maybe even within the Second Circuit since the OCC had not weighed in on Madden until it reached the Supreme Court). For reasons that we will articulate in the future, we think that the OCC should propose to issue a regulation codifying the “valid when made” doctrine.
On March 21, 2017, from 12:00 pm to 1:00 pm ET, Ballard Spahr will hold a webinar, “Alternative Credit – Opportunities, Risks and the CFPB’s Request for Data.” More information and a link to register is available here.