Jenny Lee is an expert in regulatory issues for financial and technology companies and a partner at the law firm Arent Fox LLP. Prior to entering private practice she was an enforcement attorney at the Consumer Financial Protection Bureau (CFPB).
With the start of a new United States Congress, which convened on January 3, 2021, there is greater emphasis on legislation or federal agency rulemaking to address consumer-financial-protection issues.
What can we expect to be coming down the pike?
Consumer Protection in AI and Machine Learning
On March 29, 2021, the Consumer Financial Protection Bureau, acting jointly with four other federal regulatory agencies—the Federal Reserve Board, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency—issued a formal request for information (RFI) to solicit input from the industry, consumer advocates, and other stakeholders regarding the use of artificial intelligence (AI), including machine learning, by banks. Although there are some non-consumer protection topics contained in the RFI, such as anti-money laundering, much of the RFI is focused on how the regulators may wield existing laws to oversee AI/ML-based business practices.
The agencies’ RFI demonstrate a concern with the extent to which banks or credit unions are relying on an AI approach that lacks explainability, which could call into question the reliability of the AI approach and increase risk when the AI is used in new context. The RFI also notes that a lack of explainability can inhibit independent audit review and make it more difficult to comply with consumer-protection regulations. Another area of concern is how AI is used to underwrite loan applications for consumer credit. In the RFI, the agencies ask about how likely it is that AI can be biased or result in discrimination on the basis of race, sex, or other protected classes. The RFI also directly probes how the use of AI might inure to the benefit of banks’ customers.
The RFI kicks off many precursor steps to allow the federal regulators to research AI use in order to determine whether the technologies increase the risk of unlawful discrimination or unfair, deceptive, or abusive practices (UDAAP) under the Dodd-Frank Act.
A Potential Federal Privacy Standard for Financial Data Access Rights
Enacted in 2010, section 1033 of the Dodd-Frank Act provided that any company or business that provides consumer finance services must make available to the consumer all information that is in that company’s possession (or control), so long as the information concerns the product or service that the consumer got. This provision, however, is qualified in the sense that this far-reaching data access mandate is subject to the regulations that are yet to have been promulgated by the Consumer Financial Protection Bureau.
For ten years, we saw no movement in the federal register. On November 6, 2020, three days after the presidential election, however, the CFPB published the inaugural Advance Notice of Proposed Rulemaking (ANPR) to help the agency develop regulations to implement section 1033.
The concerns in the 1033 ANPR are based on the primacy of consumers’ access to data, and the belief that such access should be secure, effective, and subject to the consumer’s control. Included in this effort is the desire to create accountability for companies with respect to unauthorized or malicious access and data errors. Although existing laws, such as the Gramm-Leach-Bliley Act and the Fair Credit Reporting Act, already contain provisions that touch on these issues, the 1033 ANPR is the first cohesive foray into financial data access rights that could expand the regulatory scope to encompass fintech companies and data aggregators directly.
Public Banking and Federal Cryptocurrency
On March 23, 2020, Senator Sherrod Brown introduced the bill entitled, Banking for All Act, which would allow consumers to set up a free bank account, establish a federal pass-through digital dollar wallet, and make banking services available at facilities operated by the U.S. Postal Service.
On March 1, 2021, Senator Brown, sent a letter to the Board of Governors of the Federal Reserve System. Therein, Senator Brown renewed the emphasis on a federal public option in the banking sector, this time focused on digital assets. Specifically, the letter expressed strong support for the Fed’s efforts to study the potential central bank digital currency, and noted the volatility of non-sovereign crypto-assets like Bitcoin. The letter emphasized how 22% of Americans do not have access to financial services, and argued in favor of continued research into the viability of a digital U.S. dollar, as a central bank digital currency could help solve the lack of inclusion in financial services, a need which became more palpable during the pandemic. The letter notes the digital dollar nicely complements the public option in the Banking for All Act.
While each of these initiatives is yet in early stages, they are significant. Each manifests a fresh focus on better understanding AI, technology, and cryptocurrency in an effort to ameliorate emerging consumer-protection concerns in the financial services industry.