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New CFPB leader warns big tech

Consumer Financial Protection Bureau director Rohit Chopra is laying the groundwork for regulatory oversight of top tech companies as the agency develops rules around consumer choice and financial data oversight, observers said.

Chopra made waves just days after being sworn in by publicly demanding that Amazon, Apple, Alphabet’s Google, Facebook, Paypal and Square turnover masses of information on their products and payment practices.

The demand for information was seen by many as a sign the bureau is preparing to be tougher on tech giants expanding their financial services offerings, despite big tech advocates’ complaints that the agency is going out. out of his way.

“A tech company that decides to start engaging in basic financial services like payment processing is right inside the wheelhouse at CFPB,” said Chris Peterson, professor of law at SJ Quinney College. of Law at the University of Utah and former Special Advisor. at CFPB.

Consumer advocates hailed the fact-finding mission as a necessary use of CFPB’s power and banks have also welcomed it as a sign that regulators will level the playing field between the financial and tech sectors. But others have suggested the Chopra is moving too aggressively and should rely on Congress to oversee big tech.

Chopra’s order builds on his work as a former member of the Federal Trade Commission, where he regularly criticized the business practices of Facebook, Amazon and others.

Yet some have seen the public release of the orders as upsetting the standards.

“This is a bold and interesting move on the part of the CFPB, which is essentially shaping up to be a player in regulating big tech in a way we’ve never seen before,” said Michael Gordon. , partner and co-chair of the fintech practice at Bradley Arendt.

The CFPB issued the information request under the rarely used authority granted by the Dodd-Frank Act to take significant action to monitor risks to consumers.

The orders demanding payment-related information from the biggest tech companies come as tech companies are already under scrutiny and public pressure in Congress, including the release of so-called Facebook papers disclosing the giant’s internal policies. social media which is the subject of investigative articles in the Wall Street Journal and others.

The level of control means that legislators from both parties who rarely agree over many may be receptive to Chopra examining tech giants.

The information request forces tech companies to submit details about their payment offerings, the sale and handling of consumer data, fees, how they respond to consumer complaints, and more. Chopra is scheduled to testify this week before the House and Senate banking committees.

But the tech industry has been pushing hard for Congress alone to take action on data privacy concerns.

“While the CFPB has an oversight role to ensure consumers are protected, Congress also has a role to play,” said Jason Oxman, president and CEO of the Information Technology Industry Council, who represents the technology industry. “The CFPB investigation into technological payment platforms underscores the need for Congress to protect consumers by passing comprehensive federal privacy legislation. “

Meanwhile, Chopra has made it clear that the ordinance requiring information from tech companies will help inform the CFPB about one of its most important upcoming policies: regulations expected by April 2022 on how whose financial service providers share consumer data between banking and technology platforms.

“Little is known publicly about how big tech companies will operate their payment platforms,” he wrote.

In July, President Biden issued a broad executive order to promote competition in the U.S. economy. This order specifically sought to make customer data portable through CFPB regulation on Section 1033 of the Dodd-Frank Act.

Banks, tech giants and fintechs are trying to figure out how Chopra will use order information to promote access to consumer data. This consumer data regulation, required by Dodd-Frank, aims to clarify the standards for how fintechs access bank account data.

The Data Access Rule addresses complex issues of data security, third party disclosure and liability, and competition in the financial services industry.

Some observers predict that Chopra’s broad views on consumer choice and competition will be factored into the rule-making process and how he sets the policy for monitoring tech industry involvement in the sphere. financial services. As CFPB’s student loans ombudsman in the Obama administration, he raised concerns about the inability of borrowers to choose their own provider.

At the FTC, Chopra has written extensively on the issue of market dominance. Some suggest that he may be looking at whether there is a de facto model in which tech giants similarly derive an unreasonable advantage from consumers by using or selling financial data on consumers.

“It’s not that CFPB is outside its purview, it’s that technology companies are outside their purview,” said Peterson.

The CFPB already has the power to regulate, supervise and supervise payment processors through the Electronic Funds Transfer Act.

Meanwhile, the Consumer Bankers Association and other financial industry advocates have applauded Chopra’s decision.

Bankers claim that FinTech companies are increasingly offering products and services that were traditionally run by banks, but they are not subject to the same federal oversight oversight.

“All consumers deserve the highest level of protection, no matter where they go to meet their financial needs,” said Dan Smith, executive vice president and chief regulatory officer at CBA and former deputy director of CFPB at office of financial institutions. and commercial liaison. “When growing segments of the market are not subject to the same federal oversight requirements as banks, including reviewing their day-to-day operations and ensuring a ‘robust compliance management system’, policymakers fail do not know if these institutions adequately protect consumers – or not at all.

Yet the big tech companies are not engaged in lending. Oxman said the financial services market share of the big six tech companies is “a fraction of 1% of the overall market,” while the top three banks control 30% of the market share.

But Smith noted that fintechs now account for nearly 50% of all unsecured consumer loans, typically ranging from $ 2,000 to $ 30,000, and are primarily overseen by state regulators.

He described four different types of fintech companies that engage in financial services: installment lenders, data aggregators, fintech depositories that partner with banks, and payment processors that include the most. large tech companies.

Among the major technology providers, he said: “They have started [saying] all they do is process payments and now they’re just trying to transform into big financial institutions, but without the same regulatory oversight as banks. “

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