CFPB Tangles With Bankers Over Big Data

By Karuna Mintaka Kumar, Columnist
@KarunaMintaka

“Do they need the reams and reams and reams of data we’re having to provide to them? Don’t we have to find a healthier balance here?” Susan Faulkner, Senior Vice President, Bank of America, implored at the Conference of Consumer Bankers Association in Phoenix, early this year.

Faulkner is not alone in her plea. Bankers across the industry find the information gathering by the CFPB a vexing new regulatory burden. It adds another layer of bureaucracy to U.S. banking regulation, in their view. The U.S. Chamber of Commerce in a letter to Richard Cordray, Director, Consumer Financial Protection Bureau, charged the CFPB with misusing the regularly scheduled examinations of banks to demand huge amounts of data requests that instead should be made by rule or order. David Hirschmann, Head of Chamber’s Centre for Capital Markets Competitiveness hollered, “Bureau’s data requests have been often unfocused, overly inclusive and not coordinated with other regulators.”

Richard Riese, Senior Vice President, Centre for Regulatory Compliance at American Bankers Association has taken a more optimistic view and noted, “The bureau’s examiners are new to the field and over time will learn to be more focused. I think both sides will evolve in the process and we’ll get to some efficiencies.”

Two sources, on condition of anonymity, said that the procedures used by the Consumer Bureau are far different from those typically used by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. While the two regulators have seldom deviated from using consumer finance examinations at larger banks, the consumer bureau demands data from multiple banks on grounds of consumer-protection issues even if the issue arises in a single institution.

If you’ve reached this point in the column you probably have a burning question: What kind of data is the CFPB collecting that has the potential of infuriating so many in the banking community?

Good question.

One hundred thousand negative reports have been filed so far with the Consumer Bureau against banks; close to 450 companies are being closely watched as a result of the complaints, anonymous information of about 10 million consumers is being thwarted; a deep repository of consumer finance data, including credit card information and checking account overdrafts from nine banks is being created; records of credit card add on products – credit monitoring and debt cancellation are being collected; a mortgage database with Federal Housing Finance Agency that will integrate consumer credit information with loan and property records is being built.

While Mr. Snowden would not be impressed, it is this overwhelming list that has provoked the ire of banking executives.

The mining of such massive pools of information ought to bring questions of privacy into the picture.

“Any agency compiling massive amounts of data has to consider that you can use bits that are not personally identifiable and put them together,” David Jacobs, Consumer Protection Counsel, Electronic Privacy Information Centre, said in an interview. He further explained that by aggregating information it collects or buys, the bureau complies with federal privacy laws. It will have to ensure that data it releases doesn’t add up to a fuller picture.

Sendhil Mullainathan, Former Assistant Director for Research at the Consumer Bureau and Professor of Economics at Harvard University, in an interview with Bloomberg argued that researchers have no interest in specific individuals. “No researcher needs to know about any one person,” he said. “Just the opposite. They need to know about thousands of people.”

He further asserted, “The agency is committed to protecting the privacy of consumer information and doesn’t collect personally identifiable data such as social security numbers. It’s credible to say that within the next year, CFPB will be the best place for consumer finance data.”

Joan Claybrook, former Head, National Highway Traffic Safety Administration compared the CFPB’s data collection efforts to the transport agency’s early warning database on auto safety defects that in her view helped warn against fatalities.

Making an argument for data collection, Mullainathan, argued, “The consumer bureau should play the kind of role in consumer finance that the Federal Reserve does in macroeconomics, continually collecting unemployment data so analysts can dive deeper into the subject at any time.”

In a recent hearing on Tuesday, 9th July, before the House Financial Services Committee, one of CFPB’s top official was asked to specify the number of Americans the agency had gathered the financial data on. The official failed to put a precise number to the question and in the bargain earned the skepticism of the committee. Furthermore, with its enthusiasm around publicizing consumer complaints, the CFPB is being seen as an adversarial regulator.

“To me the bottom-line around any questions surrounding the CFPB is that, CFPB is supposed to be an evidence-based policy maker and rule maker and one of the necessary inputs for doing evidence based policy making is data. I am not saying it’s sufficient but it is a necessary input”, reasoned Jonathan Zinman, Academic Director, US Household Finance Initiative, IPA in an interview with PYMNTS.com.

He further argued that the point in question is whether the CFPB is collecting any data or asking financial institutions for data that they don’t necessarily need to supply to other regulators. “That seems like a germane question to me. Is CFPB actually increasing the regulatory burden of such institutions?”

Zinman further pointed out that with regard to compliance and reporting costs, CFPB would only be adding to reporting costs if it is asking for data that the financial institutions are not already providing to other regulators.

Katherine Porter, Professor of Law at University of California spoke to PYMNTS.com and explained that the CFPB is currently getting data from several places and how we think about relative costs and benefits depends on what we are talking about. She reasoned, “So if it [CFPB] is buying the same data as the industry buys and the capital market buys then I think it is good. I think being a supervisory body and supervising is a rigorous process. This is an industry where we want to see that consumers are being protected, laws are being followed and capital markets are stable. Data collection as a part of that can help the CFPB better understand the business that it is supervising.”

“You cannot study consumer credit in a vacuum. Data collection gives the context to interpret what’s going on”, she asserted.

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