The Consumer Financial Protection Bureau (CFPB) recently issued a Request for Information (RFI) Regarding Use of Alternative Data and Modeling Techniques in the Credit Process, available here. The deadline for response is May 19. This post will provide practical advice on how to submit an effective RFI response.
The RFI is the latest in a line of communications by the CFPB and other federal regulators showing interest in innovation and technology. For example, last year, the Treasury Department conducted its own RFI on Marketplace Lending, and the Federal Trade Commission held a public workshop on Big Data. Both projects culminated in agency reports covering developments on each of those issues and opining on related regulatory considerations. The CFPB’s RFI is likely to follow a similar path.
The RFI consists of a preamble describing alternative data and models, and setting out some potential risks and benefits of each. It then raises 20 questions of varying complexity. In order to increase the chance that your response will garner attention and have a true impact, take the following issues into account:
1. Consider Your True Audience
The RFI provides a rare public avenue to engage not just with the CFPB, but also with the wide range of stakeholders that are likely to closely monitor the responses. This includes other state and federal regulators, legislators, media outlets, competitors, venture capital firms, and, indeed, anyone who may have an interest in the future of alternative data regulation. As a result, the RFI is an opportunity for companies who use or would like to use alternative data and alternative models to make the best case for why such use should be encouraged, and how the CFPB may best do that. For this reason, to the extent that you think there are specific steps that the CFPB or other regulators should take in this area, draft those suggested steps as specifically as possible. You never know – your suggestions could well make their way into a congressional letter to a regulator.
2. Choose Your Focus
The RFI is designed to reach a broad range of potential responders. Thus, few entities will have relevant information to provide on all of the questions. In order to make your response more impactful, consider the areas where you think you can provide the most in-depth or unique perspective. Think of it as your competitive advantage vis-a-vis your fellow responders. Once you decide where you can add the most value, group your responses into coherent themes that map onto the themes covered in the RFI. Structuring your response into easy-to-follow sections will make it more likely that those skimming responses for a particular topic will stop on yours.
3. Give Concrete Success Stories
One of the issues raised by the RFI is whether alternative data and models can increase responsible access to credit for underserved consumers. This is an issue on which the CFPB has consistently focused, and which is likely to drive much of the thinking on their future approach. With that in mind, consider whether you may be able to provide any specific data or examples of how your company’s use of alternative data has or could help you provide more credit or credit on better terms to consumers, particularly to those whom you might not have been able to reach otherwise. The most useful examples would be those that provide side-by-side comparisons of traditional and new methods, such as comparisons of the results of traditional underwriting versus underwriting using alternative data.
4. Highlight Any Examples Self-Regulation
The RFI makes clear the CFPB’s concern that the use of alternative data could raise potential fair lending and other compliance issues. Some of the questions ask about companies’ practices in addressing these risks. This is perhaps one of the most important sections of the RFI, because identifying for the CFPB what companies are currently doing to prevent risk to consumers will make it more likely that any future guidance will take those practices into account. For example, if you have a process for vetting variables to ensure that they don’t raise any discrimination concerns, you should highlight that process or at least its existence. Similarly, if you have taken steps to ensure that your compliance team is actively contributing to the decision-making on the use of alternative data and models, discussing those steps might also be useful.
5. Make Your Wish List, but Check it Twice
One potential benefit of the RFI is that it allows you to alert the CFPB to particular areas where the lack of regulatory guidance is inhibiting innovation. In fact, the RFI asks about “specific challenges or uncertainties” that companies face in complying with particular regulations. Therefore, to the extent that you have unanswered questions about how the CFPB would apply a particular law to alternative data or models, you could raise that here. As noted above, this information will be relevant not just to the CFPB but also to legislators or others who may be in a position to encourage the CFPB to provide further guidance. However, in raising these issues, you need to be careful what you wish for. The CFPB could respond to requests for guidance in ways that would create additional burdens on industry. Thus, when you raise an area of uncertainty, it would be wise to consider outlining how you think that uncertainty would best be resolved in a way that encourages innovation while also protecting consumers.
6. Call a Lifeline
McGuireWoods is helping a number of entities prepare responses to this RFI. Our lawyers have first-hand experience on these issues and can help you determine the best approach to your particular response. If you’d like to discuss how McGuireWoods might be able to assist you, reach out to the author, Alexandra Villarreal O’Rourke, co-lead of the firm’s FinTech Industry Group, at ao’email@example.com or 704-373-4632.