On September 18, 2018, the U.S. Senate Committee on Banking, Housing, and Urban Affairs held a hearing entitled “Fintech: Examining Digitization, Data, and Technology.” The witnesses were: Mr. Steven Boms, President, Allon Advocacy, on behalf of Consumer Financial Data Rights (CFDR); Mr. Stuart Rubinstein, President, Fidelity Wealth Technologies; Mr. Brian Knight, Director of the Innovation and Governance Program, Mercatus Center at George Mason University; and Ms. Saule T. Omarova, Professor of Law and Director, Jack Clarke Program on the Law and Regulation of Financial Institutions and Markets, Cornell University.
The hearing focused on the ways in which fintech is changing the financial sector and the improvements that can be made to ensure the regulatory landscape welcomes that innovation, the kind of data is being collected and used, and how such data is being secured and protected, and the opportunities and challenges going forward.
Chairman Michael Crapo (R-ID) began the hearing by noting that the Committee held a hearing almost exactly one year ago to explore the various sectors and applications of fintech. “In the short time between that hearing on this one many developments and innovations have occurred both in the private sector and on the regulatory front. Digitization and data in particular are constantly evolving challenging the way we’ve traditionally approached and conducted oversight of the financial services sector. As technology has developed and the ability to readily and cheaply interact with and use data has flourished we have experienced a sort of revolution in the Digital Era. This digital revolution brings with it the promise of increasing consumer choice, inclusion, and economic prosperity among other things,” Crapo stated.
Crapo emphasized that policymakers must “constantly evaluate our regulatory and oversight framework much of which was designed prior to the Digital Era” as this marketplace rapidly develops. “To the extent that there are improvements that can be made to better foster and not stifle innovation, we should examine those,” he stated. In particular, he highlighted how these technological developments “are incredibly positive,” but the “increased digitization and ease of collecting, storing, and using data presents a new set of challenges and requires our diligence – our vigilance.” According to Crapo, “[i]n order to fully embrace the immense benefits that can result from technological innovation, we must ensure that proper safeguards are in place and consumers are fully informed.”
Ranking Member Sherrod Brown (D-OH) noted that the Treasury Department and much of the financial industry argue that consumers should have the right to share their financial data with any third party of their choosing, and asked the witnesses whether they think this should include the right for consumers to require that a fintech or a data aggregator erase all information at that consumer’s request. “Yes, absolutely. And you know, we have to keep in mind though that this rhetoric of consumer choice and consumers’ right to share the information also imply the firms’ right to share their information and that’s what we need to guard against,” Omarova responded. Knight, Boms, and Rubinstein agreed, with Knight and Boms noting that this is subject to applicable laws and regulations, and Rubinstein asserting that consumers “should understand why they’re sharing their data” and should “be able to stop sharing it and have it deleted.” With respect to imposing legal limitations on how aggregators use a consumer’s financial information (in addition to consumer identified limits), the witnesses differed on whether there is a need for legal limitations beyond consumer disclosure and consent. The witnesses all agreed, however, that whoever holds consumer data should be held to the same standards and compete on a level playing field of regulation from data security to consumer protection – an important issue as new companies emerge and compete in this area.
In responding to questioning from Senator Brown, Professor Omarova argued that fair lending laws also should be updated to cover not just providing credit products but also their targeted advertisements on social media platforms, noting that this “raises a new spectrum of discrimination concerns and we have to guard against that.”
With respect to the issue of a national unified data breach standard, Mr. Rubinstein opined that “you would find broad support within the fintech ecosystem for a national standard, provided that it was strong enough and provided the right consumer protections.” Professor Omarova stated that “it is not necessarily a bad idea to have a unified standard but the key to that would be that that standard creates the maximum protection for the customer’s financial data from various abuses that would likely ensue if we take state authorities completely out of the game.”
As a brief summary of the hearing, there appeared to be consensus from all that our nation has to address the data privacy security and consumer protection issues, recognizing that this is emerging technology, and that we also will have to analyze the role of both federal and state laws. As stated by Senator Elizabeth Warren (D-MA), fintech “holds out a lot of promise for consumers and also raises a number of concerns. I think it’s critical that the government moves methodically on a regulatory approach to fintech so we encourage productive innovation but we don’t expose consumers to a lot of unnecessary risks.”
We will provide updates on any further legislative activity. As Chairman Crapo noted in closing the hearing, the Banking Committee will be going to “dig much more deeply into this” issue over time, as it is “an incredibly important issue and it’s complex, and it needs to be understood.” Stay tuned!