CRS Reviews Consumer Benefits and Risks of FinTech Products

The Congressional Research Service ("CRS") reviewed various benefits and risks associated with the expanding number of consumer FinTech products.

In its report, CRS examined the potential benefits associated with consumer FinTech products, including (i) improved consumer experiences, (ii) lowered cost of providing financial products and services and (iii) expanded access to underserved consumers. According to CRS, one significant byproduct of the COVID-19 pandemic was an increase in internet shopping, which coordinately increased demand for electronic payments.

In addition, CRS highlighted several significant technologies and FinTech products, including:

• consumer electronic payments;
• accounts accessed through the internet;
• mobile banking technologies;
• peer-to-peer ("P2P") electronic payment technologies;
• digital wallets; and
• financial data aggregation services.

CRS stated that while consumers enjoy the benefits of online shopping and payments, fraud risks are introduced through unauthorized transfers and data risk. CRS also noted that consumers using credit, debit or prepaid cards are protected against fraud by the Electronic Funds Transfers Act and the Truth in Lending Act, which were implemented through CFPB Regulation E (Regulations related to Electronic Funds Transfer Act") and Regulation Z (Regulations related to Truth in Lending Act"). CRS pointed out that some FinTech payment services, such as P2P payments, may not be subject to existing Regulations E and Z because those regulations only apply to covered accounts (e.g., credit, debit or prepaid cards). In addition, the report suggested that policymakers consider the need for expanded consumer protections (e.g., data privacy), deposit insurance and bankruptcy protections. According to CRS, the CFPB is working on a new regulation to implement Section 1033 ("Consumer Rights to Access Information") of the Dodd-Frank Wall Street Reform and Consumer Protection Act and clarify standards around consumer-authorized equal access to financial data.

According to the report, consumer lending is another expanding FinTech category, which increasingly leverages new technologies to automate credit underwriting processes. Specifically, CRS stated that the availability of alternative data, which is obtained through machine-learning and automated algorithms and used to underwrite loans, can help lower the cost of borrowing for some consumers. CRS noted that alternative data could also negatively affect lending decisions for others. In particular, CRS noted that new technologies such as machine learning and alternative data introduce questions about how to apply fair lending laws, such as the Equal Credit Opportunity Act, to electronically determined consumer loan underwriting.