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FRB Governor Argues for Better Consumer Data Protections's picture
Commentary by Jeff Robins

Federal Reserve Board member Lael Brainard discussed the potential benefits and risks of FinTech innovation for consumers. In remarks at the "FinTech Risks and Opportunities" conference in Ann Arbor, Michigan, Ms. Brainard focused on advisory services. She emphasized the need for further transparency and data protection, and encouraged cooperative efforts to improve risk management and disclosure practices.

Ms. Brainard underscored the complexity of consumer choices in relation to credit cards and general financial management. She said that complicated choices can lead vulnerable customers to make uninformed or faulty financial decisions. Ms. Brainard pointed to technological advances, particularly in connection with smartphones, as important "autopilots" that can equip customers to improve financial choices. The combination of a "smartphone ecosystem," cloud computing, data analytics, artificial intelligence and behavioral science have created opportunities to harness computing power and analytical tools to enhance the automated financial management landscape, she said.

Ms. Brainard noted that FinTech companies that offer financial comparison and advisory tools may use a "lead generation" business model. Governor Brainard highlighted that the lead generation model presents challenges as to the level of disclosure that should be provided regarding practices for making financial recommendations. While such challenges are also present in other contexts, Ms. Brainard said that disclosure methodologies must be adjusted as necessary to account for FinTech evolution.

Ms. Brainard raised questions concerning the use of data aggregators, and the extent of consumer knowledge of the inner workings of FinTech applications. For example, she observed that customers often are not aware how their bank account login data is being used in "screen scraping," which is deployed to use login information to periodically log in to accounts and aggregate customer data. She said that this raises a host of additional issues, including the ability of customers to terminate collection and storage of their data. Ms. Brainard expressed concern that customers may have limited remedial options in the event of fraudulent transactions or other data security-related events. Going forward, she argued that stakeholders must cooperate to determine liability standards. Ms. Brainard advocated for a shared responsibility framework, and asserted that regulators should provide clarity with regard to risk management and also to facilitate socially beneficial innovations. Additionally, she said that traditional banks should be active in ensuring that their customers are "protected and treated fairly."

Commentary's picture
Jeff Robins

Governor Brainard's speech is of a piece with an earlier speech about banks' place in the "FinTech stack." In both, Ms. Brainard treads carefully into the topic of bank regulation of FinTech companies. However, her detailing of practices in the FinTech space involving asymmetric information, limited transparency and conflicts of interest is an unmistakable warning that regulators could act if the industry does not.

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