Credit Bureaus
The consumer credit bureaus collect sensitive information on millions of Americans, and thus are required to protect the information they collect. While the credit bureaus are subject to state and federal regulation for consumer protection purposes, and have been subject to state and federal enforcement actions related to data security, they are not routinely supervised for compliance with the federal data security requirements of the Gramm-Leach-Bliley Act. Treasury recommends that the relevant agencies use appropriate authorities to coordinate regulatory actions to protect consumer data held by credit reporting agencies and that Congress continue to assess whether further authority is needed in this area. Treasury also recommends that Congress amend the Credit Repair Organizations Act to exclude national credit bureaus and national credit scorers in order to allow these entities to provide credit education and counseling services to consumers to prospectively improve their credit scores.
IRS Income Verification
The Internal Revenue Service (IRS) system that lenders and vendors use to obtain borrower tax transcripts is outdated and should be modernized in order to minimize delays in accessing tax information, which would facilitate the consumer and small business credit origination process. In other data aggregation situations, such as gathering borrower bank balances, lenders generally are able to obtain the needed borrower financial information through an application programming interface (API) to instantaneously and safely transfer data. The IRS’s current technology should be updated to accommodate lender access of borrower information to instantaneously and safely transfer data, comparable to similar private sector solutions. While the IRS is working to update its technology more broadly, these efforts would benefit from additional funding, which would facilitate upgrades to support more efficient income verification, bringing a critical component of the credit process up to speed with broader innovations in financial technology.
Payments
Treasury recommends that the states work to harmonize money transmitter requirements for licensing and supervisory examinations, and urges the Bureau to provide more flexibility regarding the issuance of remittance disclosures. Treasury encourages the Federal Reserve to move quickly in facilitating a faster retail payments system, such as through the development of a real-time settlement service that would allow for more efficient and widespread access to innovative payment capabilities. Such a system should take into account the ability of smaller financial institutions, such as community banks and credit unions, to access innovative technologies and payment services.
Wealth Management and Digital Financial Planning
Digital financial planning tools can expand access to advice for Americans to accumulate sufficient wealth, particularly as individuals have become more responsible for their own retirement planning. Under the current regulatory structure, financial planners may be regulated at both the federal and state levels. Although many financial planners are regulated by the Securities and Exchange Commission or state securities regulators, they may also be subject to regulation by the Department of Labor, the Bureau, federal or state banking regulators, state insurance commissioners, state boards of accountancy, and state bars. This patchwork of regulatory authority increases costs and potentially presents unnecessary barriers to the development of digital financial planning services. Treasury recommends that an appropriate existing regulator of a financial planner be tasked with primary oversight of that financial planner and other regulators defer to that regulator.
Regulating a 21st Century Economy
Treasury advocates an agile approach to regulation that can evolve with innovation. It is critical not to allow fragmentation in the financial regulatory system, at both the federal and state level, to interfere with innovation. Financial regulators must consider new approaches to effectively promote innovation, including permitting meaningful experimentation by financial services firms to create innovative products, services, and processes.
Internationally, many countries have established “innovation facilitators” and various regulatory “sandboxes” — testing grounds for innovation. These sandboxes have each generally supported common principles, such as promoting the adoption and growth of innovation in financial services, providing access to companies in various stages of the business lifecycle, providing varying degrees of regulatory relief while maintaining consumer protections, and improving the timeliness of regulator feedback offered throughout the development lifecycle. While replicating this approach in the United States is complicated by the fragmentation of our financial regulatory system, Treasury is committed to working with federal and state financial regulators to establish a unified solution that accomplishes these objectives — in essence, a regulatory sandbox.
The ability of regulators to engage with the private sector to test and understand new technologies and innovations as they arise is equally important. Treasury recommends that Congress pass legislation authorizing financial regulators to use other transaction authority for research and development and proof of concept technology projects. Treasury encourages financial regulators to pursue robust engagement efforts with industry and establish clear points of contact for outreach to enable the symbiotic relationship necessary to maintaining U.S. global competitiveness.
Treasury will work to ensure actions taken by international organizations align with U.S. national interests and the domestic priorities of U.S. regulatory authorities. This should include a focus on the needs of U.S. companies that operate on a global basis. Participation by the relevant experts in international forums and standard-setting bodies is important to share experiences regarding respective regulatory approaches and to benefit from lessons learned.
A Bright Future for Innovation
The United States is the global leader in technological innovation. The pace of technological development in financial services has increased exponentially, offering potential benefits to the U.S. economy. Treasury encourages all financial regulators to stay abreast of developments in technology and to properly tailor regulations in a manner that does not constrain innovation. Regulators must be more agile than in the past in order to fulfill their statutory responsibilities without creating unnecessary barriers to innovation. Ensuring a bright future for financial innovation, regulators should take meaningful steps to facilitate and enhance the nation’s strength in technology and work toward the common goals of fostering vibrant financial markets and promoting growth through responsible innovation..."
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