Democrats Send Letter to Kraninger

Aug 15, 2019 | Federal Regulation, FinTech, News

Senator Elizabeth Warren (D-MA), alongside Congresswomen Raja Krishnamoorthi (D-IL), Ayanna Pressley (D-MA), and Katie Porter (D-CA), sent a letter on August 14 to Kathy Kraninger, the Director of the Consumer Financial Protection Bureau (CFPB), seeking information on the CFPB’s Office of Innovation.  

Specifically, they are asking for information regarding “the no-action letter program revision, and the proposed Product and Disclosure Sandboxes.” These programs are administered by the Office of Innovation, which is overseen by Paul Watkins, Director of the Office of Innovation. The letter also expressed concern over Watkins. 

“We have grave concerns about Mr. Watkins holding the authroity to waive anti-discrimination laws given his prior employment at Alliance Defending Freedom (ADF) – a group that has been designated as a hate group by the Southern Poverty Law Center.” 

The CFPB’s no-action letter policy and Product Sandbox provide certain innovative companies a lighter regulatory touch. For example, the CFPB provided UpStart Network, a fintech company, a no-action letter in 2017, authorizing the company to utilize alternative data, including education and employment information, and machine learning in making credit underwriting and pricing decisions. 

From their testing, Upstart was able to show that an underwriting model using alternative data approved “27 percent more applicants than the traditional model, and yields 16 percent lower average APRs for approved loans.” The increase in access to credit and decrease in interest rates was true regardless of race, ethnicity, and sex. 

Senator Warren and the other signatories are concerned that the CFPB’s new no-action letter policy is too broad and opens “the door to widespread and unnecessary exemptions from consumer protection requirements.” The letter also claims that the proposed Sandbox is “another expansive program that would expose consumers to unnecessary risk.”

The letter concludes by requesting information from the CFPB, including the names of companies and trade associations with which the CFPB has discussed the aforementioned programs and documentation on Watkins, such as his work emails that mention certain keywords.  

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