This summer, Elizabeth Warren's Consumer Financial Protection Bureau (CFPB) opened its doors for business (unfortunately sans Elizabeth Warren) and one of its first orders of business is developing rules for regulating the activities of "non-banks" that still potentially impact the financial well-being of consumers.
One of the lessons of the recent financial crisis is that the financial world has metasized into a sprawling ecosystem of institutions, only a few of which -- and not always the most important -- carry a sign on their door labeling them a "bank." The U.S. has a wide range of different regulators for each kind of financial institutions -- one regulator overseeing savings & loans, others regulating national banks, states regulating state banks, and a range of other regulators for insurance companies, payday lenders and other entities.
So one of the goals of the new CFPB is to create a single regulator to at least lay out and protect basic consumer protections across a wide range of financial institutions -- and even many institutions that are not even generally considered financial institutions but play a large role in our financial system nonetheless.
Enter new proposed rules for "Defining larger nonbank participants" in the financial system. Under the Dodd-Frank Act, the CFPB can regulate larger nonbank "participants" in the financial system and they have been looking for comments on what financial markets to cover, how to measure what a "large" participant is, and what kinds of data they should be collecting to protect consumers.
Yesterday, my organization Tech Progress filed comments urging the CFPB to include search engines and related online advertisers using behavioral targeting to market financial products to consumers. As I detailed a few weeks ago in the Cost of Lost Privacy 3: Google, the Subprime Meltdown and Antitrust Implications, online advertising was one of the major conduits for hocking subprime mortgages to consumers. At the height of the frenzy back in 2007, online display advertisers connected to the mortgage industry were spending $200 million PER MONTH and an unmeasured amount of other advertising dollars were going to search-based advertising.
Google, Microsoft, Yahoo and other online intermediaries are playing an increasingly important role in the financial world and the CFPB needs to, first, collect more data to measure what their impact is on consumers and, secondly, establish rules to protect those consumers.
The issue of behavioral targeting -- delivering ads to individual consumers based on their demographic profile or search patterns -- opens up whole new areas of potential abuse. We know financial institutions have a pattern of offering worse deals with more abusive terms -- balloon payments, hidden fees, and nasty penalty clauses -- to the most vulnerable populations and such behavioral targeting of online ads makes such predatory lending that much easier. And because those ads are served up individually to each consumer--and can be modified accordingly -- the space for abuse and exploitation is extremely large as fraudulent or discriminatory offers can be made that will be largely unseen by the rest of the population.
Precisely because so much of this activity is hidden, the Consumer Financial Protection Bureau (CFPB) can make a difference just by improving data collection and increasing public information. Just publicizing how much revenue search engines like Google make from the financial industry will highlight their key role in the financial world. Beyond such aggregate data, the CFPB should investigate what categories and the amount of personal data being collected from users in order to tailor ads and whether and how many differential offers are being made to different demographic groups to better measure the scope and impact of behavioral marketing as a source of abuse in the financial system.
The problem of predatory lending and reverse redlining were the source of much of the outrage that fueled the creation of the Consumer Financial Protection Board. Even as some of the grossest abuses may be reined in now in the wake of the financial meltdown, we should expect more sophisticated versions of those abuses to continue and use of online behavioral targeting is likely to remain and even expand as a tool for those predatory financial actors. By closely regulating how the large search engine and related online advertising players collect and share the personal data they control, many of those abuses can be stopped before consumers fall victim to fraudulent or discriminatory offers.