Fintech firms continue to face scrutiny as regulators work to ensure that tech intermediaries do not subject consumers to high fees, transaction surveillance, and anti-competitive activities.

Speaking in Washington to a Semafor Event Last week, Consumer Financial Protection Bureau Director Rohit Chopra said the activities of fintech intermediaries, particularly those with data-driven business models, will continue to be subject to rigorous oversight.

“We’re looking for people who want to be gatekeepers and charge tolls across the system,” he said. “We want to see who’s exploiting, misusing, abusing data. And we also want people who are building companies on something real, not just regulatory arbitrage.”

The CFPB is looking at companies that are “trying to insert themselves in the middle as a must-have resource for everyone, and then completely over-pricing,” Chopra said, adding that the phenomenon is widespread. He cited the example of credit scoring and reporting companies that exploit consumers’ need for credit reporting information and scores, operating with minimal competition.

Here are six insights from Chopra’s observations:

1. Greater oversight and guidance for fintechs

The rules under which fintechs operate need to be simpler and shouldn’t just benefit incumbents, Chopra argued. Clearer guidance means companies avoid a “lawyers’ brawl” as they struggle to navigate uncertainty.

“We inherit laws that are written by Congress,” Chopra said. “They’re often written sometimes for very specific circumstances; sometimes they’re written very, very broadly, and we have to deal with that.”

The CFPB, he said, has long had a problem with rent-a-bank partnership models.

“A lot of banks are promoting themselves as the bank of choice for fintechs, and sometimes that leads to situations where there’s a kind of ‘move fast and break things’ mentality, or things aren’t really buttoned up,” he said. Citing the fallout from the recent Fintech broker Synapse collapses Chopra, for example, has argued that poorly managed partnerships between banks and fintechs can cause significant harm to consumers.

“When you have certain companies that don’t even know how the books are kept, I mean, that causes really catastrophic and monstrous harm to people,” he said. “We’re certainly looking … even before this fiasco, for ways to safeguard it.”

He declined to comment on whether enforcement action would be taken in the Synapse case, but said it represented a serious error in judgment.

2. Enable open banking

The CFPB will finalize its open bank rule by October, Chopra said, adding that he hopes its launch will increase competition for consumers. The CFPB is accepting applications for Standards Bodies.

The first rule will cover transaction accounts, deposit accounts, digital wallets and other products. The agency will also launch additional rules “to address different types of problems,” he said. For example, the CFPB is considering a rule that could launch next year on actions mortgage lenders can take that could allow the mortgage market to serve more people.

“What you see in mortgage lending is a lot of very powerful gatekeepers and technology companies that are essentially charging a toll for every single mortgage transaction,” he said. Mortgage lenders have to “pay someone to do an employment verification,” he said.

“They have to pay a lot of money to FICO and credit reports over and over again, so we’re trying to figure out what [are] ways we can lower costs for lenders and ultimately help consumers,” Chopra said.

The agency is also evaluating ways for consumers to give third parties permission to access their salary information, he added.

3. “Buy Now, Pay Later” Guardrail

In May, the CFPB issued an interpretative rule that confirmed lenders that buy now, pay later They are credit card providers and therefore must guarantee consumers protection similar to that of credit cards.

Chopra said the CFPB issued the rule to provide transparency into how the agency interprets the law and to spare companies from having to continually seek legal counsel on the matter.

“We’re interested in making sure it’s clear that we see this as an important competitive offering for credit cards and other things … but we don’t want to rely on some legal arbitrage,” he said. The agency wants to confirm “that there are some laws that apply to this and we’re trying to make that clear.”

4. Counteract the control of big tech companies over payment instruments

Calling out Meta’s ill-fated attempt to throw Libra digital currency In 2019 “A total nightmareChopra argued that excessive control of payment transactions by big tech companies could limit competition and blur the lines between commerce and banking.

“We continue to worry that big tech companies will use the power of their existing platform to mint their own currency and vertically integrate in ways that will completely eliminate a lot of innovation,” he said.

The agency is also examining the underlying business models, including whether these platforms will be involved in surveillance on payments as a means to implement personalized pricing or undertake other business activities based on insights gleaned from the data.

“We are watching closely the convergence between payments and commerce and the extent to which a large player could leverage it to break down the wall between banking and commerce,” he said.

5. Filling gaps in privacy and surveillance laws

Consumer financial privacy protections are typically covered by state privacy laws, which can lead to compliance gaps.

“You can have all these state privacy laws that apply to some parts of the financial world, but then the largest banks in the country sometimes don’t have to comply, so we need real updates to financial privacy and anti-surveillance laws,” Chopra said.

Consumer trust is at stake, and without updated privacy and surveillance laws, it could be a slide toward a WeChat or Alipay-style business model, where “two companies control all payments and have complete information about all of us,” he added.

6. There is likely to be an increase in regulatory litigation

The Supreme Court has recently inverted the decades-old Chevron doctrine, which since 1984 has required courts to defer to the statutory interpretation of statutes.

In the financial services sector, the withdrawal of Chevron deference is unlikely to be a positive for new market entrants, but it could benefit incumbents that have a business model and may want to “lobby around liability,” Chopra said.

According to him, this could generate uncertainty about the rules, with an increase in disputes.

“You’re going to see a lot more things being argued in court,” he said. “There’s going to be more divided opinion and less definitiveness about what the rules of the road are.”

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