3 FINTECH NEWS STORIES
#1: We Need Different Incentives in Data Furnishment
What happened?
TD Bank got in trouble with the CFPB:
Today, the Consumer Financial Protection Bureau (CFPB) ordered TD Bank to pay $7.76 million to tens of thousands of victims of the bank’s illegal actions. For years, the bank repeatedly shared inaccurate, negative information about its customers to consumer reporting companies. The information included systemic errors about credit card delinquencies and bankruptcies. In addition to the redress, the CFPB is ordering TD Bank to pay a $20 million civil money penalty.
So what?
This is an impressively bad screw-up by TD Bank.
Their furnishing failures span the gamut, from failing to report genuine negative data correctly to reporting negative data on legitimate customers that was the result of fraud. Even worse, TD seems to have made little-to-no effort to rectify these mistakes in a timely manner, even when consumers repeatedly complained.
Two thoughts on this news:
- The cost of screwing up data furnishing is too small and too late. Sure, $27.76 million hurts, but realistically it’s a drop in the bucket for TD, and, more importantly, it’s coming years after the harm was inflicted on consumers. We need a faster feedback loop to disincentivize bad behavior in FCRALand. For example, what if we tied the volume of consumer complaints about specific data furnishers to the costs that those data furnishers paid to acquire credit data? Would banks speed quite so much if doing so continually raised the price they were paying at the pump?
- It would be nice if the CFPB would spend a bit more out of that Civil Penalty Fund of theirs. The bureau has collected $3.5 billion from companies that it has brought enforcement actions against since 2010 (with TD Bank’s $20 million contribution being the latest), but it has only spent about $1.5 billion of it (mostly on relief for victims). I would love it if the CFPB would spend some of that remaining $2 billion, which it is authorized to do if it’s for consumer education or financial literacy. For example, we could really use a better system for freezing our credit reports when furnishers or the credit bureaus fuck up.
#2: Hummingbird Tackles Data Fragmentation in Financial Crime
What happened?
Hummingbird, a fintech infrastructure company focused on financial crime management, made an acquisition:
Hummingbird … today announced the acquisition of LogicLoop, a pioneer in no-code data integration and automation.
Data fragmentation continues to be the top challenge facing financial institutions globally. Risk and compliance teams, in particular, struggle to access their data and leverage it for risk management and financial crime investigations, resulting in gaps and inefficiencies. With LogicLoop’s innovative technology, Hummingbird is poised to tackle this problem head-on.
So what?
I wasn’t familiar with LogicLoop before seeing this news, but from what I can tell, it provides a platform that allows companies to integrate with data sources and run rules against those data sources to monitor for critical events.
It looks like a very neat product, particularly its AI assistant, which is capable of auto-generating SQL scripts from plain text instructions in order to grab specific data elements.
One can easily see the appeal for Hummingbird, which is trying to build a unified operating system for financial crime analysts.
While many financial institutions are creating enterprise groups responsible for financial crime prevention and investigation across lines of business, the mere existence of those groups doesn’t guarantee that they will be able to effectively carry out their mission. LOBs inside banks and large fintech companies act autonomously, which means they are constantly connecting to and generating new datasets. Centralized financial crime management teams want to access that data but often lack the technical resources to facilitate that access. LogicLoop + Hummingbird would seem to solve that problem.
#3: Can EWA Build Credit?
What happened?
DailyPay added a new feature to its core product:
DailyPay has launched “Credit Health,” a new addition to its award-winning worktech platform. The new product speaks to the company’s mission to support its users’ financial wellness journey, wherever that may be.
Credit Health is a free financial wellness tool integrated within the DailyPay app that allows DailyPay users to stay informed about their credit status, identify potential issues promptly, and make more informed decisions about their overall financial situation.
So what?
DailyPay provides employer-integrated earned wage access (or ‘capital E’ EWA, as I have taken to calling it). Their product, like most EWA products, is free and non-recourse and makes funds available instantly if you pay a small fee or use their reloadable prepaid card.
And now it offers credit score monitoring. Here’s how DailyPay explains the need for this new capability:
“Building credit is a central goal for our users because good credit unlocks fundamental financial opportunities across apartment leases, car loans, borrowing costs, and more,” said Jack Rubin, SVP of Consumer Financial Solutions at DailyPay. “The first step in building credit is to have access to your score and what’s driving it up or down.”
Indeed. Credit score monitoring is the first step in credit building. Do you know what the next step is?
Furnishing repayment data!
This is ironic because the earned wage access industry is currently caught in the middle of an argument about whether or not EWA is a loan.
However, for the purposes of building credit, it’s really not.
Employer-integrated EWA allows the provider to advance a portion of the money that the employee has already earned. Barring the unexpected bankruptcy of the employer, these are good funds, and the risk of advancing them is very, very low. And, as frequent readers of this newsletter will already know, if the lender isn’t taking meaningful credit risk, then the “loan” shouldn’t be reported to the credit bureaus.
If DailyPay and other EWA providers are serious about helping employees unlock the financial opportunities that come with a prime or super-prime credit score, they should consider adding a true credit product (perhaps a secured card with the security deposit built from small wage advances over a few pay periods?)
2 FINTECH CONTENT RECOMMENDATIONS
#1: FDIC’s Proposed “Synapse Rule” May Not Have Actually Applied To Synapse (by Jason Mikula, Fintech Business Weekly) 📚
An excellent overview of the latest proposed rule from the FDIC, which I would petition that we rename the “Henrichs Rule” after Jason Henrichs, who has been banging the drum on the dangers of FBO accounts in BaaS long before it was cool.
#2: Are “Fraud Screening” Tools Credit Reports? (by Jonathan Joshua) 📚
Nerdy FCRA content. My favorite!
1 QUESTION TO PONDER
What can I read (or watch or listen to) to get a better understanding of how banking regulators (state and federal) are thinking about when it comes to the use of AI (particularly generative AI) in financial services?
