BankTech

Finicity talks data aggregators’ treatment under the Fair Credit Reporting Act

Finicity CEO Steve Smith explains how FCRA regulation simultaneously protects the consumer and open banking innovation

When it comes to regulation, the water can be opaque and cloudy for fintechs. Especially when companies, like Finicity, emerge that weren’t even in existence when some regulations were written.

That’s why Finicity, a Mastercard company that provides open banking services, published a white paper to assert its stance on how data aggregators should be treated under the Fair Credit Reporting Act (FCRA).

The FCRA protects consumers by preserving the right for individuals to debate inaccurate data in consumer reports and get errors corrected. Finicity asserts in a press release that FCRA compliance will become an important component of consumer protection as consumer-permissioned data sharing in lending, insurance and employment continues to grow.

Essentially, Fincity says that the FCRA should apply to data aggregators (data agents) in certain cases. Ultimately, this would protect the consumer as third-party data aggregators are able to provide financial data credit decisioning purposes, Finicity states in the white paper.

Finicity’s self-described mission is to help individuals, families and organizations make smarter financial decisions through safe and secure access to fast, high-quality data. The company launched its first financial product in 2000 and has since grown to provide financial data APIs, credit decisioning tools and financial wellness solutions. In November, the Department of Justice gave Mastercard the green light to proceed with its planned $825 million acquisition of Finicity.

FCRA compliance is essential because it ensures fairness, accuracy and transparency when using account data. If one doesn’t comply then it will “gut the promise of utilizing financial account transaction data as a way to both empower consumers and to make better credit decisions,” the white paper reads.

But why should we care? Finicity CEO and co-founder Steve Smith explained in an interview with FinLedger that it’s important because these regulations further protect the consumer and the innovation within open banking.

“If you look at open banking and look at the ability for consumers to be empowered through permissioning access to their financial data, to the extent [they are] not protected, it damages the value of open banking,” Smith said. ”It damages the ability of open banking to deliver on that empowerment process if it doesn’t clearly meet the protection needs of the consumer.”

Lenders are using new forms of financial data, like data about a consumer’s bank account transactions, which can ensure more effective credit-decisioning for lenders. The data adds to the traditional credit score so that lenders can have a more broad picture of a borrower’s financial health. While this data can enable lenders to have a more thorough credit review process, it also lets consumers have more control over their financial data.

In this particular instance, it’s also important to create guardrails so that data agents know how to engage in certain use cases, Smith said. From Fincity’s perspective, this regulation already exists, they just believe that if you’re a data agent who “provides consumer-permissioned data to lenders, you need to be a CRA.”

“We want to do everything that we can to work within the frameworks that exist. And to the extent there are new [terms] that need to be defined, we want to work together with regulators to help provide additional definition,” Smith said.

In early 2021 the Consumer Financial Protection Bureau is expected to propose new rules concerning consumer-permissioned access to financial data.

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