Transatlantic Collaboration: Safeguarding Consumers in the Era of Fintech Innovation

Last July, the CFPB and EC established an agreement for an "informal dialogue" aimed at overseeing and regulating emerging fintech technologies and financial services to protect consumers on both sides of the Atlantic. Nearly a year later, they issued a public statement last week detailing their progress, reports BankingDive. They also highlighted the existing legal and regulatory frameworks designed to address new digital payment services.

In a joint statement last Thursday, Chopra and Reynders, responsible for justice and consumer protection, emphasized the increasing similarity of consumer finance markets across jurisdictions over the past decade. They stressed the necessity for the U.S. and E.U. to collaborate on monitoring firms, products, consumer trends, and risks spanning the Atlantic. They reported that their staff had exchanged expertise, best practices, and lessons learned on crucial issues. Chopra and Reynders met on Feb. 20 to discuss their efforts, and Chopra also held discussions with Mairead McGuinness, the EC’s commissioner for financial services, financial stability, and the capital markets union, as stated last week.

Both regulatory bodies are particularly concerned about the rising consumer debt and the potential impact of BNPL (Buy Now Pay Later) financing, which often presents itself as interest-free but may involve interest payments or other fees. European regulators are apprehensive about the projected increase in consumer debt and the proliferation of BNPL providers. Meanwhile, the CFPB has observed a surge in BNPL market participants and has conducted studies on BNPL users, finding it to be a potentially positive alternative to credit card usage in some cases.

The regulators discussed differences and similarities between the evolution of the BNPL industry in the E.U. and U.S., identified consumer risks, examined existing legal frameworks, and outlined areas for future collaboration, according to the latest statement.

Additionally, the arrival of major technology companies in the digital payments sector was a topic of concern. U.S. tech giants like Apple, Google, and Amazon have entered the payments market with offerings such as Apple Pay, Google Pay, and Amazon’s palm pay feature, leading to regulatory actions and litigation over alleged monopolistic behavior.

The CFPB has been actively addressing the risks associated with Big Tech's growing role in consumer finance, according to the latest statement. The regulators also expressed concerns about consumer fraud and its impact on unbanked consumers, particularly with the advancement of digital payments and the involvement of large tech companies.

Lastly, the regulators discussed the use of AI in providing consumer financial services, highlighting associated risks. While Europe has recently implemented four new laws and regulations related to AI, the U.S. has taken fewer actions, although the CFPB noted some guidance and recent studies on the matter.