After announcing a collaboration on priority areas last summer, the U.S. Consumer Financial Protection Bureau and the European Commission have released a follow-up statement on some of the key issues they’ve been addressing. The hot-button topics include buy now, pay later programs, fraud in digital payments, and artificial intelligence.
“It is critical for the U.S. and E.U. to coordinate on the firms, products, consumer trends, and risks that span the Atlantic,” Rohit Chopra, Director of the CFPB, and Didier Reynders, Commissioner for Justice and Consumer Protection of the EC, said in a joint statement. “The evolution of the payments system has been a key focus of such discussions, as Apple, Google, and other firms increase their reach in the market.”
The discussions so far in these areas include:
BNPL
EC staff shared their latest study on the projected increase in consumer over-indebtedness over the next decade. They delved into the expected growth of the BNPL industry, especially among online consumers, and the latest revisions to the Consumer Credit Directive—an evolving piece of legislation designed to standardize consumer credit across Europe. Additionally, they provided background on the Fair Credit Reporting Act framework in the U.S.
“BNPL continues to grow as a significant payment type in both the EU and the U.S.,” said Ben Danner, Senior Analyst of Credit and Commercial at Javelin Strategy & Research. “We expect regulators to be discussing issues such as loan stacking, lack of consumer credit reporting, and marketing practices.”
Digital Payments and Fraud
There have been several recent EU regulatory initiatives aimed at tackling fraud in digital payments, as well as within the EU’s open banking framework. Last fall, the CFPB unveiled its own set of rules for open banking, likely influenced by the state of affairs in the EU, where open banking was introduced in2015.
Meanwhile, on the U.S. side, there is exploration into the role of nonbanks in payments, along with an examination of digital access’ impact on the unbanked. Efforts are being made to address the risks associated with big tech’s growing involvement in consumer finance, with a particular focus on payments.
Artificial Intelligence
The rise of AI has resulted in regulation on both sides of the ocean. The European Commission took several steps forward to confront concerns regarding AI in Europe. These include:
- General Data Protection Regulation
- Consumer Credit Directive
- Distance Marketing of Consumer Financial Services
- Artificial Intelligence Act
For their part, the CFPB released a report on the use of chatbots by financial institutions. Concerns surrounding ChatGPT, such as privacy violations, led G7 digital ministers to endorse risk-based regulations last year. EC and CFPB exchanged insights on the various types of AI and automated decision-making use cases employed by organizations in their respective jurisdictions within the realm of consumer finance.
The CFPB and the EC will continue to have their annual principal-level meeting and bi-annual staff level meetings to address these issues and any other matters impacting payments and banking.
