Leveraging technology to stand up the Consumer Financial Protection Bureau

Can technology be used to create a “21st Century regulator?” Keep an eye on Elizabeth Warren as she works to stand up the new Bureau of Consumer Financial Protection over the next months. As Bill Swindell reported for NextGov, the new consumer protection agency plans to use crowdsourcing to detect issues in the market earlier. In a world where studios can use tweets to estimate movie profits or researchers can use Twitter to predict the stock market, it makes sense for government to seriously examine data mining blogs and social networks to pick up the weak signals that predate real problems. Choosing to use such a methodology is applying a lesson from Web 2.0 for Gov 2.0.

This isn’t the first time the federal government has tried to use crowdsourcing for collaborative innovation in open government, certainly, but detecting consumer fraud in a networked world is such a massive challenge that the effort deserves special attention and scrutiny. What’s the thinking here? As Warren told Swindell:

“It’s also about how we will receive information about how the world works,” she said. “It’s about how people will tell us about what is happening. I want you to think about this more like ‘heat maps’ for targeted zip codes where problems are emerging, or among certain demographic groups, or among certain issuers,” Warren said in her still-not-decorated office.

How will crowdsourcing be focused? Swindell’s article provides more insight:

“The power of enforcement will be partly about the agency. But it will be partly, in the future, be about how people crowdsource around identified problems,” Warren said. “The idea that people can talk to each other, whether it’s through the agency or from other platforms. In a sense, the whole notion of how markets work will change.”

“In the old world, it would be up for the agency to come in, and you look very slowly through a sample of the banks to see what products they mailed out. And did they add a lot of fine print, nonsense by regulation that was not supposed to be there?[Now] all of the sudden you got information, and you got it much faster, and you have it more pinpointed and that becomes relevant for purposes of where you spend enforcement resources.”

Warren elaborated further this morning on her thinking about how technology can be used to stand up the Consumer Financial Protection Bureau at the White House blog:

I think the tools that can be at the new agency’s disposal will have at least three kinds of implications. First, information technology can help ensure that the new agency remains a steady and reliable voice for American families. The kinds of monitoring and transparency that technology make possible can help this agency ward off industry capture.

Second, technology can be used to help the agency become an effective, high-performance institution that is able to update information, spot trends, and deliver government services twenty-four hours a day, seven days a week. If we set it up right from the beginning, the agency can collect and analyze data faster and get on top of problems as they occur, not years later. Think about how much sooner attention could have turned to foreclosure documentation (robo-signers and fake notaries) if, back in 2007 and 2008, the consumer agency had been in place to gather information and to act before the problem became a national scandal.

And third, technology can be used to expand publicly available data so that more people can analyze information, spot problems, and craft solutions. When these data are made available – while also, of course, protecting consumer privacy, shielding personal information and protecting proprietary business information – a shared opportunity arises between the agency and people outside government to have a hand in shaping the consumer credit world.

When Elizabeth Warren meets with Silicon Valley executives, certain technologies are likely to be of particular interest. As reported, she’ll be talking with Hal Varian, Google’s chief economist. Varian is behind a “Google price index” created through online shopping data that measures inflation. For some perspective on his thinking and why leveraging big data is one of the most important trends in IT, watch the video from last year’s Gov 2.0 Summit below:

For more perspective on how big data is being put to work across government, academia and big business, check out the excellent Strata Week series at O’Reilly Radar. Data science is shaping up to be one of the key disciplines of the 21st Century. Whether it can be put to good use by government regulators is a question that will be fascinating to see answered.

UPDATE: Warren delivered a speech to the University of California at Berkeley during her trip where she elaborated further on her vision for the new consumer protection agency. Full text of the speech is embedded below. Selected quotes on data follow.

Technology may provide new tools for the media and government to determine what’s happening – but they can and are used against consumers. As is so often the case, technology is agnostic to the purpose it is bent towards.

Today,  information  is  king—but  information  is  not  evenly  accessed  by  all.  Repeat  players  can  understand   a  complicated  financial  product  that  the  rest  of  us  have  difficulty  parsing  in  full.  Lenders  can  hire  teams   of  lawyers  to  work  out  every  detail  of  a  contract,  then  replicate  it  millions  of  times;  a  consumer  doesn’t   have  the  same  option.  And  with  technology  to  keep  track  of  every  purchase,  to  watch  every  payment   choice,  to  observe  and  record  the  rhythms  of  our  lives,  a  sophisticated  seller  can  harvest  that   information—sometimes  in  ways  that  provide  value,  but  sometimes  in  ways  that  manipulate  customers   who  will  never  see  what  happened  to  them.

Warren also talked about how technology can be used to connect the new regulator with consumers, with respect to a “virtual shingle.” We’ll all see how big those ears can be.

When  an  agency  loses  sight  of  the  public  it  is  designed  to  serve,  academics  say  it  has  been  captured.     The  new  consumer  agency  can  develop  tools  to  help  level  the  playing  field  and  discourage    capture.  The   American  people  can  have  not  just  one,  but  thousands  of  seats  at  the  table.  Even  before  the  agency   officially  opens  its  doors,  it  can  solicit  information  from  the  American  people  about  the  challenges  and   frustrations  that  they  face  with  consumer  financial  products  day  in  and  day  out—and  it  can  organize   that  information  and  put  it  to  good  use.  Data  from  the  public  can  inform  priorities,  and  it  can  signal   problems  both  to  consumers  and  businesses.         Information  technology  can  allow  us  to  hang  out  a  virtual  shingle  in  front  the  Agency  and  to  declare  our   intent  to  the  world.  It’s  a  lot  harder  to  let  yourself  fail  –  and  a  lot  easier  for  the  public  to  hold  you   accountable  –  when  you’ve  transparently  declared  your  mission  and  shared  information  the  public  can   use  to  measure  your  success  in  meeting  it.  Technology  can  force  this  agency  to  remain  true  to  its  goals.

Warren also articulated her thoughts on a “data-driven agency” and empowering citizens  “to help  expose,  early  on,  consumer  financial  tricks,” acting as a kind of collective digital neighborhood watch. It’s an interesting vision.

In  a  world  of  experts,  it’s  the  experts  that  frame  the  questions  to  be  asked,  isolate  the  problems,  sort   through  the  data  (if  there  are  any),  and  try  to  design  solutions—always  with  the  industry  looking  on  and   chiming  in.  But  we  can  do  this  differently.    

A  data  driven  agency  won’t  be  about  conventional  wisdom.  It  will  be  about  data.  And  those  data  should   come  from  many  sources—from  financial  institutions,  from  academic  studies  and  from  our  own   independent  research.  We  can  reinforce  that  approach  by  making  sure  that  our  analysts  come  from  a   diversity  of  backgrounds—finance,  law,  economics,  sociology,  housing.      

But  we  can  also  gather  data  directly  from  the  American  people  by  asking  them  to  volunteer  to  share   with  us  the  experiences  they  have  with  consumer  credit  products.  We  can  open  up  our  platform  to   families  across  the  country  who  want  to  tell  us  what  has  happened  to  them  as  they  have  used  credit   cards,  tried  to  pay  off  student  loans,  or  worked  to  correct  errors  in  a  credit  report.  We  can  learn  more   about  the  loan  application  process,  about  what  people  see  on  the  front  end  and  what  happens  on  the   back  end.  We  can  learn  about  good  practices,  bad  practices  and  downright  dangerous  practices,  and  we   can  report  on  the  good,  the  bad  and  the  ugly  to  increase  transparency  and  to  push  markets  in  the  right   direction.      

Normally,  agencies  use  supervision  and  lawsuits  to  enforce  the  law.  This  agency  will  do  that  as  the  cop   on  the  beat  watching  huge  credit  card  companies,  local  payday  lenders,  and  others  in  between.   Technology  can  help  us  do  that  better,  by  making  sure  our  enforcement  priorities  are  tightly  connected   to  the  financial  market  realities  as  experienced  by  customers  every  day.      

New  technology  can  help  us  supplement  the  cop  on  the  beat  by  building  a  neighborhood  watch.  The   agency  can  empower  a  well-­‐informed  population  to  help  expose,  early  on,  consumer  financial  tricks.  If   rules  are  being  broken,  we  don’t  need  to  wait  for  an  expert  in  Washington  to  wake  up.  If  we  set  it  up   right  from  the  beginning,  the  agency  can  collect  and  analyze  data  faster  and  get  on  top  of  problems  as   they  occur,  not  years  later.    Think  about  how  much  sooner  attention  could  have  turned  to  foreclosure   documentation  (robo-­‐signers  and  fake  notaries)  if,  back  in  2007  and  2008,  the  consumer  agency  had   been  in  place  to  blow  the  whistle  before  the  problem  became  a  national  scandal.        
The  agency  may  also  be  able  to  demonstrate  how  incentives  can  change  when  people  are  connected  not   only  to  the  government,  but  also  to  each  other.  Through  crowd-­‐sourcing  technology,  consumers  can   deal  collectively  with  those  who  would  take  advantage  of  them—and  can  reward  those  who  provide   excellent  products  and  services.  Imagine  scanning  a  credit  agreement  and  uploading  to  a  website  where   software  can  analyze  the  text  of  the  agreement.  A  consumer  could  help  the  agency  spot  new   agreements  on  the  market  and  customers  could  get  more  information  as  they  make  decisions.    The  new   CARD  Act  requires  credit  card  issuers  to  submit  their  agreements  to  the  Federal  Reserve  for  posting.     That’s  a  model  we  can  build  on.     Information  –  fast,  accurate  information  from  a  variety  of  sources  –  has  the  power  to  transform  the  old   measures  of  agency  effectiveness.    

Warren was also thoughtful about the risks and opportunities of using government data. She also alluded to the potential for entrepreneurs to develop apps to create something of value, an aspect of Gov 2.0 that has been widely articulated through the Obama administration’s IT officials.

As  a  researcher,  I  understand  that  data  must  always  be  handled  carefully,  and  protection  of  personal   data  and  proprietary  models  is  paramount.  But  I  also  believe  that  better  data,  made  available  to  the   media,  private  investors,  scholars  and  others,  will,  over  time,  produce  better  results.  When  data  are   widely  shared,  others  can  use  those  data  to  uncover  new  problems,  to  frame  those  problems  in   different  ways,  to  propose  their  own  public  policy  solutions,  and,  for  the  entrepreneurs  in  the  group,  to   develop  their  own  private  apps  to  create  something  of  value.  I’ve  seen  some  good  ideas  in  my  time,  and   I’ve  learned  that  those  ideas  can  come  from  unlikely  places.  I’m  hopeful  that,  as  we  drive  consumer   credit  markets  toward  working  better  for  families,  the  new  consumer  agency  will  be  smart  enough  to   encourage  –  and  then  to  build  upon  –  good  ideas  that  come  from  far  outside  the  government  sphere.

The entire speech is below.

Elizabeth Warren’s lecture at Berkeley [10/28/2010]

About Alex Howard

Alexander B. Howard is a DC-based a technology writer and editor. Previously, he was the Washington Correspondent at O'Reilly Media, where he covered the voices, technologies and issues that matter in the intersection of government, technology and society. If you're feeling social, you can follow him on Twitter, like him on Facebook or circle him on Google Plus In addition to corresponding for the O’Reilly Radar, he has contributed to the Huffington Post, Govfresh, Mashable, ReadWriteWeb, National Journal, The Atlantic, CBS News and Forbes. He graduated from Colby College with a bachelor's degree in biology and sociology. Currently, he is a resident of the District of Columbia, where he lives with his greyhound, wife, power tools, plants and growing collection of cast iron pans, many of which are frequently used to pursue his passion for good cooking.