Many questions about the future of the agency remain (Wall Street and Republicans have not been sparing offering criticism over the past year) but credit where credit is due: the new consumer bureau has been open to ideas about how it can do its work better. This approach is what led New York Times personal finance columnist Ron Lieber to muse last week that “its openness thus far suggests the tantalizing possibility that it could be the nation’s first open-source regulator.”
It’s extremely rare that an agency gets built from scratch, particularly in this economic and political context. It’s notable, in that context, that the 21st century regulator has embraced many of the principles of open government in leveraging technology to stand up the Consumer Financial Protection Bureau. Elizabeth Warren, the architect of the agency, spoke to how open government, citizens and technology factor into the bureau’s work earlier this year:
Better government by design
Open government isn’t just about first principles for accountability, open data, social media, transparency, cultural change, citizen participation, innovation or feedback loops, however, though all of those factors matter. As the work of Code For America has shown this year, design matters in open government. Better citizen experience, communication and customer service depends on better design.
Lois Beckett aptly connected how the dots about why design matters to the CFPB’s work this week at ProPublica, where she wrote about the challenges the innovative financial regulator faces as it starts up.
…as the political battle rages on and media scrutiny focuses on Elizabeth Warren’s political future, little attention has been given to what the bureau has actually done. And its initial efforts are interesting, especially because they show a commitment to open government and real public engagement. (Ron Lieber noted that its blog actually accepts comments—”unlike, say, the White House’s.”)
The bureau’s mission is to create transparency in an industry dominated by confusing claims and mouse print. Good design isn’t just a perk here—it’s fundamental to the bureau’s regulatory efforts.
Case in point: One of the CFPB’s top priorities has been streamlining the federally required mortgage disclosure documents. If that sounds like a mouthful, it’s worse on paper: two separate, complicated forms that are confusing for customers and, the bureau contends, also burdensome for many mortgage servicers to fill out.
The goal is to replace them with a single, two-page document that clearly answers the questions: “Can I afford this mortgage?” and “Can I get a better deal somewhere else?”
Two of the potential designs for the new form each have a note at the top, in bold print: “You have no obligation to choose this loan. Shop around to find the best loan for you.”
The bureau’s other projects include improving transparency about credit card prices and fees, the exchange rates used for remittance transfers of money to other countries and the credit scores sold to consumers and creditors.
Using heatmaps and 13,000 clicks to understand pain points for mortgage disclosure? Data-driven government may have legs.
It’s not just the heatmaps: the CFPB reports that they read and analyzed the comments themselves. “There is symmetry here,” write the Web staff. “Heatmaps make it easier to understand and compare data. We want to improve disclosure so it is easier for consumers and lenders to understand and compare when they evaluate mortgage loans.”
As the newest .gov startup continues to scale, we’ll see if more experiments in open government design are given “freedom to fail,” a latitude that the father of the Internet, Vint Cerf, has hailed as an essential ingredient for government innovation. Stay tuned, and keep at eye on the CFPB.
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.”
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.