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US amasses data, and banks protest

Watchdog to analyze how Americans handle credit

– The new U.S. consumer finance watchdog is gearing up to monitor how millions of Americans use credit cards, take out mortgages and overdraw their checking accounts. Their bankers aren’t happy about it.

The Consumer Financial Protection Bureau is demanding records from the banks and is buying anonymous information about at least 10 million consumers from companies including Experian.

Banking executives have questioned why the bureau is collecting so much without being more specific about the benefits.

“Do they need the reams and reams and reams of data we’re having to provide to them?” Susan Faulkner, senior vice president at Bank of America, asked at a banking conference in March. “Don’t we have to find a healthier balance here?”

Director Richard Cordray has said that the consumer bureau needs raw material to make “data-driven” decisions based on how financial products and services are used or abused.

Research will improve regulation as well as the marketplace, he said.

“The more information there is, the more innovation there can be and the more competition there is among the institutions around customer service,” Cordray told consumer groups last year.

“It’s something we want to encourage.”

The agency’s approach dovetails with a trend toward data analytics, often dubbed “Big Data,” by firms such as, Google, IBM and General Electric. Those companies are mining massive pools of information for insight into areas including consumer behavior, manufacturing, dairy farming and genetics.

The consumer bureau, created by the Dodd-Frank law of 2010, consolidates and expands U.S. oversight of consumer finance. It supervises banks with assets over $10 billion, including JPMorgan Chase & Co. and Wells Fargo & Co. as well as payday lenders, mortgage originators, debt collectors and credit bureaus.

Dodd-Frank bars the agency from collecting data “for purposes of gathering or analyzing the personally identifiable financial information of consumers.”

Sendhil Mullainathan, the consumer bureau’s assistant director for research, said the agency is committed to protecting the privacy of consumer information and doesn’t collect personally identifiable data such as Social Security numbers.

He described himself as “very sympathetic” to the reaction some consumers might have to massive data repositories.

“I understand that people don’t want firms doing it, so why would you want the government doing it?” he said. “It seems invasive.”

Bureau researchers are assembling data from across the financial landscape, according to a review of government records. Credit-card information from nine banks will be stored and analyzed by Argus Information & Advisory Services a consultancy in White Plains, N.Y., that won a $15 million contract for the work, procurement documents show. The documents don’t name the nine banks.

As part of a separate industrywide review, banks are being ordered to provide records of credit-card add-on products including credit monitoring and debt cancellation, according to two people briefed on the matter.

And last year, the bureau persuaded banks to submit data on checking-account overdrafts.

The consumer bureau is buying other records from outside the banking industry. Experian, the Dublin-based credit-monitoring company, will be paid up to $8.4 million to provide data on 5 million to 10 million consumers “for use in a wide range of policy research projects,” according to contract documents. The agency also plans to buy auto-loan information from Experian.

Clarity Services Inc., a credit reporting agency in Florida, will earn $443,260 for providing data on short-term credit known as payday loans, the documents show.

Together with the Federal Housing Finance Agency, the consumer bureau is also building a mortgage database that will integrate consumer credit information with loan and property records.

CoreLogic Inc., a provider of financial and property information in Irvine, Calif., will be paid about $796,000 for loan-level data on mortgages, procurement records show.

“It’s credible to say that within the next year, CFPB will be the best place for consumer finance data,” Mullainathan said in an interview. “Anybody who wants to do research on consumer finance will want to be there.”