California Consumer Privacy Act Insights

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Top Regulatory Insights
for Fintechs & Financial Institutions
April 2, 2019

2 © Experian
Agenda
 Introduction
 Priorities for the CFPB, House Financial
Services & Senate Banking Committees
 Understanding Current Expected Credit Loss
(CECL)
 The California Consumer Privacy Act of 2018
April 2, 2019 Top Regulatory Insights for Fintechs & Financial Institutions

3 © Experian April 2, 2019 Top Regulatory Insights for Fintechs & Financial Institutions
Introduction
Murray Johnston
Director, Government Affairs and Public Policy
Experian
• Active in public policy issues which include
consumer reporting, identity theft, direct
marketing, electronic commerce, motor
vehicle tilting and privacy
• Previously held leadership roles at the
Alliance of Automobile Manufacturers where
he represented the Alliance before state
legislatures, governors and state agencies
on various issues
Jeremy Hancock
Experian
• Specializes in issues related to credit
reporting, identity theft, marketing, e-
commerce, and privacy testifies regularly
before state legislatures
• Speaks to employee and client groups about
how the political and policy environment in
Washington affects the information economy
Gavin Harding
Senior Business Consultant
Experian
• 20+ years in banking and finance
• Held senior leadership positions with a large
regional bank, gaining experience in
commercial and small business strategy,
SBA lending, credit and risk management
• Develops sophisticated data and analytical
solutions to problem solve, and define
strategies across the customer lifecycle for
banking and fintech clients
Brittany Peterson
Senior FinTech Marketing Manager
Experian
• Responsible for FinTech, including informing
the go-to-market strategy, value propositions,
and brand execution for Experian’s extensive
financial services product suite
• 8+ years in senior marketing roles, most
recently serving as Marketing Director for an
online lender specializing in mortgage and
personal loans

4 © Experian
Murray Johnston
Director Government Affairs and Public Policy
Experian
Priorities for the CFPB, House
Financial Services & Senate
Banking Committees

5 © Experian
CFPB Director Kathy Kraninger
Office of Innovation
Revision of Trial Disclosure Program
Revision of no-action letter policy
 Protections from enforcement
 No data sharing obligations
Regulatory Sandbox
 Specifying procedures for permitting companies to continue to use
disclosures that test successfully
 Coordination with state regulators
CFPB

6 © Experian
Short-term loans
and deposit
advance products
Released NPRM
Debt collection
NRPM Spring
2019
Section 1071: Small
Business Loan Data
Collection
Proposed Rule
Spring 2019
Credit reporting Long term agenda
CFPB Rulemaking Agenda

7 © Experian
Maxine Waters (D-CA), Chair
 Oversight of the CFPB
 Reforming credit reporting
 Hearings on OCC Charter
 “Holding bad actors accountable”
 Diversity and Inclusion Subcommittee
House Financial Services Committee

8 © Experian
Patrick McHenry (R-NC), Ranking
 Focus on preventing next economic crisis
financial technology
 Fintech legislative focus:
• Preemption of state usury caps
(Madden v. Midland)
• Regulatory offices of innovations
• IRS income verification
House Financial Services Committee

9 © Experian
 Reduces retention of derogatory data from 7 to 4 years
 Requires deletion of all paid or settled debt
 Removes adverse mortgage and education data in case of
unfair or deceptive lending practices
 Prohibits lenders from dismissing disputes are frivolous
 Requires an independent review of 2nd level and
higher disputes
 CFPB to regulate credit scoring models and
attribute weighting
 Provide consumer disclosures and consumer assistance in
10 common languages
Comprehensive Consumer Credit
Reform Act

10 © Experian
Chairman Michael Crapo (R-ID)
 Committee priorities
• Giving consumers more control and
of financial data
• Collecting feedback on the collection,
of sensitive information
• Drawing the line between credit
brokers
 Reform of the Fair Credit Reporting Act
• How does the FCRA work in a digital
• Central website for consumer dispute
Senate Banking Committee

11 © Experian
Gavin Harding
Sr. Business Consultant
Experian
Understanding Current Expected
Credit Loss (CECL)

12 © Experian
Current Expected Credit Loss (CECL)
 New accounting standard
 Estimate expected losses using
current conditions and reasonable
 Looks across the life of the loan to
portfolio
What is CECL?

13 © Experian
The Key Impacts to Your Business
• Lower return on equity, especially in
products with longer life expectancy
• Expect a need to change pricing,
score cutoffs and collections
• Significant impact to probability
models and expected loss calculations
• Increased precision for loss given
default (LGD) and exposure at default
(EAD) forecast
• Incorporation of macroeconomic
forecast factors
• Greater automation needed using
technology capabilities
• More efficient and rapid production of
loss forecasts
• More data needs to be retrieved and
safely stored
• Larger allowance for loan losses, thus
reducing capital ratios
• Expectation of additional volatility in
allowances and capital ratios as a
result
Data Management
And Processes
Capital Ratios
Loss Forecasting
Methodology
Product Profitability

14 © Experian
Three Broad Themes
LOAN LOSS
RESERVE
CALCULATION
DATA
AVAILABILITY
AND SUITABILITY
RISK STRATEGY
DESIGN
REVIEWING THE BUSINESS ACROSS SEVERAL DIMENSIONS TO ENSURE
SUCCESSFUL CECL IMPLEMENTATION.

15 © Experian
Where to Begin?
Build out a variety of Allowance Profiles (segments/classes, credit quality indicators, and loss rate methods)
2
1
3
4
Compare the results to each other and to your existing methodology
Based on 3, repeat steps until you decide on the most appropriate Allowance Profile
Build out required discussion and disclosures items5
Identify data elements and analytics needed for each profile and run the analysis
Management comfort level, reasonableness of results, data availability, etc

16 © Experian
Solution: End-to-End Compliance +
Business Consulting
COMMERCIAL
PORTFOLIO-Part2
RETAIL
PORTFOLIO
STANDARD
DATALAYER
• Interactive
Dashboards
• CECL
Disclosures
• Full Model
Documentation
• Best loan level data
• 14 years of history
• Risk scores
• Custom attributes
• Multiple scenarios
• 900+ attributes
• MSA level data
• Home valuation
• Auto valuation
• Deep expertise
• Thought papers
• Industry roundtables
• Multiple deployments
• Regulator approved
• Thought leadership
CECL
FORECAST
ENGINE
Experian Advisory Services: Pre and Post CECL Implementation

17 © Experian
Jeremy Hancock
Experian
The California Consumer Privacy
Act of 2018

18 © Experian
New privacy obligations coming to California
 Passed to avoid a perhaps more onerous CA ballot initiative
 Effective date: January 1, 2020
(not enforced for 6 months after AG Rules or July 1, 2020)
- subject to further legislative process
- subject to required rulemaking by the Attorney General
 GLBA and FCRA exemptions are limited to data covered by the
laws and may not cover all data collected, used
or disclosed
 Data not regulated by the laws will likely be subject to
the CCPA
18
California Consumer Privacy
Protection Act

19 © Experian
 Any information that identifies, relates to, describes, or is capable of
being associated with, a particular individual
 Internet or other electronic network activity information, including
browsing and search history
 Inferences drawn from any personal information to create a profile
about a consumer’s preferences, characteristics, psychological
trends, preferences, predispositions, behavior, attitudes, intelligence,
abilities, or aptitudes
Information Covered by the Act
19
California Consumer Privacy Protection Act
Information Not Covered by Act
 Publicly available information that is lawfully made available
from government records, so long the information is not used
for a purpose that is not compatible with the purpose
 Information that is de-identified or aggregated (i.e. technical
safeguards, business process to prevent re-identification or
inadvertent release, etc.)
 Data Collected while the consumer is outside California

20 © Experian
Upon a consumer’s request, a business
must disclose certain information to
the consumer
Right to Obtain Information
Notice to Consumers at
the Point of Collection
A business that collects personal information
must, at or before the point of collection, inform
consumers as to the categories of personal
information to be collected and the purposes for
which the categories of personal information is to
be used
Right to Opt Out
Right to Request Deletion
of Information
A business must provide a clear and
conspicuous link on its website
(titled “Do Not Sell My Personal
Information”) allowing a consumer to
opt out of such selling
• A consumer may request that a business
delete information collected from
that consumer
• Only applies to information collected from
consumers, not information collected about
the consumers from third parties
California Consumer Privacy Protection Act

21 © Experian
 Attorney General may enforce entire Act
 Business in violation of CCPA if it fails to cure within 30 days after notice of
noncompliance
 Up to $2500 for each violation (per act or consumer affected)
 $7500 per violation where business “intentionally violates” CCPA
Private Litigation Under CCPA
Private Right of Action limited to where nonencrypted or nonredacted personal
information is subject to:
• Unauthorized access and exfiltration,
• Theft; or
• Disclosure
Damages recoverable by private plaintiffs:
• Greater of actual damages or $100-$750 statutory damages per consumer, per
incident
Consumer Privacy Protection Act

22 © Experian
 Fixing and expanding exemptions
 Notice at point of collection
 Disclosure of specific information or categories? Consumer vs
household?
 Limit on ability to delete data
 Requirement to have a toll free number for opt-out
 Litigation and enforcement
…and more as compliance obligations are reviewed!
reviewed!
Hot Issues for California

24 © Experian
 California Consumer Privacy Act has coalesced industry’s solid
support for a national act -- for the very first time
 Lawmakers are well aware of the need for non-interference
with sectoral laws like FCRA and HIPPA
 GLBA may undergo some changes
 Focus will be on disclosure, opt-out and data deletion
 Democrats will exact a price for a national privacy bill:
• Disclosure and opt-in for sensitive data
• FTC authority to establish rules and guidance on privacy
and data security (similar to Data Protection
Administrator)
• FTC and AGs will have joint enforcement, including civil
penalty authority for certain violations
Prospects for a National, Preemptive Data
Privacy/Security Act

25 © Experian
 CFPB priorities and rule making agenda
 Priorities of the House Financial Services Committee & Senate
Banking Committee
 The impact of CECL and how to prepare
 Information covered (and not covered) by the California
Consumer Privacy Act
Summary

California Consumer Privacy Act Insights

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