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Remarks of Deputy Director Zixta Martinez at Academic Research Council Meeting

Good afternoon, and thank you, Manny, for the introduction. Welcome, everyone, to the Consumer Financial Protection Bureau’s meeting of the Academic Research Council (or the ARC).

First, a special thank you to our chair, Vicki Bogan, for her leadership of the ARC. Vicki, we greatly appreciate your time and expertise. And I also want to thank all of you for being here today. Public service is a very rewarding endeavor, and I recognize and thank you for your service to consumers through your contributions to the ARC.

When Congress created the CFPB, it entrusted the Bureau with carefully monitoring financial markets to spot risks, ensure compliance with existing laws, educate consumers, and promote fairness and competition. As a consumer-centric regulator, research is a key part of meeting our statutory requirements. With that purpose in mind, the ARC was created to help us utilize and develop the latest research and methods along with the models we need to understand the impacts of emerging risks to consumers. With your insights, the CFPB will be better positioned to improve the methods we use to develop analytical frameworks that inform rulemakings and help us pose questions to identify the root causes of challenges that consumers face.

Looking to those challenges, I think we can all agree that today’s economy looks very different than it did a year ago. The labor market is tight, as employers have added millions of new jobs. The Bureau’s ongoing research has shown that consumer and household spending is reflective of pent-up demand and that the housing market is booming, with the median home price recently reaching $400,000 for the first time in history. The CFPB’s research has also highlighted the unevenness of the current recovery. Millions of families continue to struggle to make their housing payments and small businesses face significant challenges. As a result, we are at critical crossroads for consumers and the American economy. Your perspectives as leading researchers in your fields will play a vital role in helping the CFPB to monitor markets, spot risks, and help foster a full and equitable recovery.

As part of our research efforts, just two weeks ago, the CFPB issued Section 1022 orders for Big Tech payment platforms to provide information about their products, plans, and practices. The orders were issued to Google, Apple, Facebook, Amazon, Square, and PayPal. The Bureau also announced it would study the practices of Chinese tech giants that offer payments services, such as WeChatPay and AliPay. These platforms are faster, cheaper and quickly evolving. They are also network businesses and can gain tremendous scale and market power within a short period of time. That opens up consumers to significant risks and potentially undermines fair market competition.

Our researchers, economists, and market specialists will play important roles in using the data we receive to better understand these services and practices and answer key questions, such as:

  • How might Big Tech use this data to deepen behavioral advertising, engage in price discrimination, or sell personal data to third parties?
  • How might companies operate their payments platforms in a manner that interferes with fair, transparent, and competitive markets?
  • How adequate are these platforms’ plans to ensure adherence to key consumer protections?
  • And, how effectively do they manage complaints, disputes, and errors?

This evaluation of Big Tech’s payments platforms’ data will inform us about the future of our payments systems. It will also yield insights that may help the CFPB implement other statutory responsibilities, including any potential rulemaking under Section 1033 of the Dodd Frank Act, which involves the disclosure of consumers’ data by regulated entities. As we continue to exercise our authorities to determine the emerging risks posed by Big Tech’s presence in the financial marketplace, the CFPB looks forward to working with you to ensure consumer protections are clear and robust.

Looking to today’s meeting, there are additional equally important topics to discuss. First on the agenda is small business lending research. As you know, small businesses are the engines of growth in our economy, serving as key drivers of wealth creation and upward mobility. In fact, there are over thirty million small businesses in the U.S., employing nearly half of all private sector workers and generating over 60% of net new jobs. Small businesses are also a vital part of the fabric of our communities, giving character and identity to neighborhoods and serving local needs.

Yet, we don’t know enough about whether small businesses have fair and equitable access to the credit they need. And when businesses can’t access credit, that doesn’t just hold them back, it holds back their employees, the communities they serve, and the American economy. We saw the risks that come with this amid the pandemic, with small businesses hit hard by the resulting financial shocks. 74% of small businesses reported losing revenue and 200,000 more closed than in normal pre-pandemic times. In response, federal government implemented the Paycheck Protection Program. But initially, we saw reports of the smallest businesses, many of those Black or Hispanic owned, struggling to access funds, reminding us of the importance of fair and equitable access to credit.

Small businesses continue to face challenges to achieving a full recovery as new obstacles such as labor and supply shortages arise. This continued uncertainty presents difficulties for small businesses seeking access to much needed credit, since bank lending practices have historically been cautious during similar economic periods.

We see this uncertainty in the data, with the U.S. Census Bureau finding that as of October 2021, almost 40% of small businesses expect another 6 months to pass before they can return to a more normal operating level. The CFPB has made learning more about small business lending a top priority. We recognize the vital role small businesses play in order for families and communities to thrive, particularly communities that have historically faced structural disadvantages in our economy. To better respond to future crises, as well in the day to day, we need to know much more about the credit needs of small businesses.

As part of that focus, on September 1, the CFPB published a Notice of Proposed Rulemaking for Section 1071 of the Dodd Frank Act, which, if finalized, would help the CFPB create a database of application-level small business lending data. Simultaneously, we launched a Share Your Story platform for small business entrepreneurs to share their experiences about applying for credit. The comments gathered through the NPRM and the share your story effort will help us learn more about how we can help small businesses thrive.

During today’s session, representatives from the Office of Research will share more about our ongoing efforts to understand the effects of the pandemic on the use of small business credit.

Then, the agenda will turn to discussing the CFPB’s efforts to more fully incorporate racial and economic analysis into the Bureau’s work. For example, the CFPB’s Office of Consumer Response recently published a report on consumer complaint data that looks at complaints by census tract. Using this approach, we were able to make new connections between types of complaints we receive and the demographic characteristics of the communities they represent. There is even more work to do that is similar to this, a shift that is essential as part of our commitment to recentering equity in the CFPB’s work.

Most importantly, ensuring access to fair and affordable credit for low income, minority, or traditionally underserved communities is at the core of our mission and because of that, it is a top priority. We see this in our work to uphold and enforce fair lending, prevent housing discrimination, and ensure all consumers can access credit regardless of their race, national origin sex, age, familial status, and other factors. The Office of Research will solicit your suggestions and advice for ways to integrate racial and economic equity analyses into the CFPB’s research agenda.

Finally, to close, I’d like to re-center our conversation on the people the CFPB serves. All families and consumers face challenges to achieving their American Dream. The CFPB be intentional about creating opportunities that fit the needs of specific communities, families, and individual consumers. I expect that today and in future meetings all of you can help us develop ways to tear down structural barriers and create markets that are fair and competitive for everyone.

Although I will need to leave at 1:30 today; staff will brief me and Director Chopra on the outcome of today’s ARC meeting and apprise us of action items or questions that require a response. For now, I leave you in the capable hands of CFPB staff and again extend gratitude to you all for taking time from your daily work and family to provide your insights and feedback on these critical issues.

Thank you.