New consumer financial agency to rely on crowdsourcing

Investigations through crowd-sourcing, wikis, and heat-mapping

Elizabeth Warren, the architect of the new Bureau of Consumer Financial Protection, spelled out a sweeping new strategy Tuesday to use the latest in "crowd-sourcing" technology to collect tips from millions of consumers about deceptive new financial practices, from misleading mortgages and improper "gotcha'' fees on credit cards to outright fraud.

In an interview on Tuesday with National Journal, Warren said new techniques like crowd-sourcing - scaled-up variations on Wikipedia -- make it possible to collect valuable information from millions of ordinary consumers who report problems as they arise. Using new systems to organize and find patterns in all that information, Warren said, the bureau could be able to spot new enforcement targets in a matter of days - an unheard-of response time for traditional regulators.

"Crowd-sourcing" has become one of the hottest forms of information gathering, and refers to online collaborations like Wikipedia that are built through contributions from thousands or even millions of people.

It is an entirely new approach for government regulators, but Warren said she believes the opportunities are great.

"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.

Warren's outside-the-box thinking to consumer complaints comes as she ramps up the establishment of the agency for next July and hires about 1,000 workers.

Consumer groups have been concerned that the new agency will have insufficient resources to handle consumer complaints given the wide swath under its jurisdiction, from home mortgages to payday loans to credit reports.

The Dodd-Frank financial regulatory law requires the bureau to develop a nationwide consumer-complaint center, but Warren's ideas go beyond those traditionally embraced by federal agencies.

To help solicit answers, Warren will visit Silicon Valley later this week, including a visit to Google.

Under her vision, Warren imagines a subset of Americans reporting on a specific problem, such as extraneous fine print included in a bank's checking account statement, documenting it through use of a camera phone, and then emailing it to the bureau within seconds. The bureau would use such data to target its enforcement.

"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?" Warren said under her example. "[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," she added.

The strategy would also overhaul current regulatory enforcement by making it much nimbler, ready to immediately react to issues, rather than relying on examination and enforcement through a rote schedule. The change would have a major effect on banks and other covered institutions, forcing them to be more responsive to a regulator than they have been in the past, as well as on guard to handle any public-relations fallout that could quickly spread through a crowdsourcing effort.

"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."

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