View Report

Advances in digital technology have transformed consumer financial services, including peer-to-peer (P2P) payment platforms like Venmo and Zelle, fintech lending, and cryptocurrency. While these innovations offer greater convenience and efficiency, they also pose significant challenges for low-income consumers. Many in this group lack access to essential tools like internet connections, smartphones, or bank accounts, leaving them excluded from the digital financial ecosystem. Additionally, low-income consumers are disproportionately affected by technical glitches, power outages, and cybersecurity breaches, which can disrupt access to wages, benefits, and vital services. Financial technology platforms and cryptocurrencies, while promoted as affordable alternatives, often involve high fees, unregulated risks, and susceptibility to scams.

Existing legal protections for low-income consumers are inadequate in addressing these new developments. The Electronic Funds Transfer Act (EFTA) and Dodd-Frank Act, which govern many financial transactions, are outdated and fail to cover modern fintech services and digital payment systems. The enforcement capabilities of agencies like the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) are also limited. Recent court rulings, resource constraints, and political pressures have further weakened their ability to regulate digital financial services and hold companies accountable for deceptive or unfair practices. Additionally, pervasive use of mandatory arbitration clauses in consumer agreements restricts individuals’ ability to seek legal recourse, making enforcement by government agencies even more critical.

The article explores three approaches to improving consumer protection. First, it emphasizes the role of agency enforcement in regulating the digital financial marketplace. However, this approach faces limits on authority, enforcement power, and resources. Second, the article calls for enacting new laws and regulations to address emerging issues. Unfortunately, political stalemates and rapid changes in technology hinder the passage of updated and effective legislation. Third, the article discusses proposals for government-run financial services, such as the FedNow real-time payment system, postal banking, and central bank digital currencies (CBDCs). While promising, these initiatives must ensure that low-income consumers are meaningfully included in the decision-making process to prevent further exclusion.

In conclusion, the article underscores that reforms in digital financial services must prioritize the needs of low-income consumers. Including their perspectives and conducting thorough impact assessments are essential to ensure that new financial systems are equitable and accessible. Without these considerations, the benefits of digital innovation will continue to bypass the most vulnerable populations while exposing them to greater risks.v