In a letter generated as a request for comment by the Treasury Department, the Consumer Financial Protection Bureau last week outlined how it’s watching artificial intelligence and other technology developments.

Acknowledging a previous initiative did not generate the results the regulator wanted, the CFPB said it is now focused on fostering innovation and competition “that truly benefits consumers,” via five paths, including:

—Making clear that there is no exception to the federal consumer financial protection laws for new technology

—Ensuring regulations don’t stifle competition in pricing or favor incumbents

—Ensuring consistent treatment under the law for similar products and services

—Combatting anticompetitive practices

—Monitoring the market and ensuring accountability

The letter was attributed to Seth Frotman, who is general counsel and senior advisor to the CFPB director, and Erie Meyer, chief technologist and senior advisor to the CFPB director.

“As technology continues to advance across all segments of society, we have seen the rapid adoption of new technologies in the consumer financial marketplace, including both the entrance of technology-focused firms and the use of emerging technologies by established players such as large banks,” Frotman and Meyer wrote in their letter to the Treasury Secretary Janet Yellen.

“Technologies marketed as artificial intelligence are just one aspect of that larger trend. Technological innovation has been a key driver for improving the lives of people in the United States. For innovation to flourish in a way that benefits consumers, however, it is crucial that companies compete on the merits of their products or services, rather than by exploiting legal loopholes or engaging in regulatory arbitrage,” Frotman and Meyer continued.

Frotman and Meyer then gave an example of these “loopholes,” referencing transportation in their letter.

“As CFPB director Rohit Chopra has said, ‘there is no ‘fancy new technology’ carveout to existing laws.’ The CFPB is monitoring what some have referred to as the ‘Uber’ model of consumer finance: providing services without complying with the law and ‘wait(ing) for the legal system to catch up,’” Frotman and Meyer said.

“When firms choose to violate consumer protection laws, not only can there be significant harm to people and families, but firms may put resources into evading the law, rather than competing on price or quality. The CFPB’s position is clear: firms must comply with consumer financial protection laws when adopting emerging technology. If firms cannot manage using a new technology in a lawful way, then they should not use the technology,” the officials continued.

Frotman and Meyer then touched the “sandboxes” the CFPB previously orchestrated. The bureau first rolled out these “sandboxes” in 2018. Kathy Kraninger, the CFPB director at the time, emphasized why the regulator took these actions.

“Innovation drives competition, which can lower prices and offer consumers more and better products and services. New products and services can expand financial options, especially to unbanked and underbanked households, giving more consumers access to the benefits of the financial system,” Kraninger said at the time.

In last week’s letter to the Treasury, Frotman and Meyer shared their assessment of that initiative.

“The CFPB has learned important lessons from these programs, which fell short of their intended purpose of encouraging pro-consumer innovation in financial markets,” Frotman and Meyer said. “The CFPB believes that innovation need not be at odds with compliance with federal consumer protection laws. Indeed, innovation is fostered when regulators ensure that all market participants adhere to the same set of rules and compete on a level playing field.

“Yet in their effort to encourage innovation, the previous CFPB programs sometimes waived (or at least purported to waive) important consumer protections provided by Congress, including protections from discrimination,” they continued. “Further, these types of programs often gave a competitive edge to a single market participant, without providing a larger market impact that was positive for consumers.

“And the CFPB also found that the ‘approvals’ or ‘waivers’ granted as part of these programs were sometimes misused, like when firms would advertise them as official endorsements or offering a right to exclusivity. In sum, the CFPB’s experience with programs offering special regulatory treatment shows that regulators seeking to encourage innovation must not pick winners and losers in the marketplace,” Frotman and Meyer went on to say.

Stemming from those experiences, Frotman and Meyer closed by emphasizing why the CFPB is taking such a stance about AI another other technology.

“Artificial intelligence is just one aspect of the rapid adoption of new technologies in the consumer financial marketplace,” Frotman and Meyer said. “The promise of these technologies is accompanied by new risks and challenges that the CFPB is keenly focused on. Ultimately, innovation flourishes when firms have incentives to compete by offering the best products at the lowest prices.

“The CFPB is working to ensure that honest businesses that follow the law can compete on a level playing field,” they concluded.