Brian Brooks grew up on credit. And for him, that’s a good thing.
Brooks is from a small town in Colorado that took a big hit when the steel factory — the main driver of its economy — shut down. A couple of years later, when Brooks was 14, his father passed away, and it became very clear to Brooks that if he wanted “any kind of life,” he’d have to hustle. He got a job and, in order to go to college and then law school, he took out six figures’ worth of student loans at an 8% interest rate.
But instead of being bitter, Brooks is grateful that he even had that opportunity.
“Credit is what allows you to get something that you couldn’t otherwise afford to pay cash for,” he says.
Years later, Brooks would go on to serve as chief legal officer of Coinbase, a multibillion-dollar Silicon Valley startup that has become one of the world’s largest digital currency platforms. To Brooks, blockchain and cryptocurrency hold great potential to further financial inclusion, a cause he holds close to his heart.
Then in May 2020, Brooks moved from the private sector to the public sector, when he took on the role of Acting Comptroller of the Currency of the OCC. Brooks’ tenure at the OCC was short, but eventful. He helped enact some controversial legislation around bank charters, cryptocurrency and lending. In January, he left that post with plans to return to the private sector.
In March, Brooks announced he’d be joining Spring Labs as the company’s first independent director. Brooks had come full circle with the data-sharing startup, considering he was among the group that first conceived the idea of Spring Labs five years ago.
His goal there is to bring to bear a combination of an innovation mindset coupled with a knowledge of the traditional banking system that fintechs are trying to disrupt. Having actually been responsible for running the banking system, Brooks believes he has “a good sense of what’s broken.”
“I think that there are a lot of tech companies that have really great ideas but they’re not very expert in what it is that they’re trying to fix,” he says. “And, for me, having spent so much time inside of banks and inside of the credit infrastructure, it’s pretty clear to me what it is that needs to be better. And it really is secure, anonymous data sharing.”
TechCrunch sat down with Brooks to hear more about his return to the private sector, his thoughts on why blockchain is the answer to financial inclusion and why he thinks politics need to be taken out of tech.
This interview has been edited for clarity and brevity.
TC: What does Spring Labs do exactly?
Brooks: The purpose of Spring Labs is to use blockchain to create a much richer network effect of data that allows the credit bureaus and others to predict the creditworthiness of people who are not in the traditional credit bureau system. And that’s one of the amazing promises of blockchain, considering that all blockchain is an open-source network of nodes.
So the more data sources you can connect up to that network, the richer the environment is to allow you to assess people’s credit worthiness. The vision is that once Spring Labs is successful and has scaled this, we will no longer have to exclude 4 to 5 billion people from the credit system because we’ll have data…that allows us to predict that this person is a good credit risk and should get a credit card, regardless of whether they have a mortgage or a credit card. The core mission of the company is to bring credit to more people.
TC: When you say richer data, you mean things like paying rent on time?
Brooks: Yes, stuff like that, but also for example, information about recurring bank credits and debits. Also subscription payments, recurring payments of any kind and also asset and income information — all of which is relevant to whether you’re a good credit risk.
TC: Yes, I’ve written about a couple of other startups that have similar missions.
Brooks: Yes, but the reason I’ve spent so much time on crypto and blockchain personally over the last four or five years is the idea that a decentralized network is always going to gather more data than a company that has focused for example on signing up all of the landlords in America to do a data-sharing service where you can track rent. I mean rent is a good element, but there are hundreds of elements that can be relevant.
Do you own a car, for example? Whether it’s on credit or not is a relevant element to whether you’re likely to pay. Or whether home prices in your neighborhood are rising or falling, that’s another thing that’s relevant. So the point is to be agnostic about the kind of data but to generate a data environment that is rich enough that any given person can be assessed, even if they don’t have this or that element. There are still data elements that would predict future credit performance and it’s refining that and assembling all of that on the network that is kind of the Spring Labs secret sauce.
TC: What do you believe were some of your biggest accomplishments during your time at the OCC?
Brooks: When I was running the OCC, we enacted two regulations, one of which was called a “Valid When Made” rule and the other was called the True Lender Rule. And the purpose of those rules was to provide clarity.
Another thing I did during my time there was to grant the first charter to a crypto company called Anchorage. We also provided guidance about what banks can permissibly do with cryptocurrencies. Which I believe had a lot to do with driving the adoption of crypto over the last 12 months.
One of the biggest problems and challenges in the world of crypto is how do you make sure that people who are transacting in crypto are not sending money to terrorists or not using crypto to engage in money laundering. And it’s a problem because the whole promise of crypto is to allow people to transact peer to peer without the need for a bank limit, right? So normally if you’re writing a check, it goes to the banking system and the bank looks to see who the payee is and figure out if they’re on some list or if you’re using cash there are these currency transaction reports you have to fill out. That’s not the case with crypto. So one of the things that Spring Labs has built — coming back to this idea of blockchain validation — is a solution that allows people, including the government, to say “I don’t know who the person is that Mary Ann is sending bitcoin to.”
But the Spring Labs solution tells us that person isn’t a bad guy. We may not know that that person is Brian Brooks because Spring Labs anonymizes the data. But we have brought a lot of identifying information on the blockchain and can tell you that it’s safe, or it’s not safe, without violating the basic principles of anonymity that normally exist on blockchain. It’s one of the reasons why having anonymized data sharing is one of the most important breakthroughs in fintech itself.
TC: How is it able to tell whether it’s safe or not?
Brooks: Blockchain identity verification is making probabilistic judgments based on a large amount of data. So, it may not know for sure that you’re not Vladimir Putin. But what it does know is that you’re a person who bought a latte at a Starbucks in Palo Alto yesterday of that you’re a person who has a Netflix subscription you’ve been paying on for 23 months. And so when we make these probabilistic judgments, we can reduce to a statistical low rate the likelihood that you’re engaged in some kind of malfeasance. It turns out that’s actually much more likely to be accurate than if we’re pinging a government list to see if you’re on it, because government lists have typos and misspellings and at times, the last name is the first and the first name is the last. So there are all kinds of errors in that.
TC: A founder I spoke to recently said that this younger generation has a distrust of the banking system and that’s why they’re so open to all these new digital offerings and neobanks. What are your thoughts on this perceived distrust of the banking system right now by the younger generation?
Brooks: I think there are plenty of people in the older generation who have also had trust issues with banking. Anybody who went through the financial crisis probably has a feeling about that. I would say that the banking system as a system is strong and deserves people’s trust. And what I mean by that is you have the agency I used to lead and other agencies who you know have thousands of seasoned professionals who are examining these banks for safety and soundness and compliance, every day. Where they find mistakes and malfeasance, they address it in real time. So I have a lot of confidence in that.
The problem is though, there are things about just the nature of finance — the idea that somebody is charging you a significant interest rate to borrow money for a period of time because you had a ding on your credit, say five years ago. Those are things that are inherent in the credit management and business of banking, and that’s the thing that makes a lot of people — especially young kids — feel excluded.
So imagine, for example, if you’re a young kid who just graduated college last year in the pandemic. And you can’t find a job and you don’t have the traditional indicators of creditworthiness, so it’s hard for you to buy a car or get a credit card. Now you feel like the whole banking system exists to exclude you in some way. So that sort of sucks, except it turns out that there are peer-to-peer lending platforms, decentralized finance platforms and other things that will allow you to access credit. So that’s a reason I think why young people are looking to these fintechs — because the fintechs exist to fill the gaps that are left behind by traditional banking.
The banks are trustworthy, but the banks are trying to serve sort of like the middle 60% of society. But if you’re young, lower income or a minority or an immigrant or whatever…there’s a big gap in the banking sector which we’re always trying to improve. So at some level the banking sector is about serving the middle part of the country, and fintechs are harnessing market incentives to build products for those people that have been excluded.
That’s why I don’t understand why fintech has become so politicized. There seems to be a war on fintech and I don’t understand where it’s coming from. And it seems to be kind of like a bipartisan war. If you go back and look at the letter that Maxine Waters, the House Financial Services Committee chairman, sent to the Biden transition team back in December — among the things she wanted them to do was to roll back every single thing we did on fintech. I just asked myself, “Why?” I understand there were some things we did that were somewhat political but why is it political to say that we think Stripe should be eligible for a bank charter? What is political about that? Stripe is a company that is engaged in major financial intermediation, which is what the bank charter is all about. Why is that political? And that extends to bank charters and the true lender rule that I talked about earlier.
TC: Can you elaborate on how you think fintech has become politicized?
Brooks: It seems to be that people, especially Democrats, don’t like fintech. You’d argue that that’s why there’s a particular candidate for my old job, that apparently was kiboshed because he said positive things about fintech. The whole point of fintech is to serve people that aren’t well-served by the banking system, right?
For example, if Americans really think that we should ban fossil fuels, then we should ban fossil fuels. Politicians should enact that and bear the consequences if that isn’t what people want. We don’t want bank CEOs making those decisions for us as a society, in terms of who they choose to lend money to, or not. We need to take the politics out of tech.
All of us do a lot of different things, and we have no idea on a given day, whether what we’re doing is popular with our neighbors or popular with our bank president or not. I don’t want the fact that I sometimes feel Republican to be a reason why my local bank president can deny me a mortgage.
TC: I read that you had a personal experience growing up that maybe led you to this desire to help increase financial inclusion in the country. Is that something you’re comfortable talking about?
Brooks: It’s no big secret that I grew up on credit. I grew up in a small town and I guess the way I usually put it there were sort of these two seminal tragedies in my life. I don’t want to say that my town died when I was growing up…but I was a young kid in this lovely prosperous factory town in Colorado that was pretty and had high employment with good union jobs for steel workers. It was great. And then when I was like 11 or 12 or whatever age, the factory closed, and suddenly we went from being a lovely prosperous little town to having enormously high double-digit unemployment. It was a disaster and really really sad.
And then a couple years after that, my dad died, and so the town died and then my dad died. What I had to do pretty quickly, if I was going to have anything like a life, is I had to get a job on my 16th birthday. I also had to borrow a lot of money to go to college and law school. And as I tell everybody, I didn’t borrow it at a federally subsidized rate. Those days you couldn’t deduct your student loans on your income tax, so I had to pay 8% interest on my six figures of student loans. And thank God that was available.
So I’m not one of these people who thinks it’s a bad thing for people to have credit. I mean, all of the studies show that more credit equals less poverty. And yet whenever I say that on Twitter or whatever, the politically minded will say “No, more credit equals more debt.” It’s like, I don’t know what that means because credit and debt are the same thing, but what I mean by it is that credit is what allows you to get something that you couldn’t otherwise afford to pay cash for — whether that’s an education or start a business, or buy a house, right?
As a guy who benefited from all of that, I don’t take a moralistic or elitist stance that other people should be able to take a risk on themselves. I took a risk on myself at 8% interest, and it’s what allowed me to have the life that I have and I don’t think it’s up to me to tell other people that they shouldn’t be allowed to do that. So I’m a big credit evangelist. I really believe that more credit is better for society than less. And I think fintechs are likely to deliver that to people that are not well-served by the banking system. I am a believer in the idea that decentralized networks take some of the discrimination out.