WASHINGTON, D.C. — Automotive retailing isn’t the only segment exploring the risks and opportunities of the Digital Age. Regulators are also trying to get their arms around the consumer benefits and dangers of today’s connected environment.
On Monday, the Consumer Financial Protection Bureau (CFPB) provided an update on its four-year-old Project Catalyst, which was designed to connect the bureau with innovators to ensure consumer protections are built into emerging products and services from the outset.
“From the start, Project Catalyst has concentrated on encouraging marketplace innovation so that new products can be made safer for consumers,” said CFPB Director Richard Cordray on Monday during his address at Money 20/20, a conference for payments and financial services innovation. “We see new developments in payments, transactions, lending, underwriting, budgeting, money management, and other areas as well. This is a staggering list, even a revolutionary list, of areas ripe change to benefit consumer.”
Cordray, however, noted that many of these innovations being developed “cut across existing regulatory frameworks. “That raises challenging issues for all of us,” he said. “Certainly, we need to make sure that all players in the marketplace comply with existing law … Notably, the same technology that empowers consumers to make decisions that serve their interests can also be used to steer them in ways that benefit others at their expense.”
One of Project Catalyst’s top priorities is to engage closely with companies, entrepreneurs, and other stakeholders who are on the frontlines of innovation. Cordray praised the bureau’s “Office Hours” program for helping to do that. He said the bureau has connected with hundreds of companies and diverse stakeholders across the FinTech and innovation communication as a result of that program. The following are some of the insights the bureau has gained from those connections:
- Expanding access to credit: Project catalyst has learned of a number of innovators who are seeking to expand responsible access to credit. Some companies are exploring opportunities to expand access by looking to alternative forms of data and newer method of analyzing this data to assess an applicant’s creditworthiness.
- Supporting safe consumer finance records access: Project Catalyst has learned of innovative tools for personal financial management that can help families better manage their finances and weather financial shocks. Many of these tools are dependent on consumers having given permission for companies to access their financial records, which are typically stored at various financial institutions or other providers with whom the consumer does business. The bureau is concerned by reports that some financial institutions are looking for ways to limit or even shut off access to financial records, rather than exploring ways to make sure that such access, once granted, is safe and secure.
- Better cash-flow management: Project Catalyst has learned of some FinTech companies that are developing tools to help address challenges posed by a time lag in cash flow for expenses and income. These challenges can cause consumers to incur overdraft fees, forgo needed expenses, or make other difficult adjustments. Some services enable employees to access to accrued wages earlier than the regular payday. Others deduct a portion of consumers’ wages and apply it to recurring payments to help them manage the timing and frequency between when income is earned and when bills are due.
- Improving credit reporting engagement: Project Catalyst has learned of FinTech firms that are developing tools to improve consumer engagement around credit reporting and address issues around accuracy and understanding. For example, one company is streamlining the process for consumers to dispute errors on their credit reports. Others model actions consumers might take to improve their credit standing. Increasingly, companies are also offering consumers more information about their credit scores and credit reports on a regular basis.
Through Project Catalyst, the bureau has already instituted policies designed to spur innovation. The CFPB’s Trial Disclosure Waiver Policy is one such example. It allows the bureau to enable innovators to conduct controlled disclosure testing to explore new and more useful ways to inform consumers of the costs and risks associated with financial products.
During his address at Money 20/20, Cordray highlighted the bureau’s No-Action Letter Policy as another way the regulator is spurring innovation. “Under our ‘no-action letter’ policy, if CFPB staff is persuaded that a particular product holds promise for consumers and is structured in a way to mitigate risks to consumer, but is held back by regulatory uncertainty, the staff can issue a no-action letter to the company stating that we have no intent to initiate supervisory or enforcement action based on those particular innovations for a defined period,” he said.
“For example, we have met with a number of innovators that seek to expand access to credit by looking to alternative forms of data and newer methods — such as machine learning — of analyzing this data to assess creditworthiness,” he added. “They say they want to do this in compliance with the consumer financial laws … but are unsure how to do so. Through Project Catalyst’s program, bureau staff can consider issuing a no-action letter to foster access and innovation.”