Today the Consumer Financial Protection Bureau (CFPB) released a report highlighting various market developments that have the potential to produce benefits for consumers.
These developments are emerging from FinTech startups and traditional financial institutions, and include new products, services, and trends. The report also provides an overview of Project Catalyst’s work to promote consumer-friendly innovation and outlines the importance of ensuring consumer protections are built into emerging products and services from the outset.
“Innovation has enormous potential to improve the financial lives of consumers,” said CFPB Director Richard Cordray. “At the same time, market developments cannot skirt the need for strong consumer protection. Through Project Catalyst and other Bureau activities, we are working to expand our own knowledge and to foster a consumer financial marketplace where emerging products can be developed that are safe and beneficial for consumers.”
The Project Catalyst report is available at: http://www.consumerfinance.gov/data-research/research-reports/project-catalyst-report-promoting-consumer-friendly-innovation/
In recent years, evolving technologies have driven rapid change in today’s consumer financial marketplace. This environment can pose both benefits and risks to consumers. In addition to the CFPB’s work to hold bad actors accountable across the consumer financial marketplace, the Bureau wants to foster a market where new and emerging products that are safe and beneficial for consumers can be developed.
The CFPB’s Project Catalyst initiative is designed to encourage consumer-friendly innovation. Project Catalyst provides an important means of fulfilling the Bureau's directive under the Dodd-Frank Wall Street Reform and Consumer Protection Act to give all consumers access to fair, transparent, effective, and innovative markets.
One of Project Catalyst’s top priorities is to engage closely with companies, entrepreneurs, and other stakeholders who are at the front lines of innovation. To support this, Project Catalyst established an “office hours program that has met with hundreds of companies and diverse stakeholders across the FinTech and innovation community. This engagement allows the Bureau to better understand emerging market innovations, what does and does not work for consumers, and potential challenges facing innovators. Through outreach and market monitoring activities, Project Catalyst has learned about a range of marketplace developments in innovation. Highlights include:
Expanding access to credit: The Bureau estimates that roughly 45 million Americans have either no credit history, or credit history that is too scarce or too stale to generate a credit score. Project Catalyst has learned of a number of innovators that 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 methods of analyzing this data to assess an applicant’s creditworthiness.
Supporting safe consumer financial 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.
Increasing options for student loan refinancing: In 2013, the Bureau highlighted concerns around the lack of student loan refinancing options locking consumers into higher-rate student loans. Since that time, Project Catalyst has learned of FinTech companies that have entered this market, offering borrowers with high-rate student loan debt an opportunity to refinance to take advantage of the current low interest rate lending environment.
Modernizing mortgage servicing platforms: Project Catalyst has learned of companies that are looking to adopt or build more modern technology platforms to improve loan servicing and provide more flexibility and scalability as compared with legacy platforms. Some companies are building platforms that provide more user-friendly interfaces. Others are looking at machine learning to detect early on when borrowers are likely to suffer financial distress, in order to take steps to reduce defaults.
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.
Improving peer-to-peer money transfers: Project Catalyst has learned of a number of companies that are working to make money transfers more consumer friendly. For example, some companies are working to provide real-time price comparison services, so that people sending money overseas can easily find the cheapest and most convenient ways to do so. Other companies are developing services for consumers to quickly and inexpensively transfer funds over digital channels. These channels allow money to be sent and received by consumers who do not have bank accounts and without having to rely on cash.
Supporting consumer savings: Project Catalyst has heard from companies that are offering services designed to help consumers build emergency savings. These services can help consumers determine how much they can afford to save based on their income and expenses and automate their choice to save money. Other companies have developed applications that provide consumers with features to transfer money automatically to their savings accounts.
Today’s report also highlights Project Catalyst’s other work to support marketplace innovation. Project Catalyst oversees the Bureau’s “trial disclosure waiver” policy which is designed to support pilot testing of new innovative disclosure approaches that could promote transparency and improve consumer understanding. Project Catalyst also administers the Bureau’s “no-action” letter policy which is designed to reduce potential regulatory uncertainty for innovative products that promise significant consumer benefits.
Project Catalyst has also conducted several research pilot programs with companies of various sizes that have been designed to help inform the Bureau’s understanding of emerging issues. These pilots have focused on issues such as encouraging consumer savings and improving the effectiveness of early-intervention credit counseling. Project Catalyst continues to receive and review pilot ideas.