Consumer-friendly fintech innovation “has enormous potential” but “cannot skirt the need for sufficient oversight and consumer protection,” according to a report from the Consumer Financial Protection Bureau.
The report highlights market developments that have the potential to produce benefits for consumers as well as an overview of Project Catalyst’s work to promote consumer-friendly innovation within the regulatory framework.
The bureau’s Project Catalyst is a program designed to encourage innovation in consumer-friendly financial products while remaining within regulatory limits. Its goal is “to foster a market where new and emerging products that are safe and beneficial for consumers can be developed.”
Areas of innovation the bureau has drawn attention to include: expanding access to credit, especially for those with no or limited credit history; supporting safe consumer financial records access; better cash-flow management; increasing options for student loan refinancing; modernizing mortgage servicing platforms; improving credit reporting engagement; improving peer-to-peer money transfers; and supporting consumer savings.
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.
It also administers the CFPB’s “no-action” letter policy, begun earlier this year, which gives firms assurance that the CFPB won’t take action against them for testing out a product for a certain period of time. The program, however, doesn’t apply to other regulators, causing some hesitance in firms to use the program. It also doesn’t protect against lawsuits and can be withdrawn at any time.
Project Catalyst has also conducted several research pilot programs with companies of various sizes to help inform the CFPB’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.
“We recognize that companies may be uncertain about how existing regulations apply to novel products that do not fit neatly within the regulatory structure,” Cordray said at the Money 20/20 conference in Las Vegas. “We intend to move forward alongside the industry, keeping an eye out to protect consumers even as we encourage innovative providers to put consumers first and find ways to make their lives better.”