CFPB Report: Market Developments Prime for Consumer-Friendly Innovation Posted by Association of Vermont Credit Unions on 11:05 AM

This week the Consumer Financial Protection Bureau (CFPB) issued a report of financial services marketplace products, services and trends from FinTech startups and financial institutions that have potential benefits for consumers. The report provides an overview of work to promote consumer-friendly innovation and outlines the importance of consumer protections being built into emerging products and services from the outset.

The CFPB’s Project Catalyst is designed to encourage consumer-friendly innovation. One of its top priorities is to engage with companies, entrepreneurs, and other stakeholders at the front lines of innovation. This allows the CFPB to better understand emerging market innovations, what works for consumers, and potential challenges facing innovators.

Highlights of the Project Catalyst report include:

• Expanding access to credit: The CFPB estimates that about 45 million Americans either have no credit history or history too scarce or too stale to generate a credit score.  There are innovators 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 analysis to assess an applicant’s creditworthiness. 
• Supporting safe consumer financial records access: Project Catalyst has uncovered innovative tools for personal financial management that help families better manage their finances and weather financial shocks. Many are dependent on consumers providing permission for companies to access their financial records, typically stored at financial institutions. The CFPB 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 is safe and secure.
• Better cash-flow management: Project Catalyst reveals some FinTech companies developing tools to address challenges posed by a time lag in cash flow for expenses and income. Such challenges cause consumers to incur overdraft fees or to borrow high-cost short -term loans. Some services facilitate employee access to accrued wages earlier than the regular payday. Others deduct a portion of consumers’ wages and apply it to recurring payments to help 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 then, Project Catalyst has discovered FinTech companies entering 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: Some FinTech firms are developing tools to improve consumer engagement around credit reporting and address issues around accuracy and understanding. 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: There exist companies working to make money transfers more consumer friendly. Some 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. Others 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: The report also cites 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.

The CFPB 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 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.

Access the CFPB's Project Catalyst report online.