Washington, D.C. – 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: https://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
- 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
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.
Director Cordray’s recent remarks on consumer-friendly innovation delivered at Money20/20 can be found at: https://www.consumerfinance.gov/about-us/newsroom/prepared-remarks-cfpb-director-richard-cordray-money-2020/
More information about Project Catalyst is available at: https://www.consumerfinance.gov/projectcatalyst
The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.