CFPB to promote competition and innovation in consumer finance

The office will replace the Office of Innovation which focused on an application-based process to confer special regulatory treatment on individual companies. The new office will support a broader initiative by the CFPB to analyse obstacles to open markets, better understand how big players are squeezing out smaller players, host incubation events, and, in general, make it easier for people to switch financial providers.

The CFPB has a statutory mandate to promote fair, transparent, and competitive markets. Families, honest businesses, and the entire economy benefit when consumer finance markets are fiercely competitive, rather than dominated by a handful of firms. Digital technology is transforming the markets, including how payments, deposits, and lending are provided and who provides them. Big banks, fintech, bigtech, incumbents, and small startups are all jockeying to be in front. The Office of Competition and Innovation will focus on how to create market conditions where consumers have choices, the best products win, and large incumbents cannot stifle competition by exploiting their network effects or market power.

The new office will support the CFPB’s general effort at increasing competition for the benefit of all consumers. Specifically, the CFPB will:

• Give consumers their walking rights to switch providers: Competition is more vibrant when people can switch to a new provider easily, creating pressure on incumbents to maintain high levels of service and giving new entrants an opportunity to win customers. The CFPB will be exploring ways to reduce the barriers to switching accounts and providers.

• Research structural problems blocking successes: The new office will be housed in the CFPB’s Research, Markets, and Regulation division, giving it greater access to resources to look at market-structure problems that create obstacles to innovation. For example, this could include greater explorations of the payment networks market or the credit reporting system, both of which are essential to our financial system but have only a few dominant players.

• Understand how bigger players can gain an advantage over smaller players: Sometimes startups simply get run over by bigger players. For example, big companies can easily pitch new products to their large customer bases and stymie outside players who may have more favorable products. Big tech companies, with their huge reaches, are also seeking new ways to join consumer finance markets and may threaten fair competition.

• Identify ways to address commonplace obstacles: Innovators may not be getting their products or services to market because of more practical problems like access to capital or talent. Or they may not launch because they don’t have access to the large volumes of digital data stored by the big banks. A future rulemaking by the CFPB under Section 1033 of the Consumer Financial Protection Act will give consumers access to their own data.

• Host events to explore barriers to entry and other obstacles: The new office will convene events such as open houses, sprints, hackathons, tabletop exercises, and war games. Entrepreneurs, small business owners, and technology professionals will be able to collaborate, explore obstacles, and share frustrations with government regulators. Results will be shared publicly.

The Office of Competition and Innovation replaces the Office of Innovation, which opened in 2018, and Project Catalyst, launched in 2014. The Office of Innovation’s primary purpose was to process applications for No Action Letters and Sandboxes that applied to an individual company’s specific product offering. After a review of these programmes, the agency concludes that the initiatives proved to be ineffective and that some firms participating in these programmes made public statements indicating that the Bureau had conferred benefits upon them that the Bureau expressly did not.

The CFPB is also encouraging companies, startups, as well as members of the public to file rulemaking petitions to ask for greater clarity on particular rules. This will help level the playing field and foster competition by ensuring any actions the CFPB takes will apply to all companies in the market.