Responsible Innovation Requires Each Side to Participate

Innovation has been the driving force behind the tremendous strides our country has made toward financial inclusion and the democratization of the consumer financial product marketplace.  Product innovation, however, is a process that requires some experimentation and market feedback.  After all, developing new products to serve Americans who have been left behind is not an exact science. Critique and feedback from all stakeholders, including the perspective of regulators, is a necessary part of the process.

I am not here to criticize the seemingly more aggressive approach the Consumer Financial Protection Bureau (CFPB) has taken during the last year, nor will I use this opportunity to question the substance of the myriad proposals the CFPB has released during the past six months.  Nonetheless, taken together, these proposals would suggest that the CFPB views its mission as purely to oppose the development of financial products that could be helpful to many working Americans as they struggle to manage their financial health.  Moreover, by appearing to restrict innovation and thus discouraging new financial product development, ultimately harms consumers because, often, it reduces the number and types of viable options available to them, especially low-to-moderate-income consumers who may need access to money in emergency situations.

CFPB Director Rohit Chopra has been true to his word.  He has made it clear through his words and his actions that he believes that his predecessors did not use all the agency’s authorities to regulate the financial services marketplace with the goal of protecting consumers.

During the past twelve months, Director Chopra has taken affirmative steps to expand the agency’s authority to regulate non-bank companies with assets over $10 billion dollars, and has released proposals to regulate open banking, overdraft, and credit cards. The CFPB has also indicated that it is likely to act on earned wage access (EWA) and “buy now pay later” practice in the near future.

As President and Chief Executive Officer of the Innovative Payments Association (IPA), I can state explicitly that our members are not opposed to regulation.  In fact, we share the CFPB’s goal of protecting consumers and we regularly engage directly with regulators at the state and federal level to ensure that policymakers have all the facts before making decisions that may impact how consumers protect their financial futures.

Many Americans take for granted that we can access savings or credit when an unexpected financial situation arises, but millions of us do not enjoy that same access to liquidity when hit with an unexpected emergency. Where can these people go when they cannot access credit, tap into their earned wages, or use new technologies that allow them to buy food or gas when they need it?  The CFPB does not offer a solution for people who are caught in these kinds of situations.

At one point in its history, the CFPB inspired financial innovation, which was encouraged though a “sandbox” for the private sector to experiment with new products designed to help improve personal financial stability.  Lately, however, the CFPB does not seem as interested in exploring new technologies to help consumers. This was made clear in 2022 when the CFPB rescinded its policy supporting the sandbox.

The CFPB’s message to consumers is crystal clear: if you find yourself in the unfortunate situation where $100 might put the emergency you are encountering to rest and, payday is a week or more away, the CFPB is unwilling or unable to offer solutions.  We have all heard the old saying, “people should pull themselves up by their bootstraps.”  But what happens if you don’t have any boots? [The CFPB appears to agree with this sentiment, even where the consumer in question doesn’t have any boots.]

Last summer, the bureau issued a statement  appearing to discourage consumers from the use of payment apps and suggesting that consumers withdraw funds from those accounts because they lacked FDIC protection.  The headline-grabbing statement seemed inconsistent with the statement’s content.  Those reading past the headline, or reading the CFPB mandated disclosures they received in connection with their payment app account, or doing their own research would know that many of these same products were actually insured by the FDIC’s via pass through insurance, or its state-level equivalent(s). By the way, these are the same payment apps that millions of Americans relied on to manage their money and share money with loved ones during the worst pandemic in our lifetimes.

Regulators who are supposed to oversee the payments marketplace, and specifically Americans encountering financial emergencies, should not only articulate what companies should not do, they have a responsibility to articulate which products can be helpful.  Moreover, they should follow former CFPB Director Cordray’s lead and clearly identify products or technologies they believe could be beneficial to consumers. 
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For instance, in 2017, Director Cordray called on fintech companies to develop EWA products as an alternative to payday loans.  The payments community responded and millions of Americans benefited.  This constructive example should be replicated so that regulators and the private sector can work towards our mutually shared goals of protecting consumers and encouraging responsible innovation.