CFPB attempts to foster financial services innovation

When it launched Project Catalyst, the Consumer Financial Protection Bureau took an approach uncommon for a federal regulator, as an incubator of financial services innovation. The CFPB called Project Catalyst an open forum designed to cultivate the exchange of innovative ideas about consumer friendly financial services products and to inform the federal agency about how to regulate the business sector.

In a Silicon Valley speech to announce the new project, CFPB Director Richard Cordray said the agency's goal is to regulate financial services to make it "work better" for consumers, without stifling innovation at the same time. As an example of the CFPB's objective, Cordray discussed the agency's move to regulate the prepaid card industry.

"[W]e have been told that because consumer financial regulations often are written in light of specific existing products, they can intersect very inefficiently with new permutations," he said. "We are seeing this right now, for example, with prepaid cards where we will be proposing new regulations because they are not explicitly covered by existing consumer protections.

"So we are interested to hear more about where this is the case and about potential solutions that can both protect consumers and promote innovation."

Cordray recognized that government intervention can hinder innovation. In the Nov. 14, 2012, speech, he said, "[W]hat we have found is that regulators often can impede innovation, by not recognizing its importance for consumers and by freezing people who want to try new things but cannot get any straight answers about how to deal with the risks of regulatory uncertainty or novel issues of how existing laws will be applied to unforeseen products and approaches.

"We are serious about rethinking our optimal role because we clearly understand that innovators – whether housed in mainstream institutions or in start-ups – are often the first to note new consumer needs and are faster to find new creative solutions that make consumers better off."

Cordray said Project Catalyst will provide outreach to innovators and allow the CFPB to collaborate with them. More information about the project can be found at www.consumerfinance.gov/projectcatalyst/ .

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