CFPB working with bank alternatives

Watchdog agency to collect data from Web-based services

By Fred O. Williams

The digital world is changing how people manage their money and make payments, and in Silicon Valley Wednesday the government's top financial watchdog for consumers vowed to keep up with the changes.

In an initiative called "Project Catalyst," the Consumer Financial Protection Bureau will gather information from financial innovation companies such as Web-based bank alternatives in an effort to understand and oversee a new array of financial services that let you bank with a prepaid card and a smartphone, rather than checks and teller windows.

"We need to broaden our view in a way that we are looking beyond existing business lines," CFPB Deputy Director Raj Date said during an announcement from Mountain View, Calif.

Date and CFPB Director Richard Cordray said that new technology and business practices are changing how consumers run their financial lives, requiring regulators to keep up with the changing landscape.

'Project Catalyst'
"Project Catalyst" will analyze consumer data from companies, with three announced for the beginning of the initiative. Anonymous data will be studied to understand things such as consumer spending habits and how to resolve users' questions about services.

The initial companies participating in collaborations with the agency are BillGuard, which uses crowd-sourcing techniques to find fraudulent transactions on credit card bills; and Simple and Plastyc, services that combine prepaid cards with Web and smartphone applications to manage money and make payments.

The information will inform policy decisions, the bureau said. The initiative will also work on disclosure testing in order to study how consumers are told about financial products. "We know that more information does not always mean more understanding," Cordray said. 

Referring to the fledgling bureau as a start-up itself, Cordray said the CFPB seeks to understand new products and help clear regulatory barriers that could get in the way of innovations that benefit consumers. The legislation creating the agency gives it a mandate to help foster financial innovation, he said.

Emerging services hold out the hope of cutting costs of financial services over traditional banking models, participants in the announcement said.

Industry participants spoke at the event in support of the initiative. "I encourage all of us to overcome our allergy to regulation," said David Cowan, a partner at venture capital firm Bessemer Venture Partners. The industry needs to hold dialog with the bureau to find ways of protecting consumers without stifling innovation, he said.

Among the questions facing financial innovation are rules and protections for the sharing of data to cloud-based platforms, and making required disclosures to customers on the limited space of a smartphone screen, speakers said.

The event marks the bureau's first public announcement since the election cemented its status as a watchdog over consumer financial services, and could mark a further expansion of its role in regulating nonbanks. The CFPB on Sept. 30 began supervising large credit reporting agencies, and will broaden its scope to supervision of large debt collection companies in January 2013.

See related: Consumer watchdog begins supervising 'nonbank' companies

Published: November 14, 2012

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