Last Monday, October 24, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray spoke on the Bureau’s approach to FinTech at Money 20/20, a conference focused on payments and financial service innovation.  In his remarks, Cordray focused on responding to criticism of the CFPB’s enforcement actions against FinTech start-ups and appeared to warn large financial institutions about limiting access to financial data.  The Bureau also released the first report on “Project Catalyst,” the CFPB’s effort to facilitate innovation in consumer financial products and services.

Cordray began by stating that the Bureau’s enforcement actions against FinTech providers “should not be misread or overread.”  Cordray characterized these actions as not aimed at stifling innovation, but rather addressing “basic meat-and-potatoes issues such as companies that promise one thing to their customers and then do something quite different.”  For example, in March 2016, the CFPB imposed a $100,000 penalty on Dwolla, an online payment platform accused of deceiving customers by claiming that its data protection methods “exceeded industry standards.”

Later, Cordray appeared to rather bluntly warn banks against limiting access to customers’ financial data from FinTech providers with whom customers do business.  For example, some banks and FinTech firms have clashed over the practice of “screen scraping”—a technology that allows financial advisors and other FinTech companies to collect financial data of willing consumers through their bank’s website.  Some large banks have reportedly attempted to limit screen scraping, citing security concerns.  While Cordray recognized that allowing such access can “raise various issues,” he nonetheless expressed that the Bureau is “gravely concerned by reports that some financial institutions are looking for ways to limit, or even shut off, access to financial data rather than exploring ways to make such access, once granted, is safe and secure.”

In what could signal potential future regulation or enforcement activity, Cordray made clear that the Bureau “believes consumers should be able to access this information and give their permission for third-party companies to access this information as well” and that the Dodd-Frank Act supports this position.  In Cordray’s view, Congress specified that consumers should be able to access, in a usable electronic form, their financial information maintained by financial institutions.  Further, in its Project Catalyst report, the Bureau noted that it is working to achieve a “level playing field” for all market participants.

The Project Catalyst report also outlines several areas of consumer finance that the Bureau believes hold potential for consumer benefit.  Most revolve around increasing access to “underserved consumers,” like “unbanked” households and individuals with poor or no credit scores.  In addition to increasing consumer-permissioned access to financial data, the report highlighted efforts by FinTech companies such as:

  • Entering the student loan market to offer high-rate borrowers opportunity to refinance at lower rates;
  • Improving mortgage loan servicing such as through the use of machine learning to detect at an earlier stage when borrowers are likely to suffer financial distress;
  • Assisting with “cash flow management” to help consumers smooth uneven or unexpected changes in income, avoid overdrafts, and reduce reliance on short-term credit; and
  • Making peer-to-peer payment systems that bypass existing reliance on bank accounts or other networks more consumer friendly.

As FinTech providers continue to develop innovative financial products and services, we will continue to follow the Bureau’s efforts to navigate and regulate this evolving space.