CFPB Creates New Office of Competition and Innovation

The Consumer Financial Protection Bureau (CFPB) has revealed the creation of a new office designed to promote competition in financial services. The Office of Competition and Innovation is on a mission to identify stumbling blocks for new market entrants.

The office will replace the prior Office of Innovation that was created by a previous administration.

The CFPB says it aims to analyze obstacles to open markets, and better understand how big players are squeezing out smaller players while making it easier for people to switch financial providers.

CFPB Director Rohit Chopra commented on the announcement:

“Competition is one of the best forms of motivation. It can help companies innovate and make their products better, and their customers happier. We will be looking at ways to clear obstacles and pave the path to help people have more options and more easily make choices that are best for their needs.”

The CFPB may be the only federal financial regulator in the US that holds a mandate to promote competition. Fintechs frequently launch to challenge traditional financial services firms which may benefit from regulatory moats that protect existing operations.

There is a balancing act between prudent regulations and sufficient leeway where firms may experiment and pursue novel business ideas in the highly regulated sector of finance.

The Office of Competition and Innovation is said to focus on how to create market conditions where consumers have choices, the best products win, and incumbents cannot stifle competition.

The CFPB states that the objective is as follows:

  • 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 advantage over smaller players: Sometimes start-ups simply get runover 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.

While the headline may be positive the highly politicized environment means actions will be more telling than the actual words. Since its creation under Dodd-Frank, the CFPB has been a controversial agency. It will be interesting to see how it determines which firms merit support and which do not – regardless of size.

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