On May 24, CFPB announced the opening of the Office of Competition and Innovation, as part of its new approach to increase competition amongst consumer financial service companies by identifying barriers to entry for new market participants and making it easier for consumers to switch financial providers. The new office will replace the Office of Innovation, which promoted a narrower, application-based approach by issuing No Action Letters and Sandboxes to individual companies on specific product offerings.
In its announcement, the Bureau noted that digital technology is transforming consumer financial markets, particularly in the payments, deposits, and lending sectors. With the new office, the CFPB aims to increase competition by focusing on the following issues:
- Market-structure impediments to innovation: It will have greater access to resources to research market-structure problems that are blocking new market entrants in critical areas, such as payment networks and credit reporting.
- Advantages of bigger players over smaller companies: The Bureau wants to “level the playing field” between larger and smaller players so that advantages, such as access to larger customer bases in pitching new products, do not stifle participation by smaller companies, which may actually have better products to offer consumers.
- Commonplace barriers to entry: The CFPB also wants to identify the practical obstacles, such as greater access to capital, a talented workforce, and better data storage systems capable of handling large amounts of data. Data storage is particularly important in light of a future rulemaking by the CFPB under Section 1033 of the CFPA, which will give consumers access to their own data.
The new office will also host events, such as open houses and hackathons, where entrepreneurs, small business owners, and tech professionals can collaborate to identify and share their issues with government regulators.
Putting It Into Practice: Although it did not state whether the new office will continue to issue No Action Letters and Sandboxes, it is clear that the Bureau wants to better understand the challenges that smaller companies face as barriers to entry. Larger and smaller companies alike should continue to stay apprised of any new CFPB rulemaking, and are encouraged to engage in the rulemaking process by filing rulemaking petitions to obtain greater clarity on particular rules.