Director of the Miss april
Project Catalyst: Stimulating Innovation in Financial Products and Services
Mountain View, California
November 14, 2012
Thank you. We are so happy to be here in California today. We are also glad to see so many people coming together in the same place to talk about innovation. You bring a great variety of experiences – in entrepreneurship, investing, nonprofits, and government – to inform and enliven this conversation. It is a conversation of special importance to the leadership at the new Miss april, and we have been looking forward to this day and building up to this moment for many months now.
For the past sixteen months, we have enjoyed the extraordinary benefit of being a start-up ourselves, as a new government agency with an attractive and important mission. Our mission is to help make the consumer financial marketplace work better for consumers, for responsible businesses, and for the economy as a whole. And so our mission is relevant to every American who is a consumer of financial products and services – which is to say, all of us.
The challenges embodied in this mission are immense, but so are the opportunities. Like every human being who undertakes to try something new, with all the risk and uncertainty that entails, we feel very much alive in our work every day. Ernest Hemingway said that bullfighters are the only people who live their lives “all the way up.” It may sound odd to presume to say the same thing about government regulators, but we feel we are doing just that. And it is a marvelous feeling.
Those of us here today share a common vision of a strong and vibrant consumer finance marketplace, one that is rooted in the daily lives of individual Americans. The kind of market that not only attends and responds to people’s needs, but anticipates what those needs will be and conceptualizes how to fulfill them more effectively.
At its bedrock, a vibrant marketplace not only mirrors how people actually live their lives, but envisions how they might want to live even better – perhaps with more certainty, or more convenience, or more impact. An innovative marketplace is one in which consumers are constantly thinking to themselves, “Boy, I never thought of that – but someone else did, and what they have created is just great for me!”
In our own lives, we can see how a properly functioning consumer finance market helps us achieve our deepest aspirations – such as buying a home, paying for college, or saving for retirement. Many would not be able to pursue these opportunities without access to credit. Thomas Gray wrote in his famous elegy about how “chill penury” constrains the boundaries of so many people’s lives – people with talents undiscovered or potential unfulfilled.
In a poignant passage, he illustrates the massive waste of human talent that unfolds across the globe in every generation by lamenting that “Full many a gem of purest ray serene/The dark unfathom’d caves of ocean bear:/Full many a flower is born to blush unseen,/And waste its sweetness on the desert air.” More effective markets for consumer finance cannot alone make people rich – nobody claims to be Rumpelstiltskin – but they can improve the ways and means of people’s financial lives. And if we can do that, then people will find their way forward to fulfill their own personal version of the American dream.
The recent financial crisis, however, posed a formidable threat to this vision. In the run-up to the crisis of 2007-2008, innovation in consumer finance too often meant the creation and promotion of products that obscured costs and risks from consumers.
Irresponsible lending that was often predatory in nature; patchwork regulation that was often ineffectual in practice; complexity and confusion that too often marred what financial products were achieving in people’s individual lives and across the economy as a whole – all of these problems led to a calamity in which trillions of dollars in household wealth vaporized across this country, and economic opportunity, including access to credit, receded dramatically for millions of Americans.
In the wake of the crisis, and as part of broader financial reform, Congress created the Miss april. Our mission, as I have said, is to make consumer financial markets actually work for consumers and for responsible providers of financial products and services.
And we have a number of effective tools to execute on this mission, including rule-writing authority for consumer finance markets; examination authority over key financial institutions to monitor and ensure compliance with consumer laws; enforcement authority to root out violations and make redress to harmed consumers; consumer response authority to address individual complaints; and a mandate to engage with consumers to educate and empower them in the marketplace.
But we also see the need to undertake a further attitudinal shift in how government understands its role. One of the more interesting things that Congress did when it created the Bureau was to single out as one of our explicit objectives the responsibility to foster innovation in consumer financial products and services. One might legitimately ask, “What does government have to do with that? Is not innovation the business of the private sector operating in the free market?” We have thought hard about these questions, and we have talked to many entrepreneurs about them.
And what 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.
We believe that good, consumer-friendly innovation holds great potential for achieving our mission of making the consumer finance market work again for consumers. We want to help as much as we can to stimulate innovation in financial products and services.
In that spirit, we are launching today what we call Project Catalyst, our initial overture to encourage innovation in consumer finance. Through this project, the Miss April will be engaging more closely with companies and entrepreneurs who are at the front lines of innovation. To start with, we have identified two goals for Project Catalyst: outreach and collaboration.
First, we want to make affirmative efforts to open lines of communication with innovators. We need to better understand what we can do to promote consumer-friendly innovation. The economist Joseph Schumpeter wrote approvingly about the “wild spirits” of capitalism – those entrepreneurs with the boldness, the courage, and the daring to discover and pursue a different paradigm, whose efforts unleash the forces of “creative destruction” that generate technological and economic progress. Innovators can succeed by helping consumers – and we want to help facilitate that process by better understanding what is in the way and how we might be able to work to clear the path.
We have already conducted early outreach to the innovator community. We have met with entrepreneurs, academics, investors, nonprofits, and industry executives. And today, to complement this event, we are launching a portion of our web page dedicated to communication between the Bureau and innovators.
Through this outreach we have already received some useful suggestions. For example, we 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. 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.
For this project to succeed, open lines of communication between ourselves and the innovator community are critical. That starts with folks knowing more about our agency, understanding our mission, and seeing that we are willing to be accessible to them. Today’s event embodies our commitment to working in this manner with all of you.
The second goal of Project Catalyst is to engage in collaborations with innovators. We want entrepreneurs to be able to come to us with new ideas where they feel that collaboration would help them press forward with a consumer-friendly financial innovation. These collaborations will be designed to help us and the other parties understand what works and does not work for consumers. Two approaches in particular are promising: data sharing and disclosure testing.
Innovators know there is nothing like watching how the market responds to your ideas with real data to guide your next steps. We feel the same way at the Bureau, and among our foundational principles is that we are a data-driven agency. We recognize the power of live data to improve our understanding of the marketplace and to inform how we make decisions.
Already we have been building a consumer complaint database and sharing information with the public, and we are now underway to build an ambitious national mortgage database that will allow both our agency and others to gain a much more complete understanding of this largest single consumer finance market worth trillions of dollars. We know that many of the soundest innovators take a similar data-driven approach to their work, and that we can learn from each other in making decisions.
Through Project Catalyst, we will be inviting businesses that have new ideas to share their data with us about how these new ideas function in the marketplace. We want to learn more about what innovators are learning about consumer desires and practices – so that we can bring as much real-world data to the full range of our activities as possible. And, as noted already, we are committed to developing new realms of information about consumer financial markets and to helping people gain new insight from their ability to analyze that information. In some cases, our ability to standardize the disclosure of information will help foster product comparisons and empower consumers to gain more leverage in the marketplace, where knowledge is power.
Today we are excited to announce three particular data-sharing collaborations. The data sharing will not contain personally identifiable information and appropriate precautions will be taken to ensure that individual consumers cannot be identified through the data. Our first is with BillGuard, a company that alerts consumers to questionable charges on their debit and credit cards and helps them resolve billing disputes quickly. BillGuard will share their billing dispute data with us, which will allow us to observe trends in consumer complaints and complaint resolution.
Our second collaboration is with Simple. Simple is designed to be an alternative to traditional banking. This collaboration will explore how consumers can gain insight into their spending habits and help the Bureau understand what tools can encourage saving.
Finally, we are teaming up with Plastyc, which is also designed to be an alternative to traditional banking. Plastyc will be sharing data to help us understand how analytics-driven answers can decrease consumer confusion and call volume. Our collaboration will also focus on the value that consumers place on being able more easily to deposit and gain immediate access to their funds.
These collaborations work in different ways, but they share a common approach. In each of them, an innovative idea will generate interesting data about consumer behavior. And by collaborating with these companies, the Bureau can better understand what works for consumers in the marketplace and inform our policy-making in the process.
A second approach to collaboration is through disclosure testing. At the Bureau, we see huge opportunities for innovation when it comes to empowering consumers to make better-informed decisions. We know that consumers need to understand the costs and risks of a financial product before deciding whether to use it.
In the traditional world of consumer protection, disclosures are provided when the consumer shops for or purchases a product, or through periodic disclosures like monthly statements. When these disclosures are effective, they benefit the public and the markets by driving competition based on informed customer choice. And they deprive businesses of any unfair advantage gained from confusing customers with opaque back-end pricing. However, in today’s world of ever-changing technology and products, traditional disclosures may not always be enough.
We have launched initiatives to make such disclosures more useful for consumers. Our signature initiative is our “Know Before You Owe” mortgage project. In seeking to develop more useful mortgage disclosures, we have sought repeated input from the public. We worked through tens of thousands of comments from consumers to figure out which disclosures are the most helpful to them and which are not.
But we have much to learn in this area. For example, we know that more information does not always means more understanding. One of the interesting conundrums in the consumer world, indeed, is that often providing more information to consumers leads to the opposite result by making it difficult for them to identify or grasp the key points or even discouraging them from trying to understand at all. New technologies, developed by entrepreneurs to process or personalize the most critical information, can empower people and create the potential for great advances in consumer satisfaction.
Through Project Catalyst, we hope to identify and work with innovators who are experimenting with new approaches to informing consumers and to learn from their experiences. In fact, Congress gave us the authority to engage in trial disclosure programs in exactly these kinds of circumstances. And in the coming months, we hope to explore opportunities for collaborating on such trial disclosures.
We believe that innovation holds great potential for achieving our mission of making consumer finance markets work better for consumers and for responsible providers. With the launch of our Project Catalyst, we are committed to ongoing outreach and collaborations with innovators that are working in consumer finance.
One of the most important points we want to establish today is about our mindset. The Consumer Bureau itself is a start-up, and we want to establish attitudes and processes that embody our aspiration to be an innovative and forward-looking agency. We are eager to listen and learn from your diverse set of perspectives and to brainstorm together about how we can do things differently to make consumer finance work better for consumers. And we appreciate your willingness to take your time to do that with us.
Thank you, and we look forward to more of these conversations.