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Financial Services Law Insights and Observations

CFPB’s new innovation office to focus on competition instead of fintech sandboxes

Federal Issues CFPB Fintech Competition Innovation Consumer Finance Regulatory Sandbox

Federal Issues

On May 24, the CFPB launched the Office of Competition and Innovation, which will focus on competition and explore ways to “create market conditions where consumers have choices, the best products win, and large incumbents cannot stifle competition by exploiting their network effects or market power.” The new office will be housed under the Bureau’s Research, Markets and Regulation division, providing “greater access to resources to look at market-structure problems that create obstacles to innovation.” It replaces the Bureau’s existing Office of Innovation, which was established in 2018 and focused on allowing companies to apply for no-action letters and regulatory sandboxes in order to test specific product offerings. According to the Bureau, the agency will no longer offer these programs after a review established that the initiatives “proved to be ineffective and that some firms participating in these programs made public statements indicating that the Bureau had conferred benefits upon them that the Bureau expressly did not.”

The new office will focus on competition and explore ways to stop large banks and fintech lenders from “squeezing out smaller players” in the consumer finance market. It will also explore ways to ensure that consumers have their “walking rights” and can easily switch service providers. Additionally, the new office will research “structural problems” that create obstacles to innovation, examine dynamics between large and small players related to competition, identify ways to address commonplace obstacles such as access to capital and talent, examine financial data-sharing to ensure large financial institutions are not hoarding large volumes of digital data, and host events that explore barriers to entry and other obstacles, the Bureau said.

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