Thank you for inviting me to be with you today. Before we move to the discussion, I want to share a few words about how the CFPB is implementing its mandate to ensure competitive markets. As always, these views are my own and do not necessarily represent the views of the Financial Stability Oversight Council, Federal Deposit Insurance Corporation Board, or any other part of the Federal Reserve System.
There is broad interest in the federal government on competition. The President issued an executive order on the topic last year, and there is a growing focus from policymakers on competition-related initiatives.
Highly competitive markets are characterized by decentralized market power of all market participants, low switching costs, high levels of firm formation, and limited incumbency advantages, among others. In a number of consumer finance markets, like in loan servicing and credit reporting, consumers have almost no choice or bargaining power. In others, we see other indicia that reveal competition-related concerns, such as “herding” and “back-end” pricing. Competition policy is closely tied to other fair-dealing laws, but should not be equated solely with antitrust law. It is broader, and agency actions can contribute to greater concentration or greater competition.
When setting out its purposes, objectives, and functions, Congress established that the Consumer Financial Protection Bureau should ensure “that markets for consumer financial products and services are fair, transparent, and competitive.” The agency’s authorizing statute also specifically directs the CFPB to promote competition by consistently enforcing the law, without regard to whether an entity takes deposits. In other words, there shouldn’t be differential standards for assessing whether a firm violates the law. And more broadly, figuring out how to arbitrage around rules based on corporate form does not lead to fair competition. The law also puts an emphasis on the “proper functioning of markets” and identifying and assessing risks that lead to market failures.
There are many ways in which we are seeking to ensure the faithful implementation of this mandate, and I’ll briefly highlight some of them.
First, we are reshaping the agency’s approach to promoting new products and offerings in the market, especially as they relate to saving Americans money through refinancing.
When I previously served at the CFPB, my colleagues and I worked on an effort to promote refinancing of high-rate private student loans. We conducted a series of sessions across the ecosystem to identify impediments, including uncertainty and confusion surrounding the applicability of the disclosures developed by the Federal Reserve Board of Governors. Many banks and nonbanks launched new products that helped private loan borrowers save substantial sums, and agency activities helped ensure that all potential market entrants could benefit, not just one.
Today, we regularly hear about the fact that the market lacks competitive offerings to refinance low-balance mortgages. We will soon be publishing a notice regarding mortgage refinancing to seek input from investors, lenders, and the public at large on products that could make refinancing simpler and more frictionless. We expect to hear feedback on existing regulations and whether additional regulatory interpretations or rules might benefit the market. We are also working on ways to stimulate more credit card and auto loan refinancing. In addition to refinancing, we are considering work on how to address other market failures, as well as applications of consumer finance offerings that rely on emerging technologies or alternative distribution channels, such as banking in augmented reality and the metaverse.
Another major area is our focus on promoting competition on the merits, rather than on regulatory arbitrage. For example, in our recent market study of Buy Now, Pay Later, we identified that the product is largely being used as a substitute for credit cards and will be looking at ways to ensure appropriate parity. And we are sharpening our focus on nonbanks in our supervision program, many of whom touch millions or tens of millions of consumers but are not subject to the same level of oversight as chartered banks and credit unions. We are already making use of a dormant authority to accomplish this.
We are also rethinking our approach to regulations and, where possible, moving toward bright lines rather than developing complicated provisions to advantage incumbents over new market entrants. We are studying and analyzing emerging markets and business practices to identify ways to limit regulatory arbitrage. For example, we have made clear that those using algorithms and automated decision-making cannot assert black-box opacity as a defense to not providing legally mandated adverse action notices.
The CFPB is also focused on competitive pricing and back-end fees. Earlier this year the CFPB requested information from the public on fees in banking, and we received an overwhelming number of comments from the public—over 80,000. The CFPB announced a rulemaking process earlier this year to reconsider the immunity provisions in Regulation Z that have allowed late fees on credit cards to exceed $12 billion a year.
The entry of Big Tech into financial services raises a host of issues on regulatory arbitrage and competition. We have ordered Big Tech companies and dominant peer-to-peer payment platforms to share with us how they handle existing consumer protections on real-time payments.
In addition, we are looking at ways to facilitate a move toward open banking and finance. The CFPB is prioritizing the implementation of the law’s rulemaking on personal financial data rights pursuant to Section 1033 of our authorizing statute.
This provision has gone unimplemented for over a decade. Importantly, the dormant authority on personal financial data rights is not an open banking rule. However, together with other CFPB authorities, it can facilitate competition by lowering customer acquisition costs for small providers and new entrants, while also limiting the ability for a few large incumbents to appropriate the value for themselves. This fall, we will be moving to the next phase of the rulemaking process by publishing a summary of our proposals for review by small market participants.
These are just some of our initiatives to promote competitive markets. Heads of other agencies are also working on competition-related initiatives. For example, the FDIC board launched an inquiry to assess the bank merger review framework. There is a growing consensus that merger review in agencies across government has become unmoored from the rule of law and the text of longstanding statutes.
In closing, I hope that the CFPB’s work and the whole-of-government approach to competition will help change course on failed policies of the past and bear fruit for families and honest businesses alike.
Thank you, and I look forward to our discussion.