Project Catalyst: A Collaborative Approach to Consumer Protection? (May 2013)

CFPB Invites ‘Innovative’ Companies to Share Consumer Data, Ideas to Help Shape Policies

By Kate Fitzgerald, Emerging Payments Editor

The Consumer Financial Protection Bureau (CFPB) since its formation in 2011 has generated great interest and, at times, controversy over its mission and leadership in its role of creating and enforcing federal financial services regulations. While it has assumed many rule-making tasks from other agencies, the CFPB is doing one thing that is decidedly different by collaborating with some of the companies it regulates.

The CFPB in November 2012 announced Project Catalyst, an initiative that takes a new approach to developing consumer protection policies by inviting the financial services industry to come up with “consumer-friendly innovation” and entrepreneurial ideas to solve various consumer challenges, instead of the bureau mandating solutions. The project’s initial goals are to open lines of communication and spark collaboration between the bureau and interested financial services industry participants in devising new products and disclosing their features, the agency said. “We’ve heard that innovators creating consumer financial prod­ucts don’t currently have enough access to the CFPB. … We want to change this,” a CFPB spokesperson tells Paybefore.

Another key goal for Project Catalyst is to “identify pain points” for financial services product developers that may stem from the regulatory environment, the spokesperson says. “To the extent that financial regulation under the CFPB’s jurisdiction is preventing the creation or growth of financial products that would ultimately improve the well-being of consum­ers, we want to identify and under­stand these obstacles,” she adds.

Regulating in a Changing Marketplace

As part of the effort, the bureau is inviting financial services industry participants to make suggestions to the enforcement agency. Examples include situations in which financial services companies “notice some­thing about a financial regulation that, if improved, could better foster consumer-friendly innovation,” the bureau says, noting that new financial services products are constantly evolving.

To get the ball rolling, the CFPB partnered with three financial services companies that have agreed to share anonymized data to gain insight into current consumer behavior. The companies are BillGuard, which helps consumers resolve billing disputes, and Plastyc and Simple, two companies that offer alternative banking services, including prepaid cards. “These collaborations work in different ways, but they share a common approach,” the CFPB spokesperson says. On the Project Catalyst Website, the CFPB is inviting entrepreneurs—including those the CFPB regulates as well as others outside of its scope— to suggest other possible collaborations that might lead to additional partnerships and pilots beyond the three companies involved at the outset. (See sidebar.)

Studying Consumer Behavior

Project Catalyst invited New York-based Plastyc, which provides GPR card and mobile banking services, to participate because of some of the company’s unique features for studying consumers’ financial behavior, Patrice Peyret, Plastyc’s CEO, tells Paybefore. Plastyc’s platform is structured to capture a rich stream of consumer behavioral data about “how people interact with their accounts via the Web and mobile channels,” that are not necessarily available through more traditional bank systems, Peyret says. “We can see how cardholders interact, or not, with self-help resources before they decide to pick up the phone to call customer support; whether cardholders customize their online ‘dashboard’ and what mobile application fea­tures they tend to use or ignore,” he says.

Plastyc also has the ability to track whether consumers accept or change the default settings for such things as automatically setting aside money for personal savings or spending goals. “This real-time data allow us, and accredited third par-ties, to measure the level of trust in a certain product, preferences for certain services and to identify areas of frustration for consumers,” Peyret says, noting that Plastyc’s platform reveals consumers’ specific choices and navigation paths before and after a transaction.

Among the areas the CFPB hopes to explore through Plastyc is consumer sensitivity to pricing versus speed when transferring available funds and evaluating whether the latest generation of self-help Web systems “can in­crease the level of trust, reduce levels of financial anxiety and also avoid escalation of issues at call centers,” Peyret says.

Spotting ‘Grey’ Areas

BillGuard, a New York-based personal finance security company that helps consumers identify and resolve unwanted and unrecognized charges, called “grey charges,” on credit and debit card bills, inter­ested the CFPB for Project Catalyst because of the broad scope its services provide in analyzing billing dispute data, the company said. BillGuard, founded in 2010, uses “crowdsourcing and big-data analytics” to identify questionable consumer charges stemming primarily from deceptive and unfair sales and billing practices reported by consumers, Mary Anne Keegan, the company’s chief marketing officer, tells Paybefore. BillGuard alerts users by email or on their mobile device when a charge needs immediate attention and also sends customers a monthly report analyz­ing their accounts. When grey charges are reported, BillGuard offers a direct-to-merchant service to help consumers quickly resolve the issue.

BillGuard provides an interesting opportunity for collaboration with the CFPB because of the agency’s strong focus on making sure companies provide clear and fair product disclosures, an area where BillGuard has developed some unique expertise, Keegan says. “Questionable charges often stem from murky product disclosures where policies are often written in the Terms of Service or product descriptions in a manner that’s difficult to understand,” she says.

Such confusing disclosures may not be technically fraudulent, Keegan says, but they are deceptive because they are unclear to the average consumer. These grey charges affect 25 percent of con­sumers each year, according to a recent BillGuard survey, and amount to an average loss of about $356 per victim, she says. BillGuard’s service is free for consumers who protect up to three cards. BillGuard also markets its services to banks and merchants and is integrated into Apple’s Passbook and shortly into Google Wallet.

BillGuard has agreed to collaborate with the CFPB on sharing data from its national billing dispute and resolution database to study trends in consumer complaints and resolu­tion, Keegan says. In developing its program to provide data for Project Catalyst, BillGuard sees opportuni­ties where “BillGuard will be able to prove helpful to the CFPB in shap­ing policy to better protect U.S. consumers from questionable sales and billing practices,” Keegan says.

Empowering Consumers

As an online banking startup company, Portland, Ore.-based Simple began signing up consumers last year by promising “uncomplicated tools” to help consumers manage their financial lives, including setting and achieving spending and savings goals. Simple says its system for anonymously tracking the time, dollar amount and merchant details of customers’ transactions in an easy-to-analyze format drew the interest of the CFPB. “We’re collaborating with the CFPB to better understand anonymized, aggregate customer data,” Simple’s CEO Josh Reich tells Paybefore. One purpose of the collaboration is to explore the extent to which Simple’s “Goals” feature “can be used to encourage smarter spending and saving,” he notes.

Among Simple’s tools are flexible approaches to analyze spending, a Web app enabling users to upload receipts to accompany transaction data and systems to customize information, including adding context and detail surrounding expenditures. Simple’s platform stores relevant transaction details, but not card numbers or PINs, “primarily so that our customers can access it from our various applica­tions,” says Reich. “We collect information on each transaction customers perform to help better serve them and our customer base as a whole,” he says, noting that Simple maintains a strict privacy policy and never will “sell, rent or loan any personal information” about customers.

Through analyzing such customer behavior and data, Simple has observed that customers who use its “Goals” feature have 30 percent less variability in their account balances, and therefore succeed in saving more, Reich says.

Clearly the CFPB also sees the value of using data to analyze what systems and tools can help consum­ers better manage their finances. As a result, Project Catalyst may spark new approaches for develop­ing new products and best practices under the CFPB’s auspices.

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