CFPB scraps fintech sandbox program with changes to innovation office

Consumer Financial Protection Bureau Director Rohit Chopra has scrapped a fintech sandbox program that issued “no-action” letters to startup companies, charting a different course for the bureau’s former office of innovation.  

The CFPB said Tuesday that the renamed Office of Competition and Innovation will no longer process applications for no-action letters designed to allow companies to develop products without fear of supervisory action. Instead, the office will focus on promoting competition, hosting events and making it easier for consumers to switch financial providers. 

The move appears to be a demotion for the fintech office that had previously reported to the CFPB director but is now part of the bureau’s division of research, markets and regulation. The CFPB said the changes will allow the office to have greater access to market research to explore obstacles to competition, including how big players are squeezing out little ones. 

The changes are a repudiation of the innovation office under former CFPB Director Kathy Kraninger. She had agreed to give fintechs a legal safe harbor and relief from supervisory and enforcement actions if the companies applied to test their products.

“After a review of these programs, the agency concludes 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 CFPB said in a press release. 

Currently the office is headed by Ann Epstein, an 18-year veteran of Freddie Mac, who was hired by Kraninger in December 2020, just a month before Kraninger resigned when President Biden took office. 

The changes by Chopra also continue a trend in which each new CFPB director undoes the work of their predecessor. 

Former CFPB Director Richard Cordray created the first office, known as Project Catalyst, in 2014 as a way for the bureau to collaborate with fintechs to test products such as alternative forms of disclosure. In 2018, Kraninger changed the name and focus to providing regulatory relief for fintechs. 

“The problem here is that each successive CFPB administration razes what came before and starts building anew rather than using any of the foundation laid by the prior administrations,” said Eric Mogilnicki, chair of consumer financial services practice at Covington & Burling. “That approach causes whiplash for the regulated and throws out perfectly good ideas simply because they were proposed by a prior director.”

The CFPB said the Office of Competition and Innovation will focus on how to create market conditions where consumers have choices and where “the best products win.”

Chopra has been laying the groundwork for regulatory oversight of large technology companies and framed the changes as a way to improve competition. 

“Competition is one of the best forms of motivation. It can help companies innovate and make their products better, and their customers happier,” Chopra said in the press release. “We will be looking at ways to clear obstacles and pave the path to help people have more options and more easily make choices that are best for their needs.”