I recently had the opportunity to directly share my thoughts with Richard Cordray, the Director of the Consumer Financial Protection Bureau, on how the CFPB can fulfill its mission. Director Cordray was in the Bay Area to listen, and I was a panelist at a community session where he wanted to hear from people working on the front lines of financial services for lower income Americans. (It's worth noting he also spent a day in Silicon Valley, listening to entrepreneurs in the financial technology space.)
The CFPB, conceived by now Senator-elect Elizabeth Warren, is a very rare animal -- a bona fide start-up within the Federal Government. Don't snicker: It's attracted whip-smart, committed people with backgrounds that range from executive leaders in banking, to managers from McKinsey, to former executives of EARN, the nonprofit that I run. All of these people believe passionately in the role the CFPB can play in righting balance of protection and enterprise to help American consumers, strengthen our economy and reaffirm core national values like fairness and honesty in business.
As they travel the nation, Director Cordray and his colleagues will hear volumes on what we need to do to solve the financial protection problems we face. The details they'll hear about -- relating to mortgage servicing breakdowns, and shady practices by credit-providers -- are incredibly important. But here's what I believe the CFPB must accomplish to be successful:
1. Define Predatory: Not surprisingly, the U.S. has no measurable definition of "predatory" with regard to financial products and services. You may celebrate this vacuum as an entrepreneur (see point #2 below), but you do so at the peril of important values that give any marketplace value -- like integrity and trust. I urged Director Cordray to summon the political will to define key elements of what makes a product or service predatory. If we fail to do so, the market will remain riddled with perverse incentives for behavior that takes advantage of even the most well-informed consumer. While I don't believe you can always legislate or regulate wise behavior, I do believe that defining "predatory" is a very clear case of justified paternalism by the government to protect citizens and our economy.
2. Don't Kill Good Innovation: I feel the pain of innovators who find their breakthrough business models needlessly obviated by obtuse regulation. Many entrepreneurs (not all) in the Fintech space can provide innovations that remedy market problems of access and capability for consumers, which cause economic pain and lost opportunity for millions of Americans. The CFPB is fortunate to have the leadership and acumen within the organization to get this right.
3. Continue Crowdsourcing: One of the greatest distances on earth can be found between well-intentioned government staff and the people they hope to help through public policy. The CFPB did a brilliant thing by testing different versions of disclosures online to see which were most effective and which people liked best. This kind of creative, consumer-focused behavior is the vanguard of government at its best -- and it will yield superior results.
If you haven't thought about at the CFPB beyond the political fighting it has sparked, have a look. They're doing many things very, very well.