Written by Steve Van Beek
Project Catalyst. The CFPB established Project Catalyst in order to foster "consumer-friendly innovation and entrepreneurship in markets for consumer financial products and services." There is quite a bit of information on Project Catalyst here.
Unfortunately, there is a serious design flaw. And, that is the existing regulations and the non-stop changes to them. Credit unions and other providers of financial products and services are spending ever-increasing time and money keeping their existing products compliant that there is little or no time for innovation or entrepreneurship. While Project Catalyst may end up being an avenue where innovators can work with the CFPB to have their products, services or approaches deemed compliant with the CFPB's interpretation of the regulations, I seriously doubt it will have a large impact for credit unions who are trying to weave through the complex maze of regulations to fill the demands of their members.
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Trial Disclosure Program. As part of Project Catalyst, the CFPB is allowing companies to run trial disclosure programs. You can find the CFPB's press release of the this program here and their proposed policy here (NAFCU has a Regulatory Alert (13-EA-03) with additional details).
In short, credit unions could design and test new disclosure documents - provided they receive approval up front from the CFPB. The CFPB would give credit unions a safe harbor for compliance with the existing regulations as they test their new forms for consumer understanding, cost effectiveness and minimizing consumer harm.
Is your credit union likely to invest in a trial disclosure program? Probably not. There would be huge upfront costs to design a new disclosure and then you'd need to receive the CFPB's blessing. Then, test the disclosures and share the results with the CFPB. Hopefully, your new disclosures would help improve the existing requirements - but there would be no guarantee the CFPB would listen.
As mentioned above, credit unions are spending huge amounts of time and resources to comply with the existing regulations. Developing their own disclosures isn't exactly on the top of the list.
So, why I'm I spilling ink over this? To demonstrate how backward the CFPB has the process. The CFPB is the only entity with authority over the consumer regulations. They also have a mandate to protect consumers and improve consumer understanding of disclosures. So, they should be the ones creating multiple disclosure options and testing them with actual consumers in real-world situations. Their Know Before You Owe program was similar but it included a shockingly low number of tests with consumers. And, even worse, it hasn't been tested on any actual mortgage loans.
If anyone is going to be creating numerous approaches to disclosures, it should be the CFPB. And, they should partner with entities offering financial products and services to provide a safe harbor for using the CFPB's testing forms with real customers/members and the CFPB will get real feedback.
Example - Remittances. If the CFPB had taken this approach with their remittance transfer regulation, they would have realized very early on that their approach to the regulation was going to be a huge headache for institutions who utilized an open network. And, they would have been able to determine which disclosures were meaningful to consumers and which weren't. That would have resulted in a better regulation in the end. Instead, we've been through numerous ups and downs as the CFPB tries to adjust and amend a rule that was not initially designed with the real world in mind.
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