The Consumer Financial Protection Bureau is trying to “nudge” auto finance innovation, too.
The regulator earlier this week unveiled a new “regulatory sandbox,” known as the Global Financial Innovation Network (GFIN), that is intended to help fintech startups develop new products and services for the financial services — and the initiative has import to auto finance.
CFPB hired Paul Watkins, former chief counsel of the civil litigation division for the Arizona attorney general’s office, to head up GFIN. The effort includes 10 other regulatory bodies from around the world.
In the past, only “brave innovators” would enter the consumer financial services space for fear of the regulatory landscape, said Justin Hosie, partner at Hudson Cook LLP, told Auto Finance News. “If PayPal had first asked compliance lawyers if they could do business, they’d say, ‘No, you’d be violating money transfer laws, etc.,'” he said. “But, then we would never have PayPal, Venmo, and Apply Pay.”
The bureau cited the growth of fintech and innovation trends, such as big data, artificial intelligence, and blockchain, as the reason why it launched GFIN.
“Financial services regulators must re-consider existing ways of working and collaborating, to balance potential benefits of innovation,” according to a CFPB document.
CFPB will also work to develop a system for regulators to assess innovation at financial institutions.
The idea of a regulatory sandbox is not necessarily new. Under Richard Cordray, former CFPB director, some work in this area was done under Project Catalyst — which allowed fintechs to pitch product ideas to regulators and receive a regulatory OK before moving forward. Project Catalyst launched in November 2012.
A challenge with Project Catalyst, however, was that the bureau could rescind an approval it made — “it didn’t carry much credence,” Hosie said. Under Cordray, the bureau issued but one approval through Project Catalyst, Hosie said.
Now, the bureau has established a new Office of Innovation and the work done under Project Catalyst will be transitioned to this new endeavor. GFIN, part of the Office of Innovation, is a “step in the right direction,” Hosie said.
“The idea is simple: there are regulatory ambiguities, and rather than keeping your fingers crossed that you won’t get in trouble — you can get approval,” Hosie said.
Per next steps, CFPB is asking for feedback by October 14 on the document that outlines GFIN’s plans.