Creating Space for Innovation Will Benefit Latino Consumers

Despite composing nearly 17 percent of the population and wielding purchasing power expected to reach $1.5 trillion by next year, Latinos remain disproportionately unbanked and underserved by the major financial institutions.

With its latest proposed “no action letter” to the financial services industry, the Consumer Financial Protection Bureau (CFPB) pledges to allow banks to experiment with innovative products and services in an effort to engage underserved consumers such as the Latino community. NCLR recently submitted a letter to the CFPB detailing the strengths of its proposal as well as recommendations.

We support creating a space for financial institutions to incorporate low-income consumers who are often left out of the formal banking system. However, all new products must be both secure and capable of truly increasing financial access to the underserved. Latinos suffered a profound loss of wealth during the economic downturn, and we must ensure that any new products help, not harm, the already greatly diminished finances of Latino families.

We appreciate that the CFPB will prioritize a safe and streamlined approach to new financial products. The agency will allow the financial industry to use the market to bring healthy competition to develop new products while respecting the law and all relevant regulations. Additionally, the proposal would provide opportunities to evaluate the scope of market improvement while engaging other relevant organizations through Project Catalyst. In a much-appreciated emphasis on safety, the CFPB’s proposals also include measures for data collection to ensure that new products do not harm consumers.

Although the CFPB’s proposals represent a significant step forward for encouraging innovative solutions, we believe they could still be improved. Instead of mandating narrow parameters for the financial sector’s innovation, which allow for sudden revocation of the CFPB’s pledge to not take legal action against institutions, we instead suggest a grace period during which the CFPB and institutions can begin a dialogue to improve faulty products.

Although the innovation process often involves trial and error, the CFPB’s proposals do not include timeline provisions or clearly defined renewal periods. Instead of requiring institutions to resubmit requests again and again from scratch, we encourage the CFPB to include a clear and more flexible timeline to streamline product improvements.

As currently written, the CFPB’s proposals would be non-binding and not applicable to other federal agencies. Since financial products can often be complex, we encourage the CFPB to strengthen its proposal though interagency collaboration, by extending a pledge to not take legal action to other relevant federal agencies.

Ultimately, we believe the CFPB’s proposals will encourage innovation and improve access to beneficial products for the disproportionately low-income Latino community. While the proposals represent a net gain, several adjustments can increase the likelihood that creative, safe products are developed to improve finances for consumers currently underserved by financial institutions.