CFPB Targets Mobile Banking

As the House Financial Services Committee last week introduced legislation to add more transparency and accountability to the Consumer Financial Protection Bureau, the bureau itself began a probe into various issues related to mobile banking and financial management services.

In his prepared remarks at the Mobile Request for Information Field Hearing in New Orleans, CFPD Director Richard Cordray cited the bureau’s need to better understand the needs and challenges consumer face, especially when using new technology.

“We want to know more about how emerging technologies are affecting the opportunities and challenges that consumers are facing,” Cordray said. “The inquiry also specifically addresses how the use of mobile payment products can be used to improve the financial lives of underserved consumers.”

Often people may be underserved through no choice of their own, Cordray noted. For example, they may live in a rural area where no bank branches are located and where alternative financial services may also be in short supply. Moreover, sometimes banks just do not want to establish or maintain branches in particular areas.

“So even if you are a good candidate for a bank account or a loan, if you live in a poorer or more remote neighborhood, it can be hard to access the financial services you need,” Cordray said. “The result is that underserved consumers tend to pay higher rates for services such as payday loans or check cashing.” During a hearing June 12 to discuss the CFPB’s mobile initiative, audience members reportedly turned the discussion to their concern about payday-lending issues.

Increased Engagement

In his remarks, Cordray noted that consumers increasingly are engaged in mobile banking, and he cited a study by the Federal Reserve found that found one-third of cell-phone users and more than half of smartphone owners are using mobile-banking services. Moreover, some 74,000 consumers per day began using mobile banking services last year, he said, citing an independent researcher he didn’t name.

“We need to make sure that the legal and regulatory framework can keep up effectively, so that all consumers can remain protected whether they are opening their wallet or scanning the screen on their smartphone,” Cordray said.

The bureau has identified two areas of consumer opportunity that it wants to understand better, he said. For one, it will explore the ways mobile devices can give access to consumers who do not have easy means to obtain or use current financial products and services. And it wants to learn more about how mobile devices can offer everyone opportunities for real-time money management.

‘Anytime, anyplace’

A recent FDIC study found that the “anytime, anyplace” nature of mobile financial services offers the potential to help more people gain easier access to the banking system and grow their financial capability, Cordray said. Mobile phones are quite prevalent among many of these consumers, who may use these devices in lieu of computers. For example, in households earning less than $25,000 a year, 74 percent of adults have a mobile phone of some type, and 44 percent have a smartphone, he said.

According to a 2013 survey by the Federal Reserve Board, Cordray noted, a quarter of smartphone users had used their phone to track purchases and expenses during the prior year. Moreover, 69 percent of mobile-banking users said they checked their account balance before making a large purchase, and half of them decided not to make the purchase once they became aware of their account balance or credit limit.

“We want to know more about how these services help consumers, and about how they could do so even more effectively,” Cordray said. “Arming consumers with better and more current information about their accounts helps them make wiser use of their funds and avoid costly penalty fees.”

Legislative moves

As Cordray was laying out the CFPB’s plans to examine consumer mobile use for financial services, the chairman of the House Financial Services Committee was citing 14 bills that were introduced that could affect how the bureau operates while creating more jobs for Americans who are underemployed and unemployed.

“What we will do is offer bills that will add more transparency and more accountability to both the Financial Stability Oversight Council and the CFPB,” U.S. Rep. Jeb Hensarling (R-Texas) said in a June 10 prepared statement. “And I would just remind my colleagues, particularly those on the other side of the aisle, regardless of how noble a purpose an agency may have, it does not mean it is not in need of accountability and transparency.”

Hensarling cited the difficulties small businesses are having with bureaucratic red tape, and appeared to push the needs for such entities to create jobs over designing policies for protecting consumers. The CFPB, he said, should not operate under rules separate from others.

“We have heard from many that the CFPB is a unique agency and, regrettably, they are part of a challenge where American small businesses are suffering a death of 1,000 paper cuts,” Hensarling said. “The bills that are presented for the CFPB, almost all are practices that are routine for almost every other federal agency.”

Fund targeted

Included in the legislation are bills that would create an independent inspector general at the bureau, an opt out for consumers on data collection and the elimination of the bureau’s Civil-Penalty Fund, which has collected more than $141 million in fines from wrongdoers.

The fund is used to compensate wronged consumers and, to the extent compensating consumers is not practicable, pay for consumer education and financial literacy programs, Cordray noted last week in his semi-annual address to Congress. The bureau also to date had aided in efforts to refund more than $3.8 billion to consumers who fell victim to various violations of consumer financial-protection laws, he said.