Most people may associate the Treasury Department with fiscal policy, but just over one year ago, the Office of Consumer Policy was formed to focus on retail financial services, consumer financial innovations and financial education as well.
From tackling financial literacy to the use of data to payments innovation and more, the Office, in its own words, works “to ensure that every American has access to safe and affordable financial products and services.”
How does the Office of Consumer Policy cooperate with other consumer financial services agencies such as the CFPB, and what are their key priorities from a payments perspective?
Market Platform Dynamics CEO Karen Webster sat down with Melissa Koide, Deputy Assistant Secretary for the Office of Consumer Policy, in an exclusive interview to find out.
Karen Webster: Melissa, when most people think of the Treasury they think of fiscal policy, not consumer policy. You serve as the Deputy Assistant Secretary for the Office of Consumer Policy at the Treasury. What does this office do and what is your role?
Melissa Koide: The Office of Consumer Policy develops and coordinates the Treasury Department’s retail financial services policies. The Office was created just over a year ago to ensure that Treasury and the Administration have an office dedicated to consumer policy matters.
The Office of Consumer Policy was established with three goals: to develop and coordinate Treasury’s policy positions related to retail financial services; to encourage the safe growth of technology and data driven innovations to help Americans take control of their financial lives; and to work with our colleagues throughout the Administration and beyond to help Americans access safe and affordable financial products and services, and have the knowledge and understanding to make sound financial decisions. For example, when it comes to consumers’ access to government payments, we advise Treasury’s Fiscal Office on consumer related issues such as how to use electronic payments as an opportunity to enhance the financial capability of recipients.
KW: How does this office work with the other consumer financial services agencies in D.C., such as the CFPB?
MK: The Office of Consumer Policy works closely with other government agencies, including the CFPB, on a variety of topics, including ongoing research and analysis of the latest innovations in consumer financial services. For example, at the end of last year we held a two-day convening on emerging payments innovations and finance data with a diverse group of participants, including government agencies and regulators. Discussions ranged from the potential benefits and regulatory risks of emerging payment innovations for consumers to the ways that entrepreneurs are leveraging federal data to help consumers make more informed financial decisions. It was one of the first convenings where federal regulators heard directly from entrepreneurs working on consumer financial services.
KW: Our audience at PYMNTS.com is the payments industry: traditional players and new entrants and a vast and broad group that also includes merchants. From a payments industry perspective, what are your key priorities and how did you decide on those?
MK: Our payments work aligns very closely with the overall priorities of the office and very naturally extends from them. We are excited to see payments innovations that are helping consumers transact, save, access credit and better manage their money. Examples include making it easier for consumers to deposit checks using remote deposit capture via smartphones or responsibly expanding access to credit using new enhanced underwriting techniques. At the same time, however, we want to ensure that as new payments innovations begin to scale, consumers and the financial system are protected. And the important role for all of us is to work together to determine how to ensure those protections are in place, without unnecessarily styming the development of positive financial products or services for consumers.
I think, in fact, there are many ways we can use technology and data to achieve a number of our public policy goals. For instance, how can the mobile phone, with its data rich information and video capabilities, be used to inform consumers about how to use a financial product wisely and to present product disclosures in a more comprehensible way? How can biometrics help authenticate an individual’s identity to satisfy KYC requirements? The possibilities for leveraging technology and data are exciting, and our priority is to help set the table for those types of explorations.
KW: I know that one of the key priorities that your office is focused on is improving financial literacy across the board. How do you see technology, the payments community and your office all coming together to make a difference in this area?
MK: All of our work is based on the premise that every American is better positioned to pursue their goals and achieve their dreams if they possess basic financial knowledge.
Technology and the use of data can help do that. First, we are very interested in how technology can be used to make financial education engaging, especially through the use of games and simulations for young people.
Second, technology and data can arm individuals with the information they need to make smart decisions. For example, we are particularly interested in how mobile phones and apps can provide consumers with information about their own finances in real time and at the point of purchase. An app, for instance, can help people avoid overdrafts and stick to their budgets by giving them information about how much they have in their bank account, and how much they have allocated in their budget for various expenses.
KW: One of the other areas in which your office is focused is data, which is obviously very much a topic of conversation in payments and just about everywhere. I understand that there is a lot of data that is very publicly available that your office can make available to players in the payments and financial community. This can be of benefit to the payments community and also consumers. Can you give us a few examples of what that data is and how it helps consumers?
MK: The Administration is committed to making federally collected data available to the public to spur job growth, drive entrepreneurship and give Americans greater access to their own personal data. At Treasury, that’s translated into our office’s Finance Data Initiative: an effort to foster innovation by promoting the release of federal finance data in machine-readable formats. In February of this year, in partnership with the White House’s Office of Science and Technology Policy, we launched an online community at consumer.data.gov where innovators can now access over 500 datasets from across the federal government. This effort builds on existing efforts and is feeding a new generation of apps and online tools for consumers. One of my favorite examples is a company that uses Bureau of Labor Statistics (BLS) data to enable consumers to determine whether or not they are underpaid and, if they are, help them to generate a customized raise request. Another company is using Federal Reserve System and BLS data to provide consumers with information about the financial habits of their peers, offering suggestions about where to save and how to reduce debt.
KW: You also work as Executive Director for the President’s Advisory Council on Financial Capability. What is the mission of this council and what is its relevance to the payments industry?
MK: As I’m sure many of your parent-readers know, financial capability and good financial decision-making isn’t always an inherited trait. So that’s why President Obama is establishing a President’s Council focused on building the financial knowledge and skills of young people. Research and experience show that a sound financial footing early in life is important to building wealth and establishing financial security. The Council will be made up of experts and practitioners who will advise the President and the Administration on ways to improve young Americans’ financial decision-making skills when it comes to paying for college, using financial products and saving for retirement. The payments industry can certainly play a role in this work by providing access to products that help young people manage their money and build strong money management skills and habits. For example, how teenagers get paid for that first job, what options they have for saving, and what resources and guidance they are provided to plan for short and long term financial goals can have a big influence on how they manage their money over their lifetimes.
KW: Speaking of technology, your office hosted the MyMoneyAppUp Challenge that was inspired by the Council. What sorts of things came out of that and how are they being operationalized and scaled?
MK: The MyMoneyAppUp Challenge was a contest offering cash prizes and recognition for the best mobile app ideas and designs to help Americans make smart financial decisions and access high quality financial products and services. The Challenge included two components: 1) a contest to solicit the best ideas in 140 characters or less for new apps that should be developed and 2) a separate competition for the best comprehensive app design proposal. We received an overwhelming response from people across the nation and from all walks of life, illustrating that mobile technology is capturing many Americans’ imagination, and that mobile tools can become a platform to enable people to information they need to make strong decisions about their money.
There were a lot of great app designs, but the grand prize winner was Centz. Centz helps to make student loans easy and simple to manage. Among other features, the app allows users to link information about all of their student loans in one place, create a payoff plan that syncs with their budget, find ways to reduce the total interest paid by making extra payments, and test their knowledge about student loans and personal finance. Since the challenge, a few nonprofit partners, including the Ford Foundation, launched a related but separate mobile apps competition called FinCapDev, where contestants go one step further to develop fully functioning mobile apps that help to advance the financial capability of consumers.
KW: I know that one of your personal passions is the underserved. I did an interview a few weeks back with a CEO in the prepaid space who said that one of the problems with prepaid is that it is targeted to the wrong individuals. He believed that if people don’t qualify for products offered by traditional financial services players then they wouldn’t be good customers of alternative financial services products since they won’t understand how to use them. Do you agree and what more do you think needs to be done to prepare the underserved to be successful consumers of these products?
MK: The traditional bank account may not be right for everybody; there are real differences in what is valued in a financial product—from convenience and simplicity to options and flexibility. But regardless of product, from a traditional bank account to a prepaid card, we have to ensure every option is designed with the appropriate consumer protections. The revolution in consumer financial services will only continue if new and alternative products are designed with the needs and safety of the consumer in mind.
Treasury not only talks the talk on this topic, but as one of the largest issuers of prepaid cards in the country through our Fiscal Office, we also walk the walk. We have issued regulations ensuring that any prepaid card that receives government funds has strong consumer protections in place. With Direct Express, our own card program for the distribution of federal government payments, we are actively promoting financial capability for the underserved. Through a partnership with MasterCard and a start-up called PayPerks, we are encouraging cardholders to engage with user-friendly online financial education modules through a sweepstakes-based incentive program. The program is only a few months old, but we are already seeing tremendous results: more than 93,000 users have signed up and taken more than 628,000 financial education modules online. Notably, 30 percent of this Payperks traffic has been through mobile devices. Payperks users report that the financial education modules have made a real impact by helping them make better financial decisions.
KW: I am sure that the big question on every one of our PYMNTS viewers’ minds is your Office’s role in the regulatory process. Is regulatory oversight one of the functions of the Office of Consumer Policy and how do you conduct it?
MK: Well, this answer is pretty simple. The Office does not have a direct regulatory role. Our work is focused on setting policy related to consumer financial issues for the Treasury Department and on behalf of the Administration. We are therefore in a unique position to engage with the concerns and interests of consumers and industry alike, as we endeavor to craft policy and shape the discourse on how best to design a 21st century financial services landscape that works for all. Facilitating a dialogue among all stakeholders in the consumer finance space—industry, regulators, consumer advocates—is crucial to developing the deep and common understanding that is necessary to ensure that the rules governing this space achieve the dual goal of promoting innovation and protecting consumers.
Melissa Koide is the Deputy Assistant Secretary covering financial access, financial education and consumer protection issues; Executive Director for the President’s Advisory Council on Financial Capability.
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