Innovation and technology are not the magic wands that will help low-income Americans climb out of debt; they often are tools used to prey on the neediest people, Seth Frotman, the CFPB’s general counsel told the Poverty Law Conference earlier this month.

“We hear a lot about ‘innovation’ and ‘financial technology’ in the consumer financial marketplace,” Frotman said, adding that it is not uncommon for such businesses to boast about how they serve an underprivileged population.

“I’ll be totally frank, from what I have seen, there is reason to be skeptical about whether many of these supposedly novel products and services are doing much that is really new or to the benefit of consumers,” he added.

Frotman’s speech seems contrary to the CFPB’s Office of Competition and Innovation whose mission, is “to promote competition and innovation that benefits consumers in the financial products and services market,” furthers a specific objective of the CFPB as set forth in the Consumer Financial Protection Act, namely, “to facilitate access and innovation” in the markets for consumer financial products and services.

Frotman said that a new generation of entrepreneurs has devised ways to “squeeze” more out of people who can least afford it. As for the technology, he added “it’s a shiny veneer on top of an age-old practice.”  He singled out several programs for criticism—echoing the CFPB’s issues with each:

• Buy Now, Pay Later programs, which he said leave people overextended and trapped in loans that result in such problems as overdrafts and late fees.
• Earned Wage Access programs. Frotman said these programs resemble payday loans and have extremely high interest rates.
• Medical installment loans, credit cards and payment plans, which Frotman said may have deferred interest features that may leave consumers paying surprise, retroactively applied interest charges. Frotman said that CFPB officials are concerned that the promotion of these programs is cutting off the financial assistance that non-profit hospitals are required to make available under the Affordable Care Act.
• Lease-to-own financing companies. These companies, Frotman said rent home appliances to cash-strapped people, with the promise that they eventually will own them, after making expensive payments.
• Public benefit distribution programs, which Frotman said may have high fees and other obstacles to people trying to access and use their benefits. He said that under the Electronic Funds Transfer Act, people cannot be required to establish an account with a specific financial institution in order to receive government benefits. The CFPB is working with the Department of Labor to ensure that people have a choice in obtaining benefits, such as unemployment payments, according to Frotman. He added that the Equal Credit Opportunity Act prohibits lenders from discriminating against borrowers because they receive public assistance income.

 Frotman’s remarks underscore the concerns of many Fintech and other companies that the CFPB is biased against companies that have used technological innovation to develop new consumer financial products and services. Instead of delivering a balanced presentation which should have discussed how innovative some of these products are and their enormous popularity with consumers, he instead talks only about things that the CFPB dislikes.

He equates earned wage access products to payday loans even though, if properly used by consumers, they are cost-free while payday loans often involve consumers paying triple-digit APRs. He mentions that buy-now, pay-later products can involve the payment of late fees without mentioning that buyers who pay on time don’t pay any interest or other fees. And, we could go on and on.  The CFPB’s negative attitude toward technological innovation is stifling the Fintech industry. Instead of painting with such a broad brush by saying that the Fintech industry is “preying” on lower income consumers, the CFPB should be fostering innovation by responsible Fintech companies who understand that they must comply with all applicable laws.