Last July, the OCC announced its decision to accept applications for special purpose national bank (SPNB) charters from fintech companies.  At that time we observed that, while not discussed in the materials released by the OCC, it appeared that a fintech company holding an SPNB charter would be required to be a member of the Federal Reserve System and be subject to oversight as a member bank.  As a Federal Reserve member, an SPNB would have access to the Federal Reserve discount window and other Federal Reserve services.

According to a Reuters article published today, Federal Reserve officials have expressed reservations about allowing such access to fintech companies.  Reuters reports that “many Fed officials fear that these firms lack robust risk-management controls and consumer protections that banks have in place.”  The article quotes the President of the St. Louis Fed as having expressed concern that “fintech will be the source of the next crisis.” The Atlanta Fed President is quoted as having said that “almost none of [the fintech entrepreneurs he has talked to] has risk at the top of what they’re thinking about, and that makes me nervous.”

Despite its reported reservations about the SPNB charter, the Federal Reserve has acknowledged the increasing role played by fintech in shaping financial and banking landscapes and indicated that it is interested in developing policy solutions that would result in greater efficiencies and benefits to all parties.  To that end, the Philadelphia Fed sponsored a conference last November on “Fintech and the New Financial Landscape.”  At the conference, Ballard Spahr partner Scott Pearson was a member of a panel that discussed “The Roles of Alternative Data in Expanding Credit Access and Bank/Fintech Partnership.”




The CFPB has issued its fifth Financial Literacy Annual Report to Congress.  The report describes the CFPB’s ongoing financial literacy work, “with an emphasis on work during October 2016 through September 2017.”  It covers the CFPB’s financial literacy strategy, its financial education initiatives generally and those specifically targeted at students and young adults, servicemembers, economically vulnerable individuals, and older adults, and its research initiatives.

An Appendix to the report provides a list and brief descriptions of the CFPB’s currently available financial education resources, which include web-based resources and tools, CFPB brochures, CFPB reports and white papers, and consumer advisories.

We have previously commented that the CFPB has not devoted any resources to educating consumers about arbitration.  Congress’ override of the CFPB’s arbitration rule means that the rule cannot be reissued in substantially the same form, nor can a new rule that is substantially the same be issued, unless the reissued or new rule is specifically authorized by a law enacted after the date of the resolution of disapproval.  Since many financial services companies can be expected to continue to use arbitration agreements, a strong need remains for consumers to be educated about arbitration.

The CFPB has released a new report, “Financial well-being in America,” and a new on-line interactive tool that allows consumers to measure their own financial well-being and access CFPB resources intended to help consumers meet financial goals.

In January 2015, the CFPB issued a report in which it created a definition of “financial well-being”:  “a state of being wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future, and is able to make choices that allow enjoyment of life.”  The definition was followed by the CFPB’s release in December 2015 of a 10-question scale to measure “financial well-being.”  The scale, which produces a financial well-being score between 0 and 100, is intended to allow meaningful comparisons of financial well-being between people and over time.

In the new report, the CFPB presents the results of what it calls a “first-of-its-kind national survey on the financial well-being of U.S. consumers.”  According to the CFPB, the consumer sample used to conduct the survey was designed to be representative of U.S. households. In addition to responding to the 10 questions in the financial well-being scale, people participating in the survey answered questions about other measures such as individual, household, and family characteristics; income and employment; savings and safety nets; financial experiences; and money behaviors, skills, and attitudes.

In the report, the CFPB presents the survey’s findings on the distribution of financial well-being scores for the U.S. adult population overall and for selected subgroups defined by these other measures.  In the CFPB’s view, its findings “provide insight into which subgroups are faring relatively well and which ones are facing greater financial challenges” and raise “important questions about what may drive variations in financial well-being within subgroups and how these factors may work together to determine an individual’s level of financial well-being.”

The report’s major findings include:

  • Using the CFPB’s 0 to 100 scale, the average financial well-being score for U.S. adults was 54. There was a 35-point spread between the top 10 percent and the bottom 10 percent of scores.  About a third of all adults in the United States had financial well-being scores of 50 or below, about a third had scores between 51 and 60, and about a third had scores of 61 or above.
  • Financial well-being scores reflect real differences in underlying financial circumstances, with scores of 50 or below associated with both a high probability (well above 50%) of struggling to make ends meet and of experiencing material hardship and scores of 61 and above associated with low probability (less than 10%) of having trouble paying for basic needs or making ends meet.  The CFPB believes these results suggest that the financial well-being scale is a helpful measure for gauging how individuals are faring financially.
  • Savings and financial cushions provide the greatest differentiation between people with different levels of financial well-being, with the average financial well-being for adults with the lowest level of savings (less than $250) at 41 as compared to 68 for adults with the highest level of liquid saving ($75,000 or more).  The CFPB observed similar differences in scores when it looked at capacity to absorb unexpected expenses.  The CFPB believes these findings highlight the importance of savings and other safety nets in helping people to feel financially secure.
  • Certain experiences, such as whether someone had been contacted by a debt collector or used a payday loan or similar product, seemed to have a strong negative association with financial well-being.  According to the CFPB, while these associations could simply reflect the correlation between these experiences and a general lack of financial resources, these experiences could have more specific and direct relationships with financial well-being.
  • Higher levels of financial know-how, confidence, and certain day-to-day money management behaviors appeared to have strong and positive relationships with financial well-being.  Individuals with relatively high levels of financial knowledge and financial skills had higher average financial well-being.
  • Employment status, income, and educational attainment seemed to have a strong relationship with financial well-being.  Financial well-being appeared to be higher for older adults, especially those aged 65 and older.  There were no differences in average financial well-being based on U.S. region or as between men and women.  While the CFPB found some differences between financial well-being for various racial/ethnic groups, such differences were relatively small compared to the differences between subgroups based on financial experiences, attitudes, behaviors, and skills.

We find it strange that the CFPB’s press release describes as a “major finding” that 43 percent of consumers surveyed reported struggling to pay bills and 34 percent reported experiencing material hardships in the past year.  However, this is not included among the key findings in the CFPB’s executive summary in the report.


We recently reported on a bill introduced in the House of Representatives by Congressman Dan Kildee (D-Michigan) that would amend the Military Lending Act (“MLA”) to require that creditors provide additional disclosures to covered members of the armed forces and their families. The text of H.R. 2697 is now available.

Titled the “Transparency in Military Lending Act of 2017,” the bill would add the following items to the list of mandatory disclosures required under the MLA:

  • A statement that the Department of Defense (“DoD”) and each service branch offers a variety of financial counseling services.
  • A statement that other, lower interest rate loans, including potentially 0 percent interest loans, may be available through other financial institutions and military relief societies.
  • Contact information for the nearest Department of Defense financial counseling office.
  • A statement of the actual cost of the extension of credit, prepared as an amortization table showing what the cost to the member or dependent will be if the extension of credit is paid off at different points over time.

H.R. 2697 would require the disclosures to be provided on a single sheet of paper and be in a bold, 14-point font.  In addition, the bill would require creditors to (1) obtain separate, signed acknowledgments for each of the four disclosures and (2) compile and make publicly available a list of Department of Defense financial counseling offices. As the bill is drafted, the additional disclosures appear to be required for any consumer credit covered by the MLA, as currently implemented by the DoD.  Nevertheless, in a subsection titled “TRANSPARENCY FOR PAYDAY LOANS AND VEHICLE LOANS,” the bill separately provides that “the term ‘consumer credit’ shall include ‘payday loans’ and ‘vehicle title loans’ as those terms were defined” by the MLA regulations in effect on July 1, 2015.  Perhaps Congressman Kildee expects the scope of the bill to be narrowed during the negotiation process to reach only payday and vehicle title loans.  Or perhaps he was uncertain whether the new regulations, which went into effect on October 1, 2015, still cover payday and vehicle title loans (they do).

If unedited, H.R. 2697 would represent a significant expansion of the MLA’s already onerous disclosure requirements.   While the bill does not expressly call for promulgation of new rules, the DoD would likely have to prescribe additional regulations if it becomes law.  For instance, the bill is bereft of details concerning the cost of credit disclosure other than to say it must be prepared as an amortization table showing the cost of credit if the credit is paid off “at different points over time.”

The bill has been referred to the House Armed Services Committee, and we will provide updates as developments occur.

On May 25, Congressman Dan Kildee (D-Michigan) referred a bill to the House Committee on Armed Services titled the “Transparency in Military Lending Act of 2017.” The proposed bill, H.R. 2697, would amend Title 10 of the United States Code, requiring creditors to provide active servicemembers (and their dependents) applying for loans with additional disclosures regarding the potential availability of lower-cost credit, as well as information about financial counseling services. The proposed act is part of a larger package of legislation introduced by Rep. Kildee aimed at assisting service members, veterans, and their dependents.  We will provide additional details on the bill when the text is publicly available.

The CFPB has issued its fourth Financial Literacy Annual Report to Congress.  The report covers the CFPB’s activities to improve consumer financial literacy during the period from October 2015 through September 2016.  The report discusses the CFPB’s financial literacy strategy, its financial education initiatives (which include consumer tools and information and collaborations with community institutions and other government agencies), and its research initiatives (which include identifying effective financial education approaches).

An Appendix to the report lists and describes the CFPB’s currently available financial education resources, which include web-based tools, CFPB brochures and other publications, CFPB reports, and consumer advisories.



On October 5th, the CFPB published a notice announcing the CFPB Office of Financial Education’s intent to compile a list of companies offering existing customers free access to their credit score.  The CFPB’s stated intent in compiling this list is to educate consumers and help them make better informed financial decisions.  Comments must be submitted to the CFPB by November 4, 2016.

The initial list will cover only credit card issuers.  However, the CFPB may consider expanding the list or creating a separate future list to include non-credit card issuers in other markets.  To be included in this list, these companies must meet certain specified criteria, including offering existing customers (at least some, but not necessarily all) the ability to obtain a free credit score that the company or other lenders use for account origination, portfolio management, or for other business purposes.  The free credit score must be offered to existing customers on a continuous basis, as opposed to a time-limited or promotional basis.  The free credit score made available to existing customers must also periodically be updated.

Financial institutions should carefully assess whether they wish to voluntarily seek inclusion on this list.  The CFPB clearly states that inclusion on the list is not an endorsement, but the CFPB has noted in the past that making free credit scores available to customers is a best practice.  Companies must consider the potential impact of being excluded from the list and what that choice may communicate to the CFPB and customers.  On the other hand, the CFPB suggests that it “could” leverage this list to bring consumer attention to the topic of credit scores, and follow up with content to educate, inform, and empower consumers on the availability of credit scores and credit reports and how consumers can use this information.  However, nothing in the notice limits the ability of the CFPB to use the information submitted by companies seeking inclusion on the list for other purposes.  For example, the CFPB states that inclusion on this list will have no impact on the CFPB’s supervisory activity, but the CFPB reserves the right to conduct due diligence on a company’s assertions about free credit scores.

The CFPB released a report, “Tools for saving: Using prepaid accounts to set aside funds,” that presents the results of a research project involving a pilot program offering an incentive to prepaid card users to use a savings feature.

In December 2014, as part of its Project Catalyst, the CFPB’s initiative for facilitating innovation in consumer-friendly financial products and services, the CFPB announced a new research pilot program using insights from behavioral economics and an American Express pilot program to evaluate the effectiveness of certain practices to encourage prepaid card users to develop regular saving behavior.

From January to March 2015, American Express launched a pilot program to encourage prepaid card users to use a feature that allows users to set money aside dedicated for savings and keep it separate from funds in their main prepaid account. The trial program included about 540,000 prepaid card users, with certain of such users receiving various forms of encouragement to sign up for the savings feature. The company used four strategies consisting of emails highlighting the benefits of savings, direct mail sending a refrigerator magnet highlighting the benefits of savings, an offer of $10 if an individual saved $150 by March 31, and encouragement to use an automatic transfer feature they could sign up for.

The project findings included the following:

  • The  $10 incentive was highly effective in encouraging card users to enroll in the savings feature.
  • Usage of the savings feature was tracked for nine months after the three-month pilot program ended.  The study found that for customers still using the savings feature, savings balances generally did not decrease after the pilot ended.
  • Users who were offered the $10 incentive reported significantly less payday loan use than those who were not offered the incentive.

The CFPB has issued a report that describes a new “developmentally informed, skills-based model” for helping youth achieve financial capability.  Entitled “Building blocks to help youth achieve financial capability,” the report highlights key milestones from early childhood through young adulthood that support the development of adult financial capability, and makes recommendations “for delivering evidence-based, age-appropriate, and developmentally appropriate financial education policies and programs.”  The CFPB also issued a “Report brief” that discusses the research presented in the report and a teaching tool to enhance personal financial education in schools that the CFPB refers to as “a personal finance pedagogy.”  The report, brief, and teaching tool were issued in conjunction with a “Youth Financial Capability Town Hall” held in Dallas, Texas at which Director Cordray delivered prepared remarks.

The CFPB defines financial capability as “the capacity to manage financial resources effectively, understand and apply financial knowledge, and the ability to make a plan, stick to it and successfully complete financial tasks.”  The CFPB’s initiatives to build financial capability are based on its view that individuals with financial capability are more likely to be able to meet current and ongoing financial obligations and feel more secure in their financial futures.

The CFPB’s research found that adult financial capability most likely stems from three “building blocks” of youth financial capability:

  • Executive functions: a set of cognitive processes used to plan, focus attention, remember information, and juggle multiple tasks successfully
  • Financial habits and norms: the values, standards, routine practices, and rules of thumb used to routinely navigate day-to-day financial life
  • Financial knowledge and decision-making skills: familiarity with financial facts and concepts, and the ability to do financial research and make conscious and intentional financial choices

In the report, the CFPB discusses how and when children and youth acquire these building blocks and details the specific competencies that children and youth develop during early childhood, middle childhood and adolescence.  Based on this “developmental model,” the CFPB makes the following recommendations for helping children and youth acquire the three building blocks:

  • For children in early childhood, focus on developing executive function
  • Help parents and caregivers to more actively influence their child’s financial socialization
  • Provide children and youth with financial experiential learning opportunities
  • Teach youth financial research skills  (e.g. skills to find and evaluate financial information)

For each recommendation, the CFPB explains why the recommendation helps build financial capability and provides examples from the field and potential strategies for putting the recommendations into place.  The CFPB deserves to be commended for its innovative efforts towards helping children and youth achieve financial capability.



On September 15th, the FTC will hold a workshop to examine the testing and evaluation of disclosures that companies make to consumers about advertising claims, privacy practices, and other information.  The FTC’s workshop will explore how to test the effectiveness of these disclosures to ensure consumers notice them, understand them, and can use them in their decision-making.  Companies should incorporate the principles articulated during the workshop by federal regulators such as the FTC and the CFPB into the development of their own consumer disclosures, especially relating to e-commerce and mobile initiatives.

The “Putting Disclosures to the Test” workshop will explore ways to improve the evaluation and testing of consumer disclosures by industry, academics, and the FTC related to:

  • Disclosures in advertising  designed to prevent ads from being deceptive;
  • Privacy-related disclosures, including privacy policies and other mechanisms to inform consumers that they are being tracked; and
  • Disclosures in specific industries designed to prevent deceptive claims.

Among the participants at the workshop will be Heidi Johnson, a research analyst from the CFPB Office of Research, who will present a case study entitled, “Disclosure Research in the Lab and Online.” The CFPB’s Decision Making and Behavioral Studies team is engaged in a strategic initiative to invest in research that explores the factors that influence a disclosure’s efficacy, how to use different methodologies to study disclosure, and the market effects of disclosure. Ms. Johnson’s work as a part of this team has included consumer research on overdraft and other financial products.