Product Development in the New Regulatory Era
When bankers sit down to design new products in this new regulatory era, they should bring their compliance experts in at the start of the conversation rather than at the end.
That’s the advice from David Silberman, assistant director, deposit and payment markets, at the Consumer Financial Protection Bureau (CFPB). “Compliance is not something that happens at the end of the process, after everything is built and you say, ‘Alright, check a box, is this okay?’”
Rather, he said, “compliance folks should be there from the beginning asking questions such as, ‘Does this meet the law? Is this fair? What are the possible bad experiences and how should we guard against them?’ That’s all part of the product development process.”
Silberman made his comments at the recent BAI Retail Delivery conference in a presentation entitled “Product Development in an Era of Regulation” moderated by Oliver Wyman partner John Colas, who asked Silberman how retail banking products would be regulated by the CFPB. “All of the bankers here are really interested in understanding the likely evolution and direction of the CFPB, what will be the practices of the CFPB and how banks can most constructively engage in building productive dialogue and ongoing relationships with the CFPB,” Colas remarked to the attendees.
Selling to Your Mother
Silberman, not surprisingly, prefaced his remarks with numerous disclaimers since the CFPB began operations on July 21 and still lacks a director. “A lot of the effort, right now, is to continue to build the organization. We’ve been working on that for the past year and it’s very much a work in progress,” he said.
Nevertheless, Silberman was able to give his audience some general guidance on what to expect from the CFPB going forward. When it comes to developing new retail banking products, which now comes under the CFPB’s authority, Silberman said that internal compliance experts, as previously noted, need to be brought into the process early on. In a broader sense, he added, “We would expect that the questions that are being asked are ultimately questions like, ‘Is this a product that I would be comfortable selling to my mother? Are these marketing materials clear enough that I would be happy giving them to my cousin so he could understand it?’ It’s those kinds of questions that are front and center in the product development process.”
An attendee asked Silberman how banks should “involve the agency early on, to get insight into how we design products and to make sure we’re compliant.” The regulator responded that he wasn’t sure he could provide a clear answer yet. “There will be, for each bank, an examiner in charge and I think the process will be to engage that examiner in the first instance,” he said. “I don’t know that we’d be able to give advisory opinions but we can certainly provide insight into what we understand the current regulations to provide for.”
As for general guidance on product marketing, Silberman said the agency was looking for “fee transparency” and “readable disclosures.” He said the goal “would be to have disclosures that make it easy for consumers to compare from provider to provider and determine what’s best for them.” He conceded that it will be difficult to get providers to compare their products on an apples-to-apples basis because of the different terminology used by different banks.
“That’s an important role for us to play – to try and create some standardized template from which comparisons are facilitated,” he said.
Silberman also acknowledged that the CFPB could only go so far in facilitating consumer disclosure. “Then it’s up to consumers to actually read the material you gave them and make their own decisions,” he said. “We can’t do more than make sure that the information is available in a readily understandable, digestible format.”
In response to a question, Silberman did assure the attendees that the CFPB would “not be setting prices” for banking products. “Banks will be able to create products to meet specific consumer needs,” he said.
When Colas asked what banks should do to “enjoy a constructive and productive working relationship” with his agency, Silberman cited the need for a relationship “founded in mutual respect and honesty.”
“We’re very conscious that we’re not playing ‘gotcha,’” he said. “This is not about seeing banks as our enemies or adversaries. What we’re doing is to be helpful for financial services providers, to create the rules of the road that everybody plays by and avoid the kinds of situations where folks are forced to do things they’d really rather not do because that’s where the market has driven them.”
“Obviously, the more proactive a bank is staying abreast of the law, monitoring their own compliance, monitoring the compliance of third parties to whom they contract out services and responding to complaints, the less work there will be for us to do.”