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CFPB gives green light on new products targeting underbanked

Written by Jasir Jawaid and Zach Fox

The Consumer Financial Protection Bureau on Dec. 30 issued two compliance assistance sandbox approval orders for financial products for underbanked consumers.

The regulator approved Synchrony Financial's proposal to develop a credit card for consumers with a limited or damaged credit history. Synchrony intends to offer a lower rate on secured use with the opportunity for eligible accountholders to graduate to unsecured use after 12 months.

Separately, the regulator also approved a proposal from PayActiv Inc. to offer a product that allows early access to earned wages. The product would allow consumers early access to up to 60% of the accrued cash value of earned wages. Consumers with direct deposit into a PayActiv account are allowed early access at no cost. Alternatively, PayActiv charges a $1 fee per transaction with fees capped at $3 for a one-week period and $5 for a two-week pay period.

The CFPB's compliance assistance sandbox approval offers a company confronting regulatory uncertainty a safe harbor from liability under specified legal provisions.

In the most recent report from the Federal Deposit Insurance Corp. on unbanked and underbanked customers, 20% of consumers were found to be "credit invisible," meaning they did not have a credit report or insufficient data for a credit score. The survey found that 1.5% of all households used a payday loan in 2019, down from 1.8% in 2017.

Regulators have been working with financial institutions to offer more products for underbanked consumers. In May, regulators issued principles to encourage small-dollar lending to meet short-term credit needs. And in November, the CFPB issued a no-action letter for a small-dollar lending product from Bank of America Corp.

This article was published by S&P Global Market Intelligence on the S&P Capital IQ Pro platform.


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