Banking and Finance Law Daily CFPB balances benefits, risks of innovation with final no-action letter policy
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Thursday, February 18, 2016

CFPB balances benefits, risks of innovation with final no-action letter policy

By Lisa M. Goolik, J.D.

The Consumer Financial Protection Bureau has finalized a process that would allow applicants introducing innovative financial products or services to seek assurances that the CFPB staff does not intend to recommend enforcement action if a new financial product or service is offered. Under the final policy, the CFPB would, in its discretion, issue no-action letters (NALs) to specific applicants in instances where there is substantial uncertainty whether or how specific provisions of statutes or regulations would be applied, provided that the product holds the promise of substantial consumer benefit.

“This new policy is designed to improve access to consumer financial products and services that promise substantial consumer benefits,” said CFPB Director Richard Cordray. “We want to foster a consumer financial marketplace where companies develop safe, innovative products and approaches that can help make people’s lives better.”

Application process. Applicants must submit their request in writing via email. The policy outlines the specific information that applicants should include in their requests, including:

  • a description of the consumer financial product involved;
  • a timetable for the product’s expected offering;
  • an explanation of how the product is likely to provide substantial benefit to consumers differently from the present marketplace;
  • a candid explanation of potential consumer risks posed by the product; and
  • a showing of why the requested NAL is necessary and appropriate to remove substantial regulatory uncertainty.

When assessing applicants, the bureau will take into account the factors laid out in the policy, including the company’s relevant government supervision and enforcement history, the extent to which the product may provide substantial benefits to consumers, whether granting the request is necessary in order to reduce substantial regulatory uncertainty—or if it should be addressed through other regulatory means, and the extent to which public disclosure of relevant data is to be permitted.

Although the final policy does not include a strict timetable for approval or denial of a NAL once an application has been submitted, the bureau “will make reasonable efforts to respond to applications in a timely manner.”

Letters’ effect. Under the policy, the NALs would not be a waiver of any law or regulation and would not give a requesting entity an exemption from complying with any statutory or regulatory rules. The CFPB also noted that the NALs are not binding and are revocable at any time. In addition, the NALs may be conditioned on particular undertakings by the applicant with respect to product or service usage and data-sharing with the bureau. The NALs would not prevent any other regulator or person from asserting that the product violated legal requirements.

Public disclosure. Although the CFPB anticipates that NALs would be issued infrequently, the bureau plans to publicly disclose issued NALs on the bureau’s website, along with a version or summary of the company’s request. While denials of a request for a NAL generally will not be published, revocations and modifications will be made public.

In addition, to the extent that a potential applicant has concerns regarding the public release of particular information, the bureau plans to confer with the applicant, in advance of a submission or later, to discuss whether the information is necessary to submit as part of the application or otherwise, any redaction from documents to be released publicly, the timing of any release, the application of the bureau’s disclosure rule, and other relevant matters.

Comments received. Since the policy was proposed in October 2014 (see Banking and Finance Law Daily, Oct. 10, 2014), the bureau received 28 comments—from trade associations, financial services providers, consumer-advocacy groups, and individuals. The bureau indicated that most comments asked for clarification or for further details around specific aspects of the policy. Many commenters urged the bureau to make modifications to address concerns about the disclosure of proprietary business information and trade secrets, while some urged the bureau to make NALs more available to providers of consumer financial products and services with less burden or fewer restrictions. One industry trade association urged the bureau to abandon the policy because the association believed that, as proposed, “it would not facilitate and improve compliance in a meaningful way.”

MainStory: TopStory CFPB

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