Banking and Finance Law Daily State regulators strongly oppose Bureau’s No-Action Letter, product sandbox plans
Friday, February 15, 2019

State regulators strongly oppose Bureau’s No-Action Letter, product sandbox plans

By Richard A. Roth, J.D.

The CFPB’s proposal to revise its No-Action Letter policy and create a product sandbox would interfere with the enforcement of consumer financial protection laws and violate the Dodd-Frank Act, the Conference of State Bank Supervisors charges.

The Consumer Financial Protection Bureau’s proposed No-Action letter policy and product sandbox "is not consistent with the Bureau’s authority under the Dodd-Frank Act," according to the Conference of State Bank Supervisors. CSBS claims that "the Bureau is attempting to prevent state regulators from enforcing specific federal consumer financial laws against entities that receive relief under these policies."

CFPB proposal. The Bureau has proposed to improve its existing No-Action Letter process, established in 2016 (see Banking and Finance Law Daily, Dec. 12, 2018), by:

  • removing a requirement that applicants share data about the product or service;
  • specifying that No-Action Letters would be issued by authorized CFPB officials, to make clear that the Bureau will honor the letters; and
  • improve better coordination between the CFPB and other regulatory agencies that also issue No-Action Letters.

The product sandbox proposal would include the same protections that would be granted by No-Action Letters. It also would allow the Bureau to grant exemptions from specified statutory or regulatory requirements, which would confer immunity from federal or state enforcement actions and private suits.

CSBS objections to sandbox. According to the CSBS comment letter, one sandbox provision would allow the Bureau to use the Truth in Lending Act, Equal Credit Opportunity Act, and Electronic Funds Transfer Act to issue an approval or interpretation that a sandbox trial meets legal requirements. This would create a safe harbor from legal liability for any covered actions. A comparable exemption would shield institutions from provisions of the Home Owners Equity Protection Act, Federal Deposit Insurance Act, and ECOA.

However, the CFPB does not have the authority to go this far, CSBS asserts. While the Bureau can exercise its authority not to take an enforcement action, "the Bureau is not authorized to prevent state officials from enforcing federal consumer financial laws"—a power given to state officials by the Dodd-Frank Act.

"[S]tate regulators are independently empowered to enforce the statutory provisions of federal consumer financial law within their respective states, regardless of the Bureau’s decision to enforce or not enforce federal consumer financial law," according to CSBS.

Objections to No-Action Letter policy. CSBS expresses a similar concern over the proposed revisions of the No-Action Letter policy. The current policy includes a provision that a No-Action Letter from the Bureau is not binding on courts, other regulators, or litigants. The proposal omits this provision, and that could mislead a financial institution into believing it is protected from enforcement actions or civil suits.

The organization also objects to proposed revisions that would remove current language requiring the Bureau to consult with state authorities, reduce the information an applicant must provide, allow for open-ended No-Action Letters, and reduce applicants’ data-sharing duties.

Companies: Conference of State Bank Supervisors

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