With Less than a Week Before Administration Changes, CFPB Issues New Fintech Sandbox Policy

Less than a week before the Trump administration is set to retake the White House, the Consumer Financial Protection Bureau (CFPB) issued new procedures for banks and fintechs looking for regulatory treatment like a regulatory sandbox or no-action letter, as they seek innovative products and services. In May 2022, the CFPB eliminated the no-action letter and sandbox policies from Trump’s previous administration, claiming they were “ineffective.”

A CFPB news release last week noted that approvals will be granted for “innovations that solve unmet needs in consumer financial services markets,” according to Banking Dive. The Bureau’s procedures aim to “increase transparency and reduce favoritism for individual companies.” The CFPB hopes to correct “shortcomings” from the previous policies by promoting innovation, competition, ethics, and transparency.

Under the updated framework, applicants must clearly state a specific consumer problem their product or service addresses, justifying its necessity. The Bureau will also solicit applications from competitors with similar products to ensure level ground in the market.

Consumer Finance and Fintech Blog noted that the CFPB will not consider applications that have been the subject of an enforcement action surrounding violations of federal consumer financial laws in the last five years, or those that are the subject of a pending state or federal enforcement action.

Additionally, to eliminate any perceived “ethical conflict,” the CFPB will not consider applications from companies represented by former Bureau attorneys, even if they worked at the CFPB over ten years ago.