CFPB Announces New Policies to Encourage Innovation
On September 10, the Consumer Financial Protection Bureau (CFPB) announced three new policies aimed at promoting innovation and facilitating compliance in financial services, including a No-Action Letter Policy, a Trial Disclosure Program, and a Compliance Assistance Sandbox.
CFPB Director Kathy Kraninger stated that innovation in the financial services sector was crucial for consumer protection primarily because it can lower cost and increase consumer choice. “Innovation drives competition, which can lower prices and offer consumers more and better products and services. New products and services can expand financial options, especially to unbanked and underbanked households, giving more consumers access to the benefits of the financial system,” said Director Kraninger. “The three policies we are announcing today are common-sense policies that will foster innovation that ultimately benefits consumers.”
The three policies are described in more detail below.
No-Action Letter (NAL) Policy – Under this policy, a company can apply for a NAL from the CFPB, which would allow a company to test new and innovative ideas without the threat of legal liability. The CFPB implemented its first NAL Policy in 2016 under the Obama Administration. Unfortunately, only one company applied for a NAL over a three-year period.
CFPB Acting-Director Mick Mulvaney revised the NAL Policy in 2018, which drew praise from the financial services sector. The CFPB expects to receive about one to three applications per year. In fact, the federal regulator issued its first NAL under the revised policy earlier this month. From that case, the CFPB will not “take supervisory or enforcement action under the Real Estate Settlement Procedures Act (RESPA) against HUD-certified housing counseling agencies (HCAs) that have entered into certain fee-for-service arrangements with lenders for pre-purchase housing counseling services.”
Trial Disclosure Program (TDP) – Under this policy, the CFPB may permit companies to test new consumer disclosures for a limited time with the ultimate goal of improving consumer disclosures. The CFPB designed a TDP in 2013, but subsequently failed to permit any companies from testing new disclosures in the years that followed.
Mulvaney proposed revisions to the TDP in 2018, which drew praise from industry. Many companies stated that the new policy “is more likely to encourage companies to conduct trial disclosure programs than the 2013 Policy.”
Compliance Assistance Sandbox (CAS) Policy – The CFPB’s CAS Policy was introduced in late 2018. Under this policy, the CFPB can issue approvals, which “offer a regulated entity that confronts regulatory uncertainty the binding assurance that specific aspects of a product or
service are compliant with specified legal provisions,” which includes the Truth in Lending Act, the Electronic Fund Transfer Act, and the Equal Credit Opportunity Act. The CFPB estimates that the issued approvals will typically last two years.
In general, industry commentators praised the new policies while consumer groups worried that they would allow financial service companies to create risky innovations that could potentially harm consumers while providing no legal recourse for their actions.