State AGs Push Back on Proposed CFPB “Trial Sandbox”
In a letter to the Consumer Financial Protection Bureau (CFPB), 22 Democratic state attorneys general (AGs) said the CFPB should revise its policy concerning no-action letters and should rethink its regulatory sandbox, which would potentially protect eligible companies from state and federal enforcement actions.
The proposed “trial sandbox” policies were issued in December 2018 by Mick Mulvaney, the former acting director of the CFPB, in his last act at the CFPB along with a proposed rule change on “No-Action Letters.” The “trial sandbox” is for companies seeking exemptions from federal laws, pertaining to fair lending, money transmissions, financial disclosures, and the CFPB’s unfair, deceptive, or abusive acts or practices (UDAAP). The goal is to allow any company overseen by the CFPB, including fintech firms, to test products and services benefiting consumers without the threat of legal liability.
The AGs oppose the idea that the CFPB can issue safe harbor or blanket immunity to companies avoiding state and federal enforcement actions. The letter specifically mentions that the CFPB allowing companies to circumvent UDAAP would go too far.
“…our experience has taught us that not all innovation is created equal, and many risks posed by emerging technologies can be difficult, if not impossible, to foresee. We are also acutely aware that irresponsible banking practices and lax regulation pose significant risks not only to consumers, but to the entire U.S. financial system,” the letter said. “[The Proposed Policies] would permit the CFPB to exempt – in some cases indefinitely – companies and even entire industries from certain consumer protection laws and regulations through a process designed to value speed over careful decision-making.”
The state also warned CFPB Director Kathy Kraninger against validating “innovative” products and services too hastily, citing “no-doc” mortgages, payment-option adjustable-rate mortgages and collateralized debt obligation. Those services were once praised for their innovation but contributed to the mortgage meltdown a decade ago.