To Innovate or Not to Innovate… Ask the CFPB!
Written by Shereefat Balogun, Regulatory Compliance Counsel
Yesterday, the CFPB finalized a policy that aims to promote innovation in the financial services marketplace. Generally, the policy establishes a process for companies to apply for a no-action letter from the Bureau. The no-action letter essentially indicates that the Bureau has no present intention to recommend or initiate any enforcement or supervisory action with respect to the company's product or service under consideration.
The new policy is designed to enhance regulatory compliance in instances where innovative financial products or services may be beneficial to consumers, but there is uncertainty as to whether or how the product fits in the current regulatory landscape. The CFPB acknowledges that companies may be discouraged from developing new innovations where the product or service is not explicitly addressed or even contemplated under existing law. Accordingly, the Bureau has developed this policy as a means to reduce such regulatory uncertainty.
The policy has five sections:
- Section A describes information that should be included in requests for a No-Action Letter
- Section B describes types of responses the staff may provide to requests for a No-Action Letter
- Section C lists factors the staff may consider in deciding whether to provide a No-Action Letter
- Section D describes the general content and limitations of No-Action Letters
- Section E describes disclosure of data received from entities who have requested No Action Letters
Any company considering applying for a no-action letter should note the following:
- No-action letters will not be widely available; rather, they will be provided only in exceptional circumstances and upon a thorough and persuasive demonstration of the appropriateness of such treatment;
- No-Action Letters are generally limited to emerging products involving substantial regulatory uncertainty. They are not intended for either well-established products or purely hypothetical products that may be offered in the future;
- The policy requires a substantial amount of information to be included in the application. It also makes clear that the Bureau may require additional information if necessary;
- The policy is not a waiver of any law or regulation, and will not give a requesting entity an exemption from complying with any statutory or regulatory rules;
- The no-action letters are not binding. In other words, the letters will not bind courts or other third parties, including consumers or other regulators, who may challenge the product or service;
- No-action letters will be subject to modification or revocation at any time at the discretion of the Bureau, and may be conditioned on specific undertakings by the company;
- When the Bureau issues a no-action letter, it generally will publish the letter, along with a version or summary of the company's request, on the Bureau's website.
As a reminder, this policy will only be applicable to credit unions directly supervised by the CFPB- those with over $10 billion in assets. The policy has been submitted to the Federal Register and is available at: http://files.consumerfinance.gov/f/201602_cfpb_no-action-letter-policy.pdf
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