Tom Curry
Over the last two months, major changes at the Consumer Financial Protection Bureau demonstrate that the agency is aggressively taking steps to promote financial innovation in the consumer financial services space. In September, the CFPB issued three new policies: A No-Action Letter (NAL) Policy, a Trial Disclosure Program (TDP) Policy, and a Compliance Assistance Sandbox (CAS) Policy. On top of that, the CFPB also issued its first NAL offering relief to more than 1,600 housing counseling agencies from certain rules under the Real Estate Settlement Procedures Act, or RESPA.
With an eye towards improving interagency collaboration, the CFPB also announced the launch of the American Consumer Financial Innovation Network (ACFIN) through which the agency is working with certain state attorneys general and other state financial regulators to enhance state and federal regulatory coordination to promote innovation. More bipartisan state level support would further enhance ACFIN’s effectiveness.
These are ambitious steps. The CFPB is credited with being the first major federal financial regulator to adopt a NAL and sandbox relief in the fintech space. The CFPB, however, is not the only federal or state regulator of this space and regulated entities must treat these changes carefully as they navigate multiple regulators with overlapping jurisdiction.
Jason J. Cabral
First No-Action Letter Issued
The CFPB proposed revisions to its 2016 NAL Policy in December 2018 and the NAL policy was finalized by the CFPB after considering 31 public comments in which the industry largely supported the new NAL policy, while consumer groups generally opposed the proposal. The disagreements largely revolved around the role the CFPB should be playing (in addition to its consumer protection role) in ensuring consumers have access to innovative consumer-beneficial technologies.
According to the CFPB, the new NAL Policy provides “a more streamlined review process focusing on the consumer benefits and risks of the product or service in question.”
The CFPB also issued the first NAL under its policy, granting no-action relief to more than 1,600 housing counseling agencies from regulatory uncertainty under RESPA.
The CFPB noted that it would not make a supervisory finding or bring an enforcement action against a home counseling agency where the agency contracts with mortgage lenders for the funding of the home counseling services under the Department of Housing and Urban Development’s Housing Counseling Program. Counseling agencies raised concerns to the CFPB that these arrangements could be construed as a referral in violation of RESPA and RESPA’s implementing regulation (Regulation X), which prohibits certain of these arrangements.
Dan Hartman
In addition to providing this relief, the CFPB published model HUD NAL templates which industry players may rely on for regulatory comfort.
How New Policies Apply to Fintech
Under the TDP and CAS, fintechs and other financial services companies may test new disclosures and products or services.
Under the TDP, the CFPB would permit in-market testing during an approved limited time frame. Under the CAS, a fintech or other consumer financial services firms can apply to the CFPB and, after evaluation, the CFPB may award the entity a safe harbor from certain consumer financial protection laws during a limited and approved time period.
The safe harbor under CAS (unlike the NAL Policy which broadly covers all areas under the CFPB’s jurisdiction) would apply to the Truth in Lending Act, the Electronic Fund Transfer Act, and the Equal Credit Opportunity Act.
In an effort to improve state and federal regulatory coordination for fintechs, the CFPB also announced the launch of ACFIN and invited all state regulators to join. As of September 10, ACFIN is composed of the state attorneys general of Alabama, Arizona, Georgia, Indiana, South Carolina, Tennessee and Utah.
The test for the CFPB is whether this relatively young agency, still in its first decade, will be able to effectively embrace financial innovation while still fulfilling its mission to protect consumers. As we have noted in the past, large financial services companies and fintechs alike will not gain complete comfort until other federal agencies, and the state regulators from larger states with strong consumer protection regimes, sign on. However, in areas where the CFPB is the predominant regulator, regulated institutions may gain comfort in knowing that their enforcement risk, at least in these specific areas, can be mitigated for now.
Thomas J. Curry and Jason J. Cabral are partners in Nutter’s corporate and transactions department. Daniel W. Hartman is an associate in Nutter’s litigation department. Curry is former U.S. comptroller of the currency and all are members of the firm’s banking and financial services group.
