On December 13, 2018, the CFPB published a proposed rule, seeking public comment regarding a change to its policy on No-Action Letters, as well as a new feature called the “Product Sandbox,” a rule change that was initially announced on September 13, 2018. The comment period for the proposed rule is scheduled to close on February 11, 2019.
The CFPB decided to change its no action policy after it determine that a previous change to the no-action policy in 2016 did not result in many members of the regulated community using the process. The CFPB found that, under existing rules, application processes for a no-action letter is unduly burdensome, and the restrictions on the relief available are not sufficient to warrant applying for a no-action letter. To encourage regulated entities to apply, the CFPB’s proposed rule streamlines no-action letter applications by eliminating burdensome requirements—such as a commitment to data sharing—and emphasizing the “quality and persuasiveness” of the application, with particular attention paid to how a new product may be beneficial to consumers. There are also several notable changes to the relief that will be available under the new policy, including:
- The CFPB will no longer consider the proposed duration of a no-action letter as part of its decision whether to grant relief—under the new policy, no-action letters are not presumed to be of limited duration;
- No action letters will be issued by duly authorized CFPB officials, which is designed to afford recipients greater assurance that the CFPB will stand behind the stance it takes in its no-action letters;
- There will no longer be a presumption that no-action letters concerning potential UDAAP violations are disfavored;
- The CFPB will coordinate with other regulators who offer no-action letters or similar forms of relief, to ensure that the regulated entity is receiving consistent responses from each of its regulators; and
- A shorter turnaround time for the approval process—the CFPB anticipates that it will decide whether to approve a no-action letter within 60 days.
In addition, the proposed rule has a new “CFPB Product Sandbox,” which is a similar form of relief offered by no-action letters, but with two further forms of relief:
- Approvals under three statutory safe harbor provisions; and
- Explicit exemptions from statutory and regulatory provisions.
The purpose of the Sandbox is to provide the regulated community the opportunity to innovate for a limited duration of time—two years in most cases, with the ability to seek extensions—without fear of running afoul of CFPB regulations. The CFPB would grant applications “where there is evidence of consumer benefit and an absence of consumer harm,” but would require data sharing to assist the CFPB in gauging the impact of the product or service on consumers.
The CFPB’s revisions to the no-action letter process—and enhanced protections—may make applications for no-action letters a more appealing prospect for any regulated entity considering debuting a new product or service. LenderLaw Watch will continue to monitor this rulemaking process.