The CFPB is proposing revisions to its 2016 no-action letter (“NAL”) policy and is planning to establish “BCFP Product Sandbox,” a regulatory sandbox that would encourage financial institutions to explore innovative products. The revamped policy would address the shortcomings in the 2016 version and streamline the application submission and review process, thus providing banks with increased incentives to seek NALs. Specifically, the revised policy proposes the following key changes:
- Including language in NALs that the CFPB would not make supervisory findings or bring a supervisory or enforcement action under its UDAAP authority or other authority within its jurisdiction, so long as the NAL recipient acts in good faith and substantially complies with the conditions of the letter;
- Decreasing the number of required items of information from 15 to seven;
- Inviting applications from trade associations, service providers, and other third-parties;
- Including language on coordination between the CFPB and other regulators to provide alternate means of obtaining a NAL;
- Removing any temporal limitations on NALs;
- Removing the requirement to share data with the CFPB; and
- Broadening the categories of information to be considered in reviewing NALs.
The “sandbox” concept would presumably allow an innovator to market a new product in a limited way without fear of penalization. To that end, “sandbox” would offer relief similar to a NAL. Additionally, participants would receive “approval relief” that protects actions or omissions made in conformity with approvals pursuant to TILA, ECOA, and EFTA, or “exemptive relief” that creates an exemption from statutory or regulatory provisions such as ECOA, HOEPA, and FDIA. The CFPB expects that relief pursuant to the sandbox concept will be limited in time—in most cases, to two years. The sandbox proposal differs from the new NAL policy in the following important ways: (1) sandbox applicants would describe the data regarding the impact of the proposed product or service and share that data with CFPB if the application is granted; (2) participants would share information about how their product or service would affect complaint patterns and default rates; (3) participants would commit to compensate consumers for material economic harm caused by the product or service; and (4) the CFPB would publish information about application denials on its website.
Comments on the proposal are due 60 days after it is published in the Federal Register.