The CFPB published for comment in today’s Federal Register a proposed policy on issuing “no-action” letters for innovative financial products or services. Like those issued by the SEC and CFTC, the no-action letters would communicate that, subject to specific facts and circumstances, CFPB staff has no present intention to recommend initiation of an enforcement or supervisory action against the requester with respect to a specified matter. The CFPB plans to issue its no-action letters “only rarely and on the basis of exceptional circumstances.” The letters are intended for emerging products that promise “substantial” consumer benefit but where regulatory uncertainty hinders development of the product. Comments on the proposal are due on or before December 15.
The proposal is part of Project Catalyst, the CFPB’s initiative for facilitating innovation in consumer-friendly financial products and services. Under Project Catalyst, the CFPB has launched a Trial Disclosure Program and approved research pilots on early intervention credit counseling and tax-time saving.
The No-Action Letter Policy proposal describes the process for requesting a no-action letter, the factors the Bureau will consider in evaluating a request, and the limitations of no-action letters. Information the CFPB expects to receive and assess includes:
- The specific statutory or regulatory uncertainty facing the product and why that uncertainty cannot be addressed by modifying the product or through other means (such as by rulemaking, guidance, or a waiver under the Bureau’s Trial Disclosure Program). The uncertainty may not concern UDAAP matters or other legal or product issues that the staff later determines are inappropriate for no-action treatment.
- Evidence that aspects of the product may provide “substantial” benefits to consumers. The proposal does not provide examples of when benefits are deemed to be “substantial.” The requester must provide data showing, or suggest metrics for evaluating, the product’s substantial consumer benefits. The Bureau will consider whether the asserted benefits are different from benefits available in the present marketplace. If the Bureau grants the no-action letter request, it expects the entity to provide to the Bureau data regarding the product’s impact on consumers and to develop additional data in consultation with the Bureau.
- A demonstration that the entity complies with other federal and state statutory and regulatory requirements, that it is aware of and controls for risks to consumers, and that its product structure, terms and conditions, and consumer agreements and disclosures enable consumers to meaningfully understand and appreciate the terms, characteristics, costs, benefits, and risks associated with the product and to act effectively to protect themselves from unnecessary cost and risk.
The proposal states that any no-action letter issued by the CFPB would be strictly limited. For instance, the letter might be conditioned on the requester’s commitment to provide additional consumer safeguards or share data with the Bureau. Moreover, no-action letters would not provide an interpretation of a statute or regulation nor a safe harbor from the Bureau’s supervision and enforcement authority.
Even after a no-action letter is issued, the CFPB may “conduct supervisory activities or engage in enforcement investigation to evaluate the requester’s compliance with the terms of the No-Action Letter or to evaluate other matters.” The letter may be modified or revoked by the Bureau at any time and, even without revocation, the staff may recommend initiating a retrospective enforcement or supervisory action if the facts or representations in the request are materially inaccurate or the requester fails to satisfy conditions or violates limitations specified in the letter. Of course, a no-action letter would have no effect on enforcement initiatives of other federal or state agencies or private litigants.
The CFPB plans to publish on its website a version or summary of granted requests. If it is “in the public interest,” the Bureau will publish denials and any requests it has declined to grant or deny, which may or may not be accompanied by an explanation. We encourage the Bureau to develop standards for protecting trade or confidential information when it publishes its responses.
The proposal does not provide examples of products or services or legal issues that are appropriate for no-action treatment. Companies should prepare carefully before presenting their products and services to the CFPB, particularly because the Bureau intends that no-action letters will be granted rarely and, even then, will be non-binding. You can read some of our suggestions for presenting ideas to the Project Catalyst team here. Companies also should be aware that any requests submitted to the CFPB, including about products or services that are in development, may be released in response to a FOIA request, unless the information concerns business trade secrets or other confidential commercial or financial information or is subject to another FOIA exemption or exclusion.