Ballard Spahr to conduct webinar on March 24, 2016 entitled “CFPB Regulatory Certainty or Uncertainty? Consent Orders, Informal Guidance, and the New No-Action Letter Policy” Register here
The CFPB has issued a final policy statement on issuing “no-action” letters (NAL) for innovative financial products or services. The CFPB’s statement that the final policy was released on its website on February 18, 2016 presumably means that the final policy became effective immediately. The policy is part of “Project Catalyst,” the CFPB’s initiative launched in November 2012 for facilitating innovation in consumer-friendly financial products and services. Under Project Catalyst, the CFPB finalized a trial disclosure policy in October 2013 for exempting individual companies, on a case-by-case basis, from applicable federal disclosure requirements to allow those companies to test trial disclosures.
NALs are intended for “innovative financial products or services that promise substantial consumer benefit where there is substantial uncertainty about whether or how specific provisions of certain statutes implemented or regulations issued would be applied.” NALs would include a statement that the CFPB staff “has no present intention to recommend initiation of an enforcement or supervisory action against the requester in respect to the particular aspects of its products under the specific identified provisions and applications of statutes or regulations that are the subject of the [NAL].” The final policy states that NALs “will not be routinely available” and that the CFPB anticipates NALs “will be provided rarely and on the basis of exceptional circumstances and a thorough and persuasive demonstration of the appropriateness of such treatment.” The CFPB estimates that, on average, it will receive one to three actionable requests for NALs annually.
The final policy states that the CFPB plans to publish NALs, along with a version or summary of the request, on its website. The policy describes the process for requesting a NAL and information that must be included in a request, the types of responses the CFPB may provide to a request (including when a grant or denial might be published on the CFPB’s website), the factors the CFPB will consider in deciding whether to provide a NAL, the expected contents of a NAL (including any conditions or limitations attending the NAL), and rules governing the CFPB’s disclosure of a version or summary of the request and any data received from the requester in connection with the NAL. NALs can be modified or revoked at any time at the CFPB’s discretion for any reason.
The final policy statement substantially follows the CFPB’s proposal. In the supplementary information accompanying the final policy, the CFPB addresses comments that it received on the proposal and its rationale for various aspects of the policy. Highlights include the following:
- The CFPB reported that it had received comments calling on it to adopt a policy for providing definitive regulatory guidance to industry such as interpretative letters and advisory opinions. While not directly rejecting such comments, the CFPB gave no indication that it was giving serious consideration to such a policy. Instead, the CFPB noted its commitment to “devoting substantial efforts to improving regulatory clarity and transparency to consumers, industry and other stakeholders” and pointed to its official interpretations that accompany many CFPB regulations, efforts to support industry implementation of CFPB regulations and provide guidance through the publication of resources and other efforts , provision of unofficial oral staff guidance in response to email inquiries, regular meetings with industry, and publication of bulletins.
- The CFPB states that NALs are non-binding on the CFPB and would not bind courts or others who might challenge a product or service offered by the recipient of a NAL, such as regulators or other parties in litigation. Like the proposal, the final policy provides that a NAL will include a statement disclaiming any intention that the NAL “constitutes a determination by the Bureau or its staff about, or is an interpretation of, or grants any exception, waiver, safe harbor or similar treatment respecting the status and rules identified in the request, or their application to the product’s aspects in question, or otherwise constitutes an official expression of the Bureau’s views.” The CFPB specifically rejected requests from commenters to make NALs binding on other regulators while noting that requesters should be aware that CFPB staff may consult with other agencies that have enforcement, supervisory or licensing authority over the requester.
- The proposal indicated that the CFPB would presumptively not issue a NAL where the request concerns a legal or product environment that the CFPB considers to be inappropriate for no-action treatment, and as an example, stated that the staff did not anticipate no-action treatment of UDAAP matters. The CFPB received comments stating that an NAL would have little utility if it did not provide some assurance that the CFPB would not pursue a UDAAP claim against the requester for offering the product addressed in the request. In response, the CFPB stated that because of the factors the CFPB will consider before issuing a NAL “it is highly unlikely that staff would first provide a NAL…and then recommend initiation of [a UDAAP supervisory or enforcement] action…in the absence of new facts or circumstances.” However, the CFPB cautions that the grant of a NAL regarding a particular aspect of a product “should not be understood to excuse potential UDAAP violations that might arise from other aspects of the product, such as marketing or operation that were not addressed in the NAL letter or stem from subsequent changes in the product.” In response to comments that UDAAP matters should not be categorically ruled out for no-action treatment, the CFPB noted the complexity of UDAAP determinations and its limited resources to devote to NALs. Nevertheless, it removed the UDAAP example from the final policy, stating that the CFPB “need not make a categorical determination at this time” but also cautioning that “this change should not be interpreted as portending the issuance of a significant volume of such UDAAP-focused NALs.”
- The CFPB rejected calls by commenters to make NALs subject to a 30-day notice and comment period, stating that such a requirement would “unnecessarily discourage NAL applications and delay the NAL process.”
- In response to concerns about proprietary information that may be compromised by the publication of NALs, the CFPB stated that it plans to confer with a potential requester that has concerns about the public release of particular information in advance of submission or later to discuss how such concerns might be addressed.
- The CFPB rejected commenters’ requests for the CFPB to provide specific reasons for declining to issue a NAL.
While the CFPB has often asserted that it does not want to stifle innovation, its actions (including the issuance of the NAL policy) speak louder than words. The NAL policy provides no immunity against private litigation or enforcement actions by other federal and state government agencies. (Indeed, even the CFPB states that it is not even binding on it and that it can be revoked or modified at any time.) The NAL may only cover one or more of the “enumerated consumer laws” and not UDAAP which, of course, is often of the greatest concern to banks and companies because of the lack of clarity as to what constitutes an “unfair,” “deceptive” or “abusive” act or practice. The NAL will receive no deference by the courts. And, to make matters worse, the CFPB will publish the NAL (and, possibly, even decisions to not act on or decline the request for a NAL) on its website, thus alerting plaintiffs’ lawyers and other government agencies to consider lawsuits against the requestor. The publication might result in competitors gaining access to important confidential strategic information. Even if a company decides to request a NAL despite these drawbacks, the CFPB has made it clear that it expects to receive only one to three actionable applications per year. In light of all of this, one may reasonably question how the CFPB could conclude as it did in the supplementary information to the NAL policy “The Bureau believes that there may be significant opportunities to facilitate innovation and access, and otherwise enhance consumer benefits, through the Policy.”
On March 24, 2016, we will conduct a webinar in which we will consider not only the new NAL policy but also other avenues for banks and companies to lawfully offer new products and services without subjecting themselves to inordinate risk. Register here for our webinar entitled: “CFPB Regulatory Certainty or Uncertainty? Consent Orders, Informal Guidance and the New No-Action Letter Policy.”