Paul Watkins, Director of the CFPB’s Office of Innovation, joined Ballard Spahr partners Alan Kaplinsky and James Kim yesterday for a discussion of the CFPB’s final innovation policies. Alan leads the firm’s Consumer Financial Services Group and James is a co-leader of the firm’s inter-disciplinary Fintech Team.
Last month, the CFPB finalized its proposed revisions to its trial disclosures and no-action letter (NAL) policies and also finalized its proposal to create a new FinTech sandbox policy. It also announced the creation of the American Financial Innovation Network (AFIN), a network of federal and state regulators to facilitate innovation, and issued its first NAL under the final revised policy.
The sandbox policy only offers approvals under the provisions of the TILA, ECOA, and EFTA, as applicable, that provide a safe harbor from liability under such laws in federal or state enforcement actions and private lawsuits for actions taken or omitted in good faith in conformity with Bureau approvals. However, a NAL can cover the full panoply of consumer financial protection statutes (including the Dodd-Frank UDAAP prohibition) within the CFPB‘s jurisdiction. In some circumstances, it may be advisable to submit applications under more than one policy. While the innovation policies are particularly suitable for products and services that raise only federal law issues, they clearly do not provide a preemption of state laws, such as those dealing with licensing or usury.
Paul reviewed the elements of each policy, including the protection from liability available under each. Notable comments made by Paul include the following:
- The Bureau views innovation as an important component of consumer protection because of its role in making better financial products available to consumers and is committed to advancing innovation. (Both Alan and James praised the Bureau’s efforts under its new leadership, with Alan referring to them as “refreshing.”)
- Companies are encouraged to informally contact the Office of Innovation to discuss potential applications. Pre-application discussions between the Bureau and an applicant can play a major role in an application’s success, including determining which of the policies would be most beneficial or suited to an applicant.
- The Bureau is committed to engaging in outreach to other federal and state regulators to maximize the value of an approval under one of the policies and will take the initiative to coordinate with other regulators, including to address challenges raised by other regulators to actions taken by an applicant pursuant to a Bureau approval. Companies with an approval can contact the Bureau to try to resolve potential issues with other regulators.
- In addition to the CFPB, the initial members of the AFIN announced by the Bureau were the Attorneys General of Alabama, Arizona, Georgia, Indiana, South Carolina, Tennessee, and Utah, and the Florida Office of Financial Protection. The Colorado Attorney General and the Missouri Division of Finance Commissioner have now also joined the AFIN.