CFPB issues final No-Action Letter policy, sandbox policy, and trial disclosure policy

Agency Rule-Making & Guidance CFPB Disclosures No Action Letter Regulatory Sandbox Dodd-Frank Fintech

On September 10, the CFPB issued three final innovation policies, the No-Action Letter (NAL) Policy, Compliance Assistance Sandbox (CAS) Policy, and Trial Disclosure Program (TDP) Policy. Director Kraninger noted that the new policies will “improve how the Bureau exercises its authority to facilitate innovation and reduce regulatory uncertainty. . .contribut[ing] to an environment where innovation can flourish—giving consumers more options and better choices.” In September 2018, the Bureau published the proposed TDP policy (covered by InfoBytes here), and in December 2018, the Bureau published the proposed NAL and CAS policies (covered by InfoBytes here). Highlights of the final policies include:

• NAL. The NAL policy provides a NAL recipient reassurance that the Bureau will not bring a supervisory or enforcement action against the company for providing a product or service under the covered facts and circumstances. After an application is considered complete, the Bureau will grant or deny the request within 60 days. The Bureau intends to publish NALs on its website and, in some cases, a version or summary of the application. The Bureau may also publish denials and an explanation of why the application was denied. The policy notes that disclosure of information is governed by the Dodd-Frank Act, FOIA and the Bureau’s rule on Disclosure of Records and Information, which generally would prohibit the Bureau from disclosing confidential information.

• CAS. The CAS policy will evaluate a product or service for compliance with relevant laws and will offer approved applicants a “safe harbor” from liability for certain covered conduct during the testing period under TILA, ECOA, or the EFTA. The CAS was originally proposed as the “Proposed Sandbox Policy,” and included, in addition to the now listed carve-outs, exemptions by order from statutory provisions of ECOA, HOEPA, and the Federal Deposit Insurance Act (FDIA). The final CAS policy does not include the exemption program. The Bureau noted that, based on the comments received on the proposal, it will issue, at a later date, a new proposal to establish a program for exemptions by order through a separate notice-and comment rulemaking.

• TDP. The TDP policy creates the “CFPB Disclosure Sandbox,” which carries out the requirements of Section 1032(e) of the Dodd-Frank Act. The Bureau’s first TPD policy was finalized in 2013, allowing for approved company disclosures to be deemed in compliance with, or exempted from, applicable federal disclosure requirements during the testing period. Under the previous policy, the Bureau did not approve a single company program for participation. The updated TDP policy streamlines the application process, including providing formal determinations within 60 days of deeming an application complete. The policy provides procedures for requesting extensions of successful testing programs, as the Bureau expects most testing periods will start at two-years.

The Bureau also announced the first NAL issued under its new policy in response to a request by HUD on behalf of more than 1,600 housing counseling agencies (HCAs) that participate in HUD’s housing counseling program. The NAL states that the Bureau will not take supervisory or enforcement action under RESPA against HUD-certified HCAs that have entered into certain fee-for-service arrangements with lenders for pre-purchase housing counseling services. Specifically, the Bureau will not take such action against a HCA for including and adhering to a provision in such agreements conditioning the lender’s payment for the housing counseling services on the consumer making contact or closing a loan with the lender, even if that activity could be construed as a referral under RESPA, provided that the level of payment for the services is no more than a level that is commensurate with the services provided and is reasonable and customary for the area. The Bureau issued a template for lenders to seek a NAL for such arrangements, which includes certain anti-steering certifications that (i) the consumer will choose between comparable products from at least three different lenders; (ii) the funding is based on services rendered, not on the terms or conditions of any mortgage loan or related transaction; and (iii) no endorsement, sponsorship, or other preferential treatment will be conveyed to the lender for entering into the arrangement. According to the Bureau, the NAL, “is intended to facilitate HCAs entering into such agreements with lenders and will enhance the ability of housing counseling agencies to obtain funding from additional sources.” In addition to the template, the Bureau has made the HUD NAL application publicly available as well.