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On April 3, the SEC issued a no-action letter to a Delaware-based airline chartering services company not recommending enforcement action for offering and selling “tokens” without registration under the SEC Act. According to the letter, the SEC relied upon the company’s counsel’s opinion, which assured that consumers are purchasing the tokens solely for prepaid “air charter services and not for investment purposes or with an expectation to earn a profit,” in determining that the “tokens” were not securities. Additionally, the SEC’s relief considered numerous other factors such as: (i) the platform for conducting the sale of the tokens will “be fully developed and operational” at the time any tokens are sold and funds derived from token sales will not be used to develop the platform; (ii) consumers will be able to immediately use the tokens for their intended functionality (i.e., to purchase air charter services) at the time of sale; (iii) the company will restrict the transfer of tokens to company wallets only and not to external wallets; (iv) the tokens will be sold for one dollar to be used solely on the platform to purchase air charter services, and will be treated as having a value of one dollar; (v) if the company offers to repurchase tokens, it will do so at a discount to the face value of the tokens that the holder seeks to resell to the company, unless a court orders the company to liquidate the tokens; and (vi) the tokens will not be marketed in such a way that there is a perceived potential for an increase in the token’s market value.
On December 10, the CFPB released a new proposed policy on No-Action Letters (NAL) and a new federal product sandbox. The new NAL proposal, which would replace the 2016 NAL policy, is “designed to increase the utilization of the Policy and bring certain elements more in line with similar no-action letter programs offered by other agencies.” The proposal consists of six sections. Highlights include:
- Description of No-Action Letters. The letter would indicate to the applicant, that subject to good faith, substantial compliance with the terms of the letter, the Bureau would not bring a supervisory or enforcement action against the recipient for offering or providing the described aspects of the product or service covered by the letter.
- Submitting Applications. The proposal includes a description of the items an application should contain and invites applications from trade associations on behalf of their members, and from service providers and other third parties on behalf of their existing or prospective clients.
- Assessment of Applications. The Bureau intends to grant or deny an application within 60 days of notifying the applicant that the application is deemed complete.
- Issuing No-Action Letters. NALs will be signed by the Assistant Director of the Office of Innovation or other members in the office, and will be duly authorized by the Bureau. The Bureau may revoke a NAL in whole or in part, but before the Bureau revokes a NAL, recipients will have an opportunity to cure a compliance failure within a reasonable period.
- Regulatory Coordination. In order to satisfy the coordination requirements under Dodd-Frank, the Bureau notes it is interested in partnering with state authorities that issue similar forms of no-action relief in order to provide state applicants an alternative means of also receiving a letter from the Bureau.
- Disclosure of Information. 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.
Notable changes from the 2016 NAL policy include, (i) NALs no longer have a temporal duration—under the new proposal, there is no temporal limitation except in instances of revocation; (ii) applicants are no longer are required to commit to sharing data about the product or service covered by the application; and (iii) the letters are no longer staff recommendations, but issued by authorized officials in the Bureau to provide recipients greater assurance of the relief.
The proposal also introduces the Bureau’s “Product Sandbox,” which offers substantially the same relief as the NAL proposal but also includes: (i) approvals under one or more of three statutory safe harbor provisions of TILA, ECOA, or the EFTA; and (ii) exemptions by order from statutory provisions of ECOA, HOEPA, and FDIA, or regulatory provisions that do not mirror statutory provisions under rulemaking authority. The proposal notes that two years is the expected duration for participation in the Sandbox, but similar to the no-action relief above, the no-action relief from the Sandbox program can be of unlimited duration—if approved under the sandbox program, “the recipient would be immune from enforcement actions by any Federal or State authorities, as well as from lawsuits brought by private parties.”
Comments on the proposals are due within 60 days of publication in the Federal Register.
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