CFPB Issues Policies to Promote Innovation and Facilitate Compliance of New Products and Services

On September 10, 2019, the Bureau issued three separate ground-breaking policies and procedural rules to facilitate innovation and benefit consumers.  These issuances include: (i) the Policy on No Action Letters (NAL Policy), (ii) the Policy on the Compliance Assistance Sandbox (CAS Policy); and (iii) the Policy to Encourage Trial Disclosure Programs (TDP Policy).  The Bureau also made public its first No Action Letter (NAL) under the new NAL Policy, directed to HUD, which submitted the request on behalf of counseling agencies that participate in its Housing Counseling Program.

The NAL Policy is a significant revision of the Bureau’s 2016 policy on this subject.  It allows entities regulated by the Bureau to apply for a NAL to assure that the Bureau will not enforce UDAAP or other regulatory provisions for specific financial products or services benefitting consumers.  The NAL Policy also includes alternative procedures that allow third parties, including trade associations, to seek a NAL on behalf of their members.  Some of the most significant changes from the former NAL policy include:

(i) making NALs binding on the Bureau, not simply staff; (ii) expressly providing that the recipient of a NAL may reasonably rely on it; (iii) streamlining the application and review process, including establishing a 60-day review timeline; and (iv) clarifying the alternative procedures through which third-parties and others with similar facts may apply for a NAL.

In its first NAL under the new policy, the Bureau responded to a request from HUD that addressed how uncertainty about RESPA’s applicability was impeding counseling agencies’ operations with consumers and lenders.  The NAL states the Bureau will not take supervisory or enforcement action under Section 8 of RESPA and Regulation X regarding counseling arrangements.  This specifically includes adhering to a Memorandum of Understanding between an agency and a mortgage lender conditioning the lender’s payment for the counseling services on the consumer making contact or closing a loan with the lender.  The NAL’s coverage is conditioned on the level of payment for the housing counseling services not exceeding a level that is commensurate with the services provided and that is reasonable and customary for the area.

The CAS Policy allows a person covered by the Bureau to apply for “compliance assistance” to obtain a safe harbor where there is uncertainty about the legality of a specified product or service.  These approvals are different from NALs because they constitute approval of the particular product or service for up to two years, unless extended, while a NAL provides there will be no enforcement action.  Notably, applicants for compliance assistance may apply for both a NAL and compliance assistance using a single application.  According to the Bureau, “[a]pprovals under the CAS Policy will provide protection from liability under the Truth in Lending Act, the Electronic Fund Transfer Act, or the Equal Credit Opportunity Act.”  Under the CAS Policy, applicants will follow a streamlined application and review process and the Bureau expects to grant or deny an application within 60 days of notifying the applicant that its application is deemed complete.  The CAS Policy encourages potential applicants to contact the Office of Innovation for informal, preliminary discussions prior to submitting an application.

Finally, the TDP Policy allows entities seeking to improve consumer disclosures to apply to the Bureau for a Trial Disclosure Program Waiver (TDPW) to conduct in-market testing of alternative disclosures for a limited period if a TDPW is granted.  The Policy states that in-market testing may offer valuable information to improve federal disclosure requirements and model forms and that an earlier 2013 policy failed to encourage trial disclosure programs.  The new TDP Policy streamlines the application and review process. 

All of these policies allow third parties to apply for a “template” approval, which would be non-operative but would allow other entities to apply for NALs, compliance assistance, or TDPW based on the respective templates.  In addition, applicants with substantially similar products or services may apply for a NAL, CAS or TDPW based on similar facts where the Bureau has granted such relief to another person.