Companies that offer innovative consumer financial products and services have new tools to help them stay in compliance with federal consumer financial laws. In a refreshing twist from prior policy, the Consumer Financial Protection Bureau (CFPB) announced last week that it had revamped its No-Action Letter Policy and released a Compliance Assistance Sandbox and a Trial Disclosure Program to help companies remain in regulatory compliance.

The Bureau Revises Its No-Action Letter Policy

In 2016, the CFPB introduced its first No-Action Letter Policy that would allow companies to seek a no-action letter from the CFPB if the company was unsure of whether a product or service complied with consumer financial laws. Unfortunately, the requirements for obtaining a no-action letter were too difficult and the relief offered was too limited. Indeed, during the past three years, only one company has successfully obtained a no-action letter from the CFPB.

Accordingly, the CFPB recognized the policy’s shortcomings and revised the policy to encourage more companies to apply, and receive, no-action letters. In its new No-Action Letter Policy, the CFPB made the following changes:

  • Expanded the scope of the policy. The 2016 policy was limited to only emerging products and services and was not available for well-established or hypothetical products. The old policy also included a strong bias against granting no-action letters for issues related to prohibitions on unfair, deceptive, or abusive acts or practices (commonly referred to as UDAAP). The new policy removes these restrictions and opens the policy to all products and regulatory issues.
  • Removed unduly burdensome and duplicative requirements. The CFPB removed several requirements to streamline the application process. For example, the previous policy required an applicant to provide a discussion of the consumer risk that its product posed in comparison to competing products. The CFPB found this requirement overly burdensome — especially since applicants do not readily have information regarding a competitor’s products — and eliminated this and other requirements.
  • Eliminated the need to show “substantial” benefits or uncertainty. Previously, the CFPB would only grant a no-action letter request if the product could provide “substantial” consumer benefits and was subject to “substantial” regulatory uncertainty. Now applicants need only show that there is a “potential” consumer benefit and that there is regulatory uncertainty or ambiguity.
  • Provided greater assurances. Under the old policy, CFPB staff issued the no-action letter, which could be modified or revoked at any time for any reason. Under the new policy, CFPB leadership will issue the letter with the “any time/any reason” language removed, and the CFPB will follow specific procedures if it is considering modifying or terminating a no-action letter.
  • No retroactive liability. As long as the no-action letter recipient substantially complies in good faith with the terms of the letter, the recipient will not face retroactive liability if the CFPB modifies or terminates the no-action letter.
  • Provided greater relief. The old policy stated that no-action letters would only last for a limited amount of time and would come with the expectation that no-action letter recipients will share data with the CFPB. The new policy removes both these limitations.
  • Decision within 60 days. The old policy made no commitment as to when, or whether, the CFPB would respond to a no-action letter application. The new policy specifies a 60-day timeframe for the CFPB to evaluate applications.
  • Included an alternative application process. If a trade organization wants to obtain a no-action letter on behalf of companies providing the consumer financial services, the trade organization may obtain a provisional “template” no-action letter. This letter may then be converted into a final no-action letter once the companies submit information to the CFPB about the product for which they are seeking the no-action letter.

The Compliance Assistance Sandbox

In addition to the new No-Action Letter Policy, the CFPB released a new Compliance Assistance Sandbox policy. The policy offers companies “the binding assurance that specific aspects of a product or service are compliant with specified legal provisions.” The features of the sandbox include:

  • Safe harbor for a specific consumer financial law. A company may apply to the CFPB for a statement that the proposed product or service is compliant with an identified federal consumer financial law.
  • No exemptions. Although the CFPB originally contemplated including exemptions from statutory and regulatory burdens, the sandbox as finalized only provides “approvals with respect to products, services, and practices that are compliant with identified statutory and regulatory provisions.” The CFPB intends to create an exemption framework under a new proposed legislative rule.
  • No-action letter joint application. Although the sandbox is not as robust as proposed, since an application for a no-action letter and the sandbox can be made jointly, the process for jointly requesting sandbox approval is relatively minimal.

Trial Disclosure Program

Finally, the CFPB is permitting experimentation with consumer disclosures through its “Revised Policy to Encourage Trial Disclosure Programs.” The CFPB hopes to encourage more trial disclosure programs than were conducted under the 2013 policy. Under this program, companies are given permission to utilize novel disclosures for a limited period. The finalized program includes:

  • Trial disclosures deemed compliant or exempt. The CFPB deems a program recipient to be in compliance with, or exempt from, identified federal disclosure requirements. Furthermore, as a result of such a determination, there is no predicate for a private suit or federal or state enforcement action based on the recipient’s permitted use of the trial disclosures within the scope of the program with respect to the identified federal disclosure requirements.
  • Coordination with other regulators. Recognizing that a disclosure graced by the CFPB may still face scrutiny under regulations other than those of the identified federal disclosure requirements, the CFPB intends to coordinate with federal and state regulators to secure a commitment not to initiate enforcement actions under other regulatory regimes with respect to the use of the trial disclosures.
  • Similar, but not joint, application process. Although the process for requesting a trial disclosure is similar to the applications for the other two policies, the CFPB does not seem to allow for a trial disclosure application to be included as part of an application for either a no-action letter or a Compliance Assistance Sandbox approval.

This news is refreshing. Companies that may have been reluctant to develop new products or new ways of providing products to their customers due to regulatory uncertainty now have a way to obtain certainty from the CFPB. The issuance of these three policies together shows that current CFPB leadership is open to innovation and is actively encouraging companies to apply for relief. If a company was hesitant under the older policies to apply, now might be the time to do it.