The Bureau of Consumer Financial Protection (the “CFPB” or “Bureau”) announced a trio of policies in September and December of 2018 intended to provide regulatory relief to banks and fintech companies developing new financial products and innovative disclosure methods, as part of its ongoing effort to promote innovation in financial technology. In public comments on the Bureau’s policy initiatives, consumer groups and some state attorneys general voiced concerns that the policies may harm consumers, while industry groups generally supported the initiatives.
In September 2018, the CFPB announced and solicited public comment on a proposed “Disclosure Sandbox” policy to allow fintech companies to test new ways of making required disclosures to consumers. The program is a revision of an earlier trial disclosure program from 2013, which did not result in any approved applications. The new Disclosure Sandbox policy includes a streamlined process by which fintech companies could ask the Bureau to deem an innovative disclosure method to be in compliance with (or exempt from) federal law. In a similar vein, the CFPB announced and solicited public comment on proposed policy guidance in December 2018 to provide regulatory relief to fintech companies piloting innovative new financial products. The proposal would streamline the Bureau’s existing No-Action Letter process, and create a “Product Sandbox” by which other forms of regulatory relief would be available.
The public comment period for the Disclosure Sandbox initiative ended October 10, 2018, and the public comment period for the Product Sandbox and No-Action Letter guidance ended February 11, 2019. All three initiatives have been opposed by consumer groups.
For example, the National Consumer Law Center (the “NCLC”), writing on behalf of a large number of consumer advocacy groups, submitted a comment opposing the Product Sandbox and No-Action Letter program on both legal and policy grounds. Among other things, the NCLC argued that the Disclosure Sandbox exceeds the Bureau’s authority under the Dodd-Frank Act and would lead to violations of the Administrative Procedures Act, and that the program is “reckless” and does not adequately take into account potential consumer harm.
Some state attorneys general have also opposed the measures. Writing on behalf of eleven other state AGs, Lisa Madigan, Attorney General for Illinois, submitted a comment opposing the Disclosure Sandbox on similar legal and policy grounds as those raised in the NCLC’s comment letter, adding that states will not curtail enforcement of their consumer protection laws in light of the Bureau’s new policies.
Despite the opposition from states and consumer groups, the Bureau’s policies have received support from industry. Industry groups, such as the Mortgage Bankers Association and the Competitive Enterprise Institute, submitted comments praising the policies, and even urged the CFPB to strengthen the policies to enable the Bureau to curb state enforcement actions against fintech innovations.
The Bureau will consider changes to its draft policies in light of the comments submitted. Final versions of the policies are expected later in 2019.