CFPB States That it Did Not Scrap No-Action Letter and Compliance Assistance Sandbox Programs in Connection with its Overhaul of its Office of Innovation and Operation Catalyst

On May 25, 2022, my colleagues, Mike Gordon, John Culhane and Ron Vaske published a blog which reported on a press release issued by the CFPB on the prior day entitled “CFPB Launches New Effort to Promote Competition and Innovation in Consumer Finance.”  The blog stated:

In its press release, the CFPB states that “[a]fter a review of these programs [the No Action Letter (NAL) and Compliance Assistance Sandbox (CAS) programs], the agency concludes that the initiatives proved to be ineffective and that some firms participating in these programs made public statements indicating that the Bureau had conferred benefits upon them that the Bureau expressly did not.”

In lieu of a company filing an application for an NAL or participation in a CAS, both of which apply to an individual company’s specific product offering, the press release encouraged companies, including start-ups, to file rulemaking petitions to ask for greater clarity in particular rules.  The Bureau states that any action taken in response to a rulemaking petition “will apply to all companies in the market.”

The CFPB press release also announced that it “is opening a new office, the Office of Competition and Innovation, as part of a new approach to help spur innovation in financial services by promoting competition and identifying stumbling blocks for new market entrants.  The new office will replace the Office of Innovation that focused on an application-based process to confer special regulatory treatment on individual companies.”

Since the CFPB, in its press release, called the NAL and CAS programs ineffective, indicated companies were mischaracterizing the benefits conferred by such programs, and encouraged companies to file rulemaking petitions going forward, the clear implication was that these programs were being eliminated.

Not so, according to Raul E. Cisneros of the CFPB’s press office.  This is what Mr. Cisneros told me by e-mail on June 3 which he said could be attributed to the Bureau:

At this time, the CFPB has not rescinded the not[sic]-action letter or sandbox programs, and is still taking new applications and processing previously submitted applications.  However, this is not the primary focus of the Office of Competition and Innovation. 

Hmm.  Calling programs ineffective that an agency plans to continue strikes us as an odd way of doing business.  While the CFPB may continue to process new applications, we expect its disparagement of the programs will lead most companies to reassess whether filing an application is worth the investment of time, effort, and cost required to do so.