A new policy introduced by the Consumer Financial Protection Bureau (CFPB) aims to dispel confusion about which regulations control new “consumer-friendly” goods or services designed for consumer use to manage their finances. The CFPB’s goal is to protect consumers from being taken advantage of when new financial technology is unregulated due to its innovative nature.
Providers of new types of financial goods or services may be uncertain as to which existing regulations apply to their product, especially if the good or service contains technology not in existence or considered when current regulations were established. Financial products targeted by the new policy include tools or services for public use, such as:
- credit and debt management services;
- loan and surety bond guarantees [Calif. Government Code §63088.3]; and
- any evaluation or exchange of financial information at a consumer’s request. [Calif. Financial Code §4052(i)]
Essentially, financial products can be anything from banking apps to mortgage shopping tools and other technologies consumers use to manage their money. In the real estate industry, these rules apply primarily to transactions involving a consumer mortgage and thus mortgage loan originator (MLO) activity.
Companies offering “consumer-friendly” financial goods and services submit requests to the CFPB for no-action letters (NAL). An NAL from the CFPB is a statement indicating the CFPB has reviewed the financial good or service and determined it does not currently violate any consumer protection laws, and thus is safe for consumption. The CFPB can revoke an NAL at any time.
How to obtain an NAL
Requests for an NAL are submitted in writing to the CFPB. The request needs to include, among a plethora of affirmations, descriptions and facts, an analysis of existing regulations and statutes relevant to the use of the new good or service. The request states why regulations:
- do not apply to their good or service; or
- will cause general uncertainty surrounding the service’s use and regulation.
Also, companies innovating a good or service need to address why they cannot change their new activity to accommodate existing regulations.
Upon review, the CFPB will either grant or deny the request for an NAL. Granted NALs may be limited or conditional at the CFPB’s discretion, such as for a specific period of time. Additionally, granted NALs will be published by the CFPB along with a summary of the request, a sort of opinion letter that others can use as a guideline. However, the CFPB expects granted NALs will be rare — as few as three per year.
The CFPB’s reasons for potential denial or refusal to consider requests may include pending litigation against the requester, or the CFPB is currently in the process of modifying applicable regulations. The CFPB also stated it has limited resources dedicated to enacting the policy, which may cause the CFPB’s denial of a request that seems to require considerable attention. Denied requests are not published unless the CFPB deems publication necessary for consumers’ financial well-being.
NALs may be revoked at any time at the CFPB’s discretion. Such easy revocation, limited resources and anticipated rarity stir doubts as to whether NALs are worth the effort of a request.
Are NALs effective protection for consumers?
The NAL policy adheres to the CFPB’s foundational purpose of protecting consumer interests, the first government agency designed to protect consumers which was established by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). However, NALs may not be quite as effective as the policy presents them.
In the policy, the CFPB states NALs merely declare the CFPB’s intent not to act. Although denial of a request indicates to an innovator their good or service likely needs to be modified — a reasonable benefit — issuance of a NAL is equal to the mere clearance of a single checkpoint.
Other governmental and regulatory agencies may yet seek statutory compliance for the goods and services which the CFPB chooses not to enforce. While passive action moderating new financial services is better than no action (zing!), the policy does little more than shift responsibility for modifying applicable regulations to other agencies. Innovative goods and services still need to be regulated, and an NAL does not provide any regulatory change necessary to accommodate these services.
The CFPB has made several changes recently in the name of consumer protection, most notably the new closing disclosures required by lenders for mortgage originations. Although Dodd-Frank reform has been notoriously slow in coming to fruition, the CFPB’s latest policy is another obstacle to providers – such as mortgage lenders – those looking for gullible clients of whom to take advantage.
Real estate agents can look forward to first tuesday’s reports on NAL grants and denials published by the CFPB to determine how to advise their clients on consumer mortgage issues and other financial services.