Policy on No-Action Letters, 48229-48246 [2019-19763]
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48229
Rules and Regulations
Federal Register
Vol. 84, No. 178
Friday, September 13, 2019
This section of the FEDERAL REGISTER
contains regulatory documents having general
applicability and legal effect, most of which
are keyed to and codified in the Code of
Federal Regulations, which is published under
50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by
the Superintendent of Documents.
BUREAU OF CONSUMER FINANCIAL
PROTECTION
12 CFR Chapter X
[Docket No. CFPB–2018–0042]
Policy on No-Action Letters
Bureau of Consumer Financial
Protection.
ACTION: Policy guidance.
AGENCY:
The Bureau of Consumer
Financial Protection (Bureau) is issuing
its revised Policy on No-Action Letters
(Policy), which is intended to carry out
certain of the Bureau’s authorities under
Federal consumer financial law.
DATES: This Policy is applicable on
September 10, 2019.
FOR FURTHER INFORMATION CONTACT: For
additional information about the Policy,
contact Paul Watkins, Assistant
Director; Edward Blatnik, Deputy
Counsel; Albert Chang, Counsel;
Thomas L. Devlin, Senior Counsel; Will
Wade-Gery, Senior Advisor; Office of
Innovation, at officeofinnovation@
cfpb.gov or 202–435–7000. If you
require this document in an alternative
electronic format, please contact CFPB_
Accessibility@cfpb.gov.
SUPPLEMENTARY INFORMATION:
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SUMMARY:
I. Background
In section 1021(a) of the Dodd-Frank
Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act),
Congress established the Bureau’s
statutory purpose as ensuring that all
consumers have access to markets for
consumer financial products and
services and that markets for consumer
financial products and services are fair,
transparent, and competitive.1
Relatedly, the Bureau’s objectives
include exercising its authorities under
Federal consumer financial law 2 for the
purposes of ensuring that markets for
consumer financial products and
1 12
2 12
U.S.C. 5511(a).
U.S.C. 5481(14).
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services operate transparently and
efficiently to facilitate access and
innovation, and that outdated,
unnecessary, or unduly burdensome
regulations are regularly identified and
addressed in order to reduce
unwarranted regulatory burdens.3
As these provisions make clear, the
Bureau’s statutory mission of protecting
consumers is not limited to vigorously
enforcing the law. It includes facilitating
innovation in markets for consumer
financial products and services, as
innovation drives competition, which in
turn lowers prices and promotes access
to more and better products and
services. Innovation holds the promise
of benefitting consumers in numerous
ways, including by creating or
expanding access to products and
services; increasing the range of
products and services; improving the
functionality of existing products and
services; reducing prices; increasing
consumer understanding and control;
and enhancing safety and security.4
A primary means of facilitating
innovation is removing barriers to
innovation. This can be accomplished
in a variety of ways. As noted, Congress
expressly identified one of these:
reducing unwarranted regulatory
burdens. Another consists in reducing
uncertainty regarding the meaning or
application of statutory and regulatory
provisions. Faced with such regulatory
uncertainty, some companies may
hesitate to develop and offer potentially
beneficial products and services, not
wishing to run the risk of supervisory
findings, enforcement actions, or private
lawsuits. Reducing this uncertainty may
encourage these companies to offer
these products and thereby benefit
consumers.
Such regulatory uncertainty may be
particularly acute in the case of
innovative products and services, as
3 12
U.S.C. 5511(b)(3), (5).
e.g., United Nations Secretary-General’s
Special Advocate for Inclusive Finance for
Development and Cambridge Centre for Alternative
Finance, Early Lessons on Regulatory Innovations to
Enable Inclusive FinTech: Innovation Offices,
Regulatory Sandboxes, and RegTech (2019),
available at https://www.unsgsa.org/resources/
publications (‘‘Innovation offices decrease barriers
to entry by reducing regulatory uncertainty, which
promotes the entry, capitalization, and growth of
new firms in financial services markets. New
entrants, in turn, promote innovation and
competition. Increased competition can result in
lower prices for consumers, a greater range of
products, and better services, all of which promote
financial inclusion.’’) (citation omitted).
such products and services may not
have existed, or even been
contemplated, at the time potentially
applicable statutes and regulations were
promulgated. In such circumstances,
companies with innovative financial
products or services may find it difficult
to attract sufficient investment, business
partners, or other support, and bring
innovative ideas to market in a timely
fashion.
Given that there are a variety of
different impediments to innovation, a
variety of different regulatory tools are
needed to reduce such impediments.
Congress has given the Bureau a variety
of authorities under title X of the DoddFrank Act and the enumerated
consumer laws 5 that it can exercise to
promote its purpose and objectives,
including facilitating innovation. These
authorities include supervision and
enforcement authority, and the
authority to issue orders and guidance.6
These authorities provide the basis for
the Policy on No-Action Letters (Policy)
and the No-Action Letters issued
pursuant to the Policy. Issuing such NoAction Letters is also a means through
which the Bureau can further its
understanding of the legal and policy
implications of innovative products and
services to help support official
interpretations and rulemakings.
The Bureau proposed the original
version of its Policy on No-Action
Letters in October 2014 7 and finalized
it in February 2016 (2016 Policy).8 In
the preamble of the 2016 Policy, the
Bureau anticipated that No-Action
Letters would be provided rarely and on
the basis of exceptional circumstances,
and estimated that the Bureau would on
average receive one to three actionable
applications per year. This estimate was
based on the features built into the 2016
Policy; i.e., the 2016 Policy was
designed to result in no more than three
No-Action Letters per year. The Bureau
issued only one No-Action Letter under
4 See,
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5 12
U.S.C. 5481(12).
12 U.S.C. 5561 et seq. (enforcement
authority); 12 U.S.C. 5531(a) (Unfair, Deceptive, or
Abusive Acts or Practices (UDAAP) enforcement
authority); 12 U.S.C. 5514, 5515 (supervision
authority); 12 U.S.C. 5511(a) (‘‘The Bureau shall
seek to implement and, where applicable, enforce
Federal consumer financial law . . .’’) (emphasis
added); 12 U.S.C. 5512(b)(1). See also Heckler v.
Chaney, 470 U.S. 821, 832 (1985); Board of Trade
v. SEC, 883 F.2d 525, 530–31 (7th Cir. 1989) (SEC
no-action letter).
7 79 FR 62118 (Oct. 16, 2014).
8 81 FR 8686 (Feb. 22, 2016).
6 See
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the 2016 Policy in the nearly three-year
period between its issuance and
publication of the proposed Policy in
December 2018.9
The Bureau has determined that the
approach to facilitating consumerbeneficial innovation through NoAction Letters built into the 2016 Policy
is not an adequate response to the extent
of innovation occurring in markets for
consumer financial products and
services. Given that the 2016 Policy was
designed to result in a small number of
No-Action Letters per year, the Bureau
determined that the 2016 Policy
required modification. Accordingly, in
December 2018, the Bureau proposed to
revise the 2016 Policy in order to more
effectively carry out the Bureau’s
statutory purpose and objectives.10
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II. Overview of Comments
The Bureau received 31 unique
comments in response to the December
2018 proposal. Industry trade
associations and other industry groups
submitted 12 comments. Individual
financial services providers submitted
three comments. Four comments were
submitted by consumer groups and civil
rights organizations. There were six
comments from research and advocacy
organizations, two from groups of State
Attorneys General, one from a group of
State regulators, one from an academic,
one from a law firm, and one from an
individual.11
Industry commenters uniformly
supported the proposed Policy, and
stated that it is more likely to incent
companies to apply for a No-Action
9 See Bureau of Consumer Financial Protection,
CFPB Announces First No-Action Letter to Upstart
Network (Sept. 14, 2017), https://
www.consumerfinance.gov/about-us/newsroom/
cfpb-announces-first-no-action-letter-upstartnetwork/.
10 Policy on No-Action Letters and the BCFP
Product Sandbox, 83 FR 64036 (Dec. 13, 2018). As
indicated by the title of that proposal, it consisted
of two parts. The first part, concerning No-Action
Letters exclusively, is being finalized in the instant
document. The second part, concerning the creation
of the Product Sandbox, is being finalized
simultaneously in a separate document as the
Compliance Assistance Sandbox Policy. The Bureau
has determined that finalizing the two policies in
separate documents will be less confusing for
potential applicants, and better serve the public
interest.
11 One of the four consumer group and civil rights
organization comment letters was a lengthy,
detailed letter by a consortium of nine consumer
groups. Many of the comments in that letter were
echoed in four shorter letters: One from a
consortium of 80 other consumer groups and civil
rights organizations; one from an individual
consumer group; one from an individual civil rights
organization; and one from a law firm. In light of
this overlap, and for the sake of brevity, the term
‘‘consumer groups’’ is used in the discussion of
comments in section III to refer to comments
included in the lengthy letter, as well as the same
comments included in the four shorter letters.
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Letter than the 2016 Policy. One of the
two groups of State Attorneys General
likewise supported the proposed Policy.
Although generally supportive of the
proposed Policy, industry commenters
recommended discrete changes to
certain provisions of the proposed
Policy.
In contrast, all but one of the
consumer group commenters opposed
the proposed Policy on numerous
grounds, and stated that it marks a step
backwards vis-a`-vis the 2016 Policy.
The second group of State Attorneys
General were of the same opinion. One
consumer group stated that provision of
compliance assistance 12 by the Bureau
is not really needed because (i) few
technologies lead to products where the
application of a well-established law or
regulation is in question, and (ii) the
vast majority of fintech innovation falls
within known product categories and
rarely raises novel questions of law and
policy. The Bureau disagrees with this
assessment.
The other consumer groups and the
group of State Attorneys General appear
to agree with the Bureau’s view that
innovative products and services face
regulatory uncertainty, but disagreed
with the Bureau’s approach in the
proposed Policy to address it. Instead,
these commenters generally supported
the approach taken in the 2016 Policy,
and thus opposed virtually every
revision of the 2016 Policy proposed by
the Bureau.
This disagreement between the
Bureau and these commenters regarding
the optimal level of facilitation of
consumer-beneficial innovation may be
based, in turn, on a disagreement about
the Bureau’s consumer protection
mission under title X of the Dodd-Frank
Act. As these commenters emphasized,
Congress gave the Bureau supervisory
and enforcement authority to protect
consumers from unfair, deceptive, and
abusive acts and practices, as well as
other violations of Federal consumer
financial law.13 As noted above,
however, the Bureau reads the purpose
and objectives Congress set for the
12 As did the 2016 Policy, the proposed Policy
used the concept of statutory/regulatory ‘‘relief’’ as
a generic term for describing agency mechanisms
for addressing regulatory uncertainty and barriers.
The CFTC uses the same term for this purpose in
its procedures governing various such mechanisms.
See 17 CFR 140.99. However, a number of
commenters that generally opposed the proposed
Policy read the term ‘‘relief’’ as signaling an
intention by the Bureau to assist applicants in
evading the law. That was not the Bureau’s
intention. Rather, the relief intended was relief from
statutory/regulatory uncertainty, not relief from
statutory or regulatory requirements. To clarify this
point, the final Policy uses ‘‘compliance assistance’’
as the generic term for such mechanisms.
13 12 U.S.C. 5511(b)(2); 5536(a).
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Bureau as clearly signaling that the
Bureau should also exercise its
numerous authorities to facilitate access
and innovation in markets for consumer
financial products and services. These
commenters, in contrast, appear to
diminish this aspect of the Bureau’s
consumer protection mission. For
example, one consumer group letter
states that facilitating consumerbeneficial innovation falls outside the
Bureau’s ‘‘core mission.’’
Many comments from stakeholders
across the spectrum requested greater
specificity or detail regarding various
provisions of the proposed Policy. The
Bureau notes in this regard that the
Securities and Exchange Commission’s
(SEC) procedures regarding no-action
letters are significantly shorter and less
detailed than the proposed Policy.14
Nonetheless, the SEC has managed to
provide scores of no-action letters per
year over the course of many decades in
a manner that is widely viewed as
promoting the interests of regulated
entities, shareholders, and the public
more generally.15 Indeed, a number of
the streamlining revisions in the
proposed Policy were designed to move
the Policy in the direction of the SEC
model.
The Policy is designed to apprise
potential applicants and other
stakeholders of one way in which the
Bureau plans to exercise its supervision
and enforcement discretion, namely,
through the issuance of No-Action
Letters under the Policy. The Policy is
necessarily relatively general as
compared to particular No-Action
Letters issued under it. Moreover, given
that the Policy is being issued based on
relatively little practical experience in
issuing No-Action Letters, the Bureau is
concerned that an attempt to provide
significantly more detail and specificity
at this time would be
counterproductive. Nevertheless, the
Bureau has provided additional
specificity and detail in a number of
instances, as explained below. As the
Bureau gains experience implementing
the Policy and engages in additional
stakeholder outreach, it will consider
the extent to which additional
clarifications or adjustments are
necessary or appropriate.
Finally, the Bureau voluntarily sought
public comment on the proposed Policy
14 Securities and Exchange Commission,
Procedures Applicable to Requests for No-Action
and Interpretive Letters, Securities Act Release No.
6269 (Dec. 23, 1980) (available at: https://
www.sec.gov/rules/other/33-6269.pdf).
15 See, e.g., Donna M. Nagy, Judicial Reliance on
Regulatory Interpretations in SEC No-Action
Letters: Current Problems and a Proposed
Framework, 83 Cornell L. Rev. 921, 934 n.45 (1998).
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because it recognizes that facilitating
consumer-beneficial innovation is a
topic in which many stakeholders have
a keen interest, and because it
anticipated receiving comments that
would enable it to improve the
proposed Policy. The Bureau
appreciates all of the comments
received and has given each of them
careful consideration. In the proposal,
the Bureau strove to facilitate consumerbeneficial innovation, while minimizing
the risk of consumer harm. Based on the
many constructive, and instructive,
comments received, the Bureau has
further revised the Final Policy in line
with these goals.
III. Summary of Comments, Bureau
Responses, and Resulting Policy
Changes
This section provides a summary of
the significant comments received by
subject matter. It also summarizes the
Bureau’s assessment of such comments
by subject matter and, where applicable,
describes the resulting changes that the
Bureau is making in the final Policy.16
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A. Compliance With Administrative Law
The Bureau received a number of
comments claiming that the proposed
Policy violates applicable rulemaking
requirements as well as other
requirements of administrative law.
Relatedly, some commenters argued that
individual No-Action Letters could
violate applicable rulemaking
requirements.
1. Legal Status of the Policy
In section III of the document
published in the Federal Register on
December 13, 2018, the Bureau stated
that, if finalized, the two-part proposed
Policy would constitute an agency
general statement of policy and a rule of
agency organization, procedure, or
practice exempt from the notice and
comment rulemaking requirements
under the Administrative Procedure Act
(APA). Due to the types of compliance
assistance that would be available under
Part II of the two-part proposed Policy,
the Bureau deemed it appropriate to
treat Part II as both a general statement
of policy and a procedural rule. It was
largely for this reason that section III
stated that the entire proposal (i.e., both
parts), if finalized, would constitute a
general statement of policy and a
procedural rule. Now that the Bureau is
separately finalizing the No-Action
Letter Policy, it has determined that the
Policy is more appropriately
16 The
Bureau has also made a number of
technical changes to the final Policy to
accommodate the revisions described below and to
increase clarity.
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characterized solely as a general
statement of policy.
Consumer groups disagreed with the
Bureau’s characterization of the
proposed Policy as a general statement
of policy, arguing that the proposed
Policy, if finalized, would be a de facto
legislative rule because (i) it would limit
the Bureau’s discretion to take a
supervision or enforcement action once
it issues a No-Action Letter; and (ii) it
would replace staff-issued No-Action
Letters with Bureau-issued No-Action
Letters.17 Each of these claims concerns
the binding nature of particular NoAction Letters, rather than the proposed
Policy—a topic addressed in section
III.A.2 below.
As finalized, the Policy is a nonbinding general statement of policy
under applicable law.18 As stated in
section IV below, the Policy is intended
to provide information to interested
parties regarding the Bureau’s plans to
exercise its enforcement and
supervisory discretion to provide NoAction Letters.19 The Bureau retains the
discretion to change these plans as it
gains experience in operating the
Policy—just as it had done in the 2016
Policy.20
2. Legal Status of No-Action Letters
As noted above, and in the proposal,
a particular No-Action Letter would
constitute an exercise of the Bureau’s
supervisory and enforcement discretion.
Consumer groups appeared to accept
this characterization as to some NoAction Letters, but argued that other NoAction Letters could be de facto
legislative rules issued in contravention
of applicable law because they could
change, in a binding manner, and
broadly, whether and how consumer
protection laws apply in the future. The
claim that such No-Action Letters
17 The same commenters also took issue with the
Bureau’s characterization of the proposed Policy as
a procedural rule. In light of the Bureau’s
determination that it is more appropriate to
characterize the Policy as a general statement of
policy only—and not also a procedural rule—the
Bureau is not responding to this line of comment
in the instant document. Rather, the Bureau is
responding to this line of comment in the document
finalizing Part II of the proposed Policy as the
Compliance Assistance Sandbox Policy.
18 See, e.g., Syncor Int’l v. Shalala, 127 F.3d 90,
94 (D.C. Cir. 1997) (‘‘By issuing a policy statement,
an agency simply lets the public know its current
. . . approach. The agency retains the discretion and
the authority to change its position—even
abruptly—in any specific case because a change in
its policy does not affect the legal norm.’’).
19 See, e.g., Attorney General’s Manual on the
Administrative Procedure Act 30 n.3 (1947)
(providing that policy statements are issued ‘‘to
advise the public prospectively of the manner in
which the agency proposes to exercise a
discretionary power.’’)
20 81 FR 8686, 8687 (Feb. 22, 2016).
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would be binding and have future effect
is based on their claim that No-Action
Letters would restrict the Bureau’s
ability to take enforcement or
supervision action in the future. That
claim was based, in turn, on two
features of the proposal: (1) The
Bureau’s statement that, whereas a NoAction Letter under the 2016 Policy was
a staff recommendation of no-action, a
No-Action Letter under the proposed
Policy would be issued by duly
authorized officials of the Bureau in
order to provide recipients greater
assurance that the Bureau itself stands
behind the No-Action Letters; and (2)
the Bureau’s proposal to omit from NoAction Letters a statement that the letter
is subject to modification or revocation
at any time at the discretion of the staff
for any reason.
As regards the first feature, the shift
from staff-issued No-Action Letters to
Bureau-issued No-Action Letters was
proposed to address concerns that a noaction recommendation by some Bureau
staff would be reversed sometime later
by other Bureau staff with a different
view of the matter, and to provide
applicants with a reasonable basis for
believing that this ‘‘whiplash’’ scenario
would not occur under the proposed
Policy. The commenters’ apparent
argument that a no-action position
issued by an agency, as opposed to a
staff recommendation of no-action,
transforms an exercise of enforcement
discretion into a legislative rule is
without basis. It is well-settled that
agency-level exercise of enforcement
discretion, even if stated in binding
terms, does not constitute legislative
rulemaking.21
As regards the second feature, the
Bureau proposed omitting the ‘‘any
time/any reason’’ statement because it
was concerned that this statement may
create a false impression about the
Bureau’s intent regarding revocation,
and thus may deter entities with
potentially beneficial products and
services from applying for a No-Action
Letter. It could mistakenly be
understood to suggest that the Bureau
plans to modify or revoke No-Action
Letters ad libitum. As the Bureau noted
in the proposal, other Federal agencies
with no-action letter programs have
terminated no-action letters very rarely.
The Bureau anticipates that revocations
would be equally rare under the Policy.
Accordingly, section C.7 of the final
Policy replaces the ‘‘any time/any
reason’’ statement with the more
21 See, e.g., Ass’n of Irritated Residents v. E.P.A.,
494 F.3d 1027 (D.C. Cir. 2007); Schering Corp. v.
Heckler, 779 F.2d 683 (D.C. Cir. 1985); New York
State Dept. of Law v. F.C.C., 984 F.2d 1209 (D.C.
Cir. 1993).
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accurate statement that the Bureau may
terminate 22 a No-Action Letter if it
determines that doing so is necessary or
appropriate to promote the primary
purposes of the Policy as stated therein,
and gives three examples of such
circumstances.
As noted, the consumer groups also
identified effecting a change in existing
law or regulations as an element of NoAction Letters that could be legislative
rules. Prima facie, an exercise of
discretion not to enforce a particular
statutory or regulatory provision against
a particular entity does not effect a
change in the agency’s substantive
interpretation or implementation of the
provision. The provision remains
unchanged, and the agency may decide
to bring an enforcement action against
another entity based on a violation of
the provision.
Finally, as noted, the consumer
groups also identified breadth or
generality as a feature of No-Action
Letters that could be legislative rules.
They identified several types of
generality: (i) No-Action Letters that
would apply generally to all consumers
that might use a given company’s
product or service; (ii) No-Action Letters
that would apply to all members of an
industry association; and (iii) No-Action
Letters that would apply to all
customers of a software provider. These
commenters indicated that No-Action
Letters of the second two types could
result from the proposed alternative
process for applications by third parties,
under which an industry association or
service provider could apply for a
provisional No-Action Letter on behalf
of their member or customers, and
additional members or customers could
be added to the letter over time.
The Bureau proposed this alternative
process to address circumstances in
which the standard process of applying
for a No-Action Letter might not work
for one reason or another. As explained
in section III.F below, the Bureau is
finalizing this aspect of the proposal by
adding a new section E to the Policy,
which provides greater detail and clarity
regarding alternative application,
assessment, and issuance procedures.
Like the standard process described in
sections A through C, these alternative
procedures are necessarily somewhat
general and open-ended. Not only is the
Policy a general statement of policy, but,
as noted in section II above, the Bureau
has relatively little experience in
implementing this type of policy. And
22 As explained below, the Bureau is replacing the
term ‘‘revocation,’’ which was used in the proposed
Policy, with the term ‘‘termination’’ in the final
Policy.
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this is a fortiori the case as regards the
alternative application procedures,
which were not a feature of the 2016
Policy. The Bureau is mindful of the
concerns raised by commenters and
intends to implement these procedures
in a manner consistent with the APA’s
procedural and substantive
requirements.
3. Arbitrary and Capricious
The proposed Policy stated that its
main purpose is to provide a
mechanism through which the Bureau
may more effectively carry out its
statutory purpose of ensuring that all
consumers have access to markets for
consumer financial products and
services and that markets for consumer
financial products and services are fair,
transparent, and competitive; and its
statutory objectives, which include
exercising its authorities under Federal
consumer financial law for the purposes
of ensuring that markets for consumer
financial products and services operate
transparently and efficiently to facilitate
access and innovation. In the preamble
of the proposed Policy, the Bureau
described various changes it was
proposing to make to the 2016 Policy
and explained that those changes were
designed, inter alia, to streamline the
application and review process and to
bring the Policy more in line with
certain aspects of no-action letter
programs operated by other Federal
agencies.
Consumer groups claimed that the
proposed Policy, if finalized, would be
arbitrary and capricious for several
reasons. The Bureau notes that a
determination of whether the Policy is
arbitrary or capricious would be based
on the content of the final Policy, not
the proposed Policy. Accordingly, the
discussion below references the final
Policy as well as the proposed Policy.
First, consumer groups contended
that the proposed Policy entirely fails to
consider an important aspect of the
problem the proposed Policy was
intended to address by making no
mention of its impact on consumers.
The Bureau disagrees. As noted in the
proposed Policy and in section II above,
the main purpose of the Policy is to
more effectively carry out the Bureau’s
consumer-focused purpose and
objectives. In addition, the Bureau
expects that (i) applications for a NoAction Letter under the Policy will
include a discussion of both consumer
benefit and consumer risk, and (ii) the
Bureau’s assessment of applications will
place particular emphasis on these
aspects of the application.
Second, consumer groups claimed
that the Bureau failed to give adequate
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reasons for the proposed revisions of the
2016 Policy. More specifically, they
stated that the only rationale the Bureau
provided was that more incentives need
to be provided to companies to apply for
a No-Action Letter in light of the fact
that the Bureau issued only one NoAction Letter under the 2016 Policy. As
noted above, however, the Bureau
provided other rationales, including
streamlining the application and review
processes and bringing the Policy more
in line with certain features of no-action
letter programs operated by other
Federal agencies.
Third, these commenters asserted that
the proposed Policy offers ‘‘virtually no
explanation’’ of the proposed revisions
to the 2016 Policy. As noted above,
however, such explanations were
provided in the proposed Policy.
Moreover, additional explanations of
the revisions are provided throughout
the instant preamble.
B. Scope of the Proposed Policy
A number of comments from
stakeholders across the spectrum
addressed the subject matter scope of
the proposed Policy, i.e., the types of
products or services that could be
included in an application. Section A.3
of the 2016 Policy provided that NoAction Letters were not intended for
either well-established products or
purely hypothetical products that are
not close to being able to be offered.
And in response to comments on the
proposed 2016 Policy regarding the
types of products or services within its
scope, the Bureau noted that the 2016
Policy was limited to emerging
products. The proposed Policy omitted
the statement regarding well-established
products and hypothetical products,
and likewise did not state that NoAction Letters would be limited to
emerging products and services.
Consumer groups opposed these
proposed changes, and interpreted them
as signaling the Bureau’s intention to
provide No-Action Letters for wellestablished products that do not need a
No-Action Letter, and to give companies
a ‘‘back-door channel’’ to obtain
outcomes they failed to obtain through
the notice-and-comment process. This
was not the Bureau’s intent in proposing
these changes. As noted above, one of
the primary bases of the Policy is to
more effectively implement the Bureau’s
statutory objective of facilitating
innovation. Innovation is a broad
concept, and not limited to new or
emerging products and services. As
regards the concern that the Bureau
intends to grant No-Action Letters in
cases where they are not needed, it is
unclear why an entity would take the
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trouble to apply for a No-Action Letter
in such a case. In any event, the Bureau
has no intention to issue No-Action
Letters in such circumstances.
The Bureau proposed to omit the
statement about hypothetical products
because it was concerned that the
statement might discourage applications
regarding products and services under
development that could benefit
consumers. Indeed, it is for this reason
that the Bureau proposed accepting
applications from service providers and
is including a process for such
applications in section E.1 of the final
Policy (as discussed in section III.F
below).
Industry commenters generally
understood the Bureau’s intent in
proposing to omit the above statements,
but asked the Bureau to state more
expressly in the final Policy that the
Policy is not intended to be limited to
new or emerging products. That is
indeed the case, and the text of the final
Policy is consistent with that position.
C. Application Elements
In finalizing the 2016 Policy, the
Bureau addressed two types of
comments on the application section of
the proposed 2016 Policy: (i) Comments
that the proposal would have required
applicants to submit an unduly
burdensome volume of information; and
(ii) comments that the information
requirements be minimized specifically
for smaller organizations that may have
relatively fewer resources to devote to
the No-Action Letter process. The
Bureau declined to reduce the volume
of information to be included in
applications for a No-Action Letter
based on its belief that the volume was
not unduly burdensome. The Bureau’s
main rationale in this regard was its
expectation that any conscientious firm
intending to launch a consumer
financial product or service that would
raise substantial regulatory questions
would compile the same information on
its own, apart from an application for a
No-Action Letter.
In addition, the Bureau stated that it
planned to monitor the effectiveness of
the 2016 Policy and to assess
periodically whether changes to the
Policy would better effectuate the
purposes of facilitating innovation and
otherwise substantially enhancing
consumer benefit. In the proposed
Policy, the Bureau explained that it was
proposing to revise the 2016 Policy in
various respects for a number of
reasons. Most generally, the Bureau
explained the proposed changes were
designed to increase utilization of the
Policy, thereby enabling the Bureau to
more effectively carry out its statutory
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purpose and objectives. More
specifically, the Bureau explained that
certain proposed changes were designed
to (i) streamline the application and
review process by eliminating
redundant and unduly burdensome
elements; and (ii) more closely align the
Policy with certain elements of noaction letter programs operated by other
Federal agencies.
The Bureau believes that the low level
of interest in applying for a No-Action
Letter under the 2016 Policy indicates
that the application elements included
in the 2016 Policy were in fact unduly
burdensome, particularly when viewed
as a total package. In addition, the
Bureau believes that a more streamlined
set of application elements will ensure
that smaller entities are not
disadvantaged relative to larger entities
in being able to take advantage of the
Policy. The Bureau also believes that the
rationale provided in the 2016 Policy for
why the package of application
information was not unduly
burdensome is inapplicable or
overstated as regards certain application
elements in the 2016 Policy, as
explained below.
Industry commenters generally
supported the proposed revisions of the
application section of the 2016 Policy.
Consumer groups opposed each
proposed revision, and in some cases
urged the Bureau to request more
information from applicants than is
specified in the 2016 Policy.
1. Explanation of Consumer Risk
Section A.5 of the 2016 Policy
instructed applicants to include a
candid explanation of potential
consumer risks posed by the product—
particularly as compared to other
products available in the marketplace—
and undertakings by the applicant to
address and minimize such risks.
Section A.14 of the 2016 Policy
instructed applicants to include a
description of any particular consumer
safeguards the applicant will employ,
although they may not be required by
law, if a No-Action Letter is issued,
including any mitigation of potential for
or consequences of consumer injury. It
went on to say that the description
should specify the requester’s basis for
asserting and considering that such
safeguards are effective, and should also
address any future study the requester
will undertake to further evaluate the
effectiveness of such safeguards.
The Bureau proposed replacing
section A.5 with a similar instruction to
include an explanation of the potential
consumer risks posed by the product or
service and/or the manner in which it
is offered or provided, and how the
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applicant(s) intends to mitigate such
risks. The Bureau proposed omitting
section A.14 altogether. Consumer
groups asserted that these proposed
revisions would lead to the Bureau
granting No-Action Letters without any
reliable assessment of risks to
consumers, and urged the Bureau not to
finalize the proposed revisions. The
Bureau believes that proposed revisions
to section A.5, as finalized, retain the
core information needed for the Bureau
to assess consumer risk. The
information to be provided in
applications for no-action letters
provided by other Federal agencies
typically does not include a comparison
to risks posed by competitors’
offerings.23 Nor does the Bureau believe
that potential applicants typically have
such information ready to hand,
including especially smaller entities.
The same is true of the ‘‘future study’’
portion of section A.14. The Bureau
thus remains of the view that these
elements of the 2016 Policy are unduly
burdensome.
The Bureau likewise continues to
believe that the remainder of section
A.14 of the 2016 Policy is largely
redundant vis-a`-vis section A.5. A
description of any particular consumer
safeguards the requester will employ,
including any mitigation of potential for
or consequences of consumer injury,
and a specification of the requester’s
basis for asserting and considering that
such safeguards are effective (per
section A.14) is substantially similar to
a candid explanation of potential
consumer risks posed by the product
and undertakings by the requester to
address and minimize such risks (per
section A.5).
More generally, section B of the final
Policy specifies that the Bureau intends
to base its assessment of applications,
inter alia, on the quality and
persuasiveness of the application, with
particular emphasis on the consumer
risk element. This should incent
applicants to ensure that the
information they submit regarding
consumer risk is of high quality and
persuasive.
23 See, e.g., Securities and Exchange Commission,
Procedures Applicable to Requests for No-Action
and Interpretive Letters, Securities Act Release No.
6269 (Dec. 5, 1980) (available at: https://
www.sec.gov/rules/other/33-6269.pdf); Commodity
Futures Trading Commission, Requests for
Exemptive, No-Action and Interpretative Letters, 17
CFR 140.99; Federal Housing Finance Agency, 12
CFR 1211.1, 1211.4, 1211.6; Federal Energy
Regulatory Commission, Informal Staff Advice on
Regulatory Requirements; Interpretive Order
Regarding No-Action Letter Process, 70 FR 71487
(Nov. 29, 2005).
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2. Substantial Consumer Benefit and
Substantial Legal Uncertainty
The 2016 Policy instructed applicants
to explain how the product in question
is likely to provide ‘‘substantial’’
consumer benefit to consumers, and to
identify the ‘‘substantial’’ regulatory
uncertainty on which the request for a
No-Action Letter is based. These were
key features of a policy designed to
result in one to three actionable NoAction Letter applications per year. The
Bureau thus proposed to eliminate these
limitations as part of its general policy
shift toward increasing the level of
support for consumer-beneficial
innovation. Industry commenters and
advisory/research organizations
supported these proposed changes.
Consumer groups opposed them.
Regarding the proposed elimination of
‘‘substantial’’ as to consumer benefit,
consumer groups’ opposition appears to
be based on their general support of the
approach to innovation-facilitation
taken in the 2016 Policy. The Bureau is
finalizing the revised application
element as proposed, i.e., as instructing
applicants to include an explanation of
the potential consumer benefits of the
product or service and/or the manner in
which it is offered or provided, because
it continues to believe this change visa`-vis the 2016 Policy is needed to
increase use of the Policy.
The Bureau is finalizing the proposed
elimination of ‘‘substantial’’ as to legal
uncertainty for the same reason.
Consumer groups noted that the
proposed Policy instructs applicants
instead to identify ‘‘potential’’
uncertainty for which a No-Action
Letter is needed. The Bureau
acknowledges that use of the term
‘‘potential’’ in this context can be
improved. The Bureau’s use of this term
was driven by its recognition that the
full extent of uncertainty may not be
apparent at the time an application is
submitted. To allow for this
circumstance, the proposed Policy
includes a footnote explaining that the
Bureau recognizes that in some cases it
may be difficult to determine precisely
which provisions would apply, in the
normal course, to the product or service
in question; that, in other cases, the
applicant may lack the legal resources to
make a fully precise determination; and
that, in such circumstances, the
applicant should provide the maximum
specification practicable under the
circumstances and explain the limits on
further specification. It is thus
unnecessary to attempt to make the
same point using the term ‘‘potential,’’
and that term is not included in section
A.5 of the final Policy.
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3. Compliance With Other Law
The Bureau proposed eliminating
three elements of section A of the 2016
Policy that concerned compliance with
other law in some manner. Section A.6.c
required a showing of the product’s
compliance with other relevant Federal
and State regulatory requirements.
Section A.10 required an affirmation
that, to the requester’s knowledge
(except as specifically disclosed in the
request), neither the requester nor any
other party with substantial ties to
transactions involving the product is the
subject of an ongoing, imminent, or
threatened governmental investigation,
supervisory review, enforcement action,
or private civil action respecting the
product, or any related or similar
product. Section A.11 required an
affirmation that (except as specifically
disclosed in the request) the principals
of the requester have not been subject to
license discipline, adverse supervisory
action, or enforcement action with
respect to any financial product, license,
or transaction within the past ten years.
Relatedly, section C.7 of the 2016
Policy—which the Bureau also
proposed eliminating—provided that
one of the considerations Bureau staff
would use in assessing applications was
whether the applicant is demonstrably
in compliance with other relevant
Federal and State regulatory
requirements.
Industry commenters were generally
supportive of these proposed revisions.
Consumer groups worried that these
proposed revisions signaled the
Bureau’s intent to short-circuit
enforcement of the law by other
government agencies or consumers and
to interfere in ongoing disputes, and
urged the Bureau to reinstate them. The
Bureau declines to do so for a number
of reasons. First, the Bureau is
concerned that these elements of section
A of the 2016 Policy, in combination
with section C.7 of the 2016 Policy,
unnecessarily discouraged viable
applications. Potential applicants could
have interpreted these provisions to
mean that No-Action Letters would only
be provided to entities, individuals, and
products/services that had never been
so much as threatened with some type
of governmental action or private
lawsuit. Indeed, potential applicants
could have interpreted section A.10 to
mean that there would be no point in
submitting an application for a NoAction Letter if other entities with
‘‘substantial ties’’ to transactions
involving the product or service, or even
‘‘related or similar’’ products or
services, had been threatened with such
action or suits.
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Second, the Bureau is concerned that
these provisions are unduly
burdensome—as suggested by
commenters on the proposed 2016
Policy. An applicant would have to
‘‘show’’ or ‘‘demonstrate’’ that the
product or service was compliant with
all relevant law. An applicant would
have to list not only ongoing
investigations or lawsuits, but also
‘‘threatened’’ investigations and suits.
And the list would have to contain not
only actions and suits targeted at the
applicant, but also those targeted at any
entity with ‘‘substantial ties’’ to ‘‘related
or similar’’ products or services. An
application would have to list all types
of adverse actions against the principals
of the applicant during the prior ten
years. Finally, the applicant effectively
would have to attest that these lists are
full and complete.24
Third, the Bureau believes that the
more effective and efficient means of
handling the concerns raised by
consumer groups is to clarify that the
Bureau expects its assessment of
applications (described in section B of
the final Policy) to include due
diligence regarding the applicant, its
principals, and the product or service in
question. Despite not including sections
A.7, A.10, and A.11 of the 2016 Policy
in the final Policy for the reasons set
forth above, the Bureau does not intend
to allow the Policy to be used—or rather
abused—by entities seeking to evade
investigations or actions by other
regulators. On the contrary, the Bureau
intends to conduct necessary and
appropriate due diligence on
applicants—including consulting with
other regulators—to ensure that the
Policy is used for its intended purposes.
4. Duration and Data Sharing
The 2016 Policy did not expressly
provide that No-Action Letters would be
of limited duration. But section A.13
instructed applicants to specify whether
the request is limited to a particular
time period. And section C.8 provided
that the Bureau would base its
assessment of applications, in part, on
the extent to which the application is
sufficiently limited in time, volume of
transactions, or otherwise, to allow the
Bureau to learn about the product and
the aspects in question while
minimizing any consumer risk. There
was thus a suggestion that applications
for No-Action Letters of unlimited
duration might be disfavored.
24 The Bureau notes that procedures governing
applications for no-action letters issued by other
Federal regulators typically do not include this type
of listing of ongoing or threatened actions by other
regulators and private litigants. See n.22, supra.
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Section A.9 of the 2016 Policy
instructed applicants to include an
undertaking, if the request is granted, to
share appropriate data regarding the
product with the Bureau, including data
regarding the impact of the product on
consumers, and its plans for
development of additional data. Section
C.9 provided that the Bureau’s
assessment of applications would be
based, in part, on the extent to which
any data that the entity has provided
and agrees to provide to the Bureau
regarding the operation of the product’s
aspects in question will be expected to
further consumer protection.
In the proposed Policy, the Bureau
stated that the default assumption under
the proposed Policy would be that NoAction Letters would be of unlimited
duration and that there would be no
expectation of data sharing. The Bureau
explained that it was proposing these
changes in order to bring the Policy
more in line with certain elements of
the no-action letter programs of other
agencies.
Industry commenters generally
supported these proposed shifts, while
consumer groups opposed them. In
consumer groups’ view, the duration of
No-Action Letters should be determined
on a case-by-case basis. If a No-Action
Letter addresses a narrow technical
issue there may be no reason for an end
date. But UDAAP-focused No-Action
Letters, for example, should be of short
duration. Similarly, consumer groups
advised the Bureau to at least require
No-Action Letter recipients to submit
data on the consumer impact of the
products or services in question.
The Bureau believes there is some
merit to the consumer groups’ point that
a one-size-fits-all approach to the
duration of No-Action Letters is
inadvisable. In certain cases, it may be
appropriate to limit the duration of a
No-Action Letter. Indeed, in some cases
an applicant itself might wish the NoAction Letter to be of limited duration.
However, the Bureau believes that, to
account for such variation, it is not
necessary to change the Policy as
proposed. Nothing in the final Policy
prevents No-Action Letters of limited
duration. In a given case, if the Bureau
and/or the applicant believes that a
temporal limitation is appropriate, such
a limitation can be included in the NoAction Letter.
The Bureau declines the specific
request to require recipients of a NoAction Letter under the Policy to
routinely submit data regarding
consumer impact. However, the Bureau
agrees with the general concern behind
this specific request: If the product or
service covered by a No-Action Letter is
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not performing as anticipated in the
application—including especially by
injuring consumers—it is important for
the Bureau to become aware of that fact
as soon as reasonably possible. To
address this general concern, a NoAction Letters under the proposed
Policy would have required recipients
to inform the Bureau of material
changes to information included in the
application that would materially
increase the risk of material, tangible
harm to consumers. As noted below in
section III.H.1, commenters found this
‘‘material, tangible harm’’ standard to be
vague and subjective. To address this
issue, and to increase the likelihood that
the Bureau will learn of any consumer
injury caused by the product or service
covered by a No-Action Letter in a
timely manner, the Bureau is revising
this provision (section C.4 in the final
Policy) to include the Bureau’s
expectation that a No-Action Letter will
require recipients ‘‘to apprise the
Bureau of (a) material changes to
information included in the application
and (b) material information indicating
that the described aspects of the product
or service are not performing as
anticipated in the application.’’ In
addition, the Bureau is adding a
footnote to section C.4 explaining that
‘‘not performing as anticipated’’
includes the materialization of
consumer risks identified in the
application, and the materialization of
other consumer risks not identified in
the application.
5. Non-Endorsement
Section A.10 of the 2016 Policy
advised applicants to include a
commitment that, if the application is
granted, the recipient will not represent
that the Bureau or its staff has licensed,
authorized or endorsed the product, or
its permissibility or appropriateness, in
any way. In the proposed Policy, the
Bureau proposed deleting this element
as part of its general streamlining effort.
Consumer groups urged the Bureau to
retain this element. The Bureau declines
to do so, but agrees with the
commenters’ more general point that
receipt of a No-Action Letter should not
be misconstrued to be the Bureau’s
endorsement of the product or service in
question—which could potentially give
the recipient an unfair advantage over
its competitors or mislead consumers.
Accordingly, the Bureau is adding to the
list of statements that would be
included in a No-Action Letter a
statement that the No-Action Letter does
not constitute an endorsement of the
product or service that is the subject of
the letter, or of any other product or
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service offered or provided by the
recipient(s).25
D. Bureau Assessment of Applications
1. Assessment Factors
Consistent with the Bureau’s
proposed streamlining of the
application elements of the 2016 Policy,
the Bureau proposed streamlining
section C of the 2016 Policy to focus the
Bureau’s assessment on the core
application elements: The potential
benefits of the product or service, its
potential consumer risks, and the need
for a No-Action Letter. Industry
commenters generally supported these
proposed changes. Consumer groups
opposed these proposed changes, and
asserted that they would result in vague
assessment criteria and demand no
accountability to the Bureau or to the
public. They accordingly urged the
Bureau to retain all of the assessment
criteria in the 2016 Policy.
The Bureau emphasizes that it did not
propose a wholesale replacement of the
assessment elements of the 2016 Policy.
Rather, as noted, the Bureau proposed
retaining what it viewed as the core
assessment elements, and discarding
only those falling outside the core. More
specifically, the proposal would have
largely retained sections C.2 (consumer
benefit); C.4 (consumer risk); and C.5
(regulatory uncertainty). The Bureau
believes that section C.1, regarding
consumer understanding, was largely
redundant vis-a`-vis sections C.2 and
C.4; that section C.3, regarding the
availability of benefits in the existing
marketplace, was largely redundant visa`-vis section C.2; and that section C.6,
regarding whether the identified
regulatory uncertainty may be better
addressed by other means, was largely
redundant vis-a`-vis section C.5. As for
section C.7, regarding compliance with
other law, it is addressed above in
section III.C.3. Similarly, sections C.8
and C.9, regarding temporal duration
and data sharing, are addressed above in
section III.C.4. The same is true to some
extent of section C.10, regarding the
applicant’s amenability to public
disclosure of relevant data. Since the
default assumption under the final
Policy is that no data sharing will be
required, the applicant’s amenability to
public disclosure of shared data is
generally not a relevant assessment
element.
More generally, the Bureau
acknowledges that the assessment
section of the proposal may have
sketched an incomplete picture of the
Bureau’s intended assessment of
25 See
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applications. The Bureau intended to
apprise potential applicants and other
interested stakeholders that its
assessment of applications would focus
on the quality and persuasiveness of the
applications, particularly the elements
concerning consumer benefit, consumer
risk, and regulatory uncertainty. The
Bureau did not intend to suggest that
other factors will not play a role in its
decisions. To remove any such
misimpression, the Bureau is revising
section C of the final Policy to clarify
that it expects its assessment of
applications to involve a complicated
balancing of many factors, including an
assessment of the quality and
persuasiveness of the application, with
particular emphasis on the information
specified in sections A.3, A.4, and A.5;
as well as information about the
applicant and the product or service in
question derived through Bureau due
diligence processes; the extent to which
granting the application would be
consistent with Bureau enforcement and
supervision priorities; an assessment of
litigation risk; and available Bureau
resources.
2. Assessment Timeframe
The proposed Policy stated the
Bureau’s intention to grant or deny an
application within 60 days of notifying
the applicant that the Bureau has
deemed the application to be complete.
The Bureau received a range of
comments on this new provision.
Consumer groups stated that a 60-day
review period is unreasonably short and
will encourage hasty and flawed
reviews of applications, resulting in
harm to consumers. They recommended
that the Bureau not make any
assurances regarding the time it will
take to review an application, and that
any specific time period should be
much longer and more flexible than 60
days. A trade association stated that 60
days is too long, and encouraged the
Bureau to commit to completing its
assessment of applications within 30
days. An advisory/research organization
opined that while 60 days should
generally be sufficient, the Bureau
should afford itself the option of taking
an additional 30 days, provided notice
is given to the applicant.
The Bureau is finalizing the 60-day
provision as proposed because it
believes that this period strikes the
optimal balance between permitting
sufficient time for a thorough review of
applications and encouraging entities to
submit applications. Consumer groups’
concerns may be based somewhat on a
misunderstanding of the provision.
Their comments appear to envision a
scenario in which no more than 60 days
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will elapse between the Bureau first
setting eyes on a potential application
and the Bureau granting or denying a
formal application. The proposed Policy
encouraged potential applicants to
contact the Bureau for informal,
preliminary discussion of a proposal
before submitting a formal application.
The final Policy strongly encourages
such informal, preliminary discussion.
Thus, in a typical case, the Bureau’s
review of a proposal likely would take
place over a period longer than 60 days.
The new 60-day provision is designed to
give an applicant reasonable assurance
that, once an application is deemed to
be complete, the Bureau intends to grant
or deny it within 60 days. That said, the
final Policy indicates that certain
circumstances may lead to a longer
processing time, such as a request that
the Bureau coordinate with other
regulators prior to granting or denying
an application.
More generally, the Bureau has no
intention of permitting the 60-day
review goal to trump its goal of
thoroughly assessing applications before
granting them, as the latter is more
integral to the long-term success of the
Policy and the consumer benefit the
Bureau expects the Policy to yield.
Moreover, if experience operating the
Policy indicates that the 60-day review
period is not working as intended, the
Bureau intends to adjust it in an
appropriate manner.
E. Issuance and Content of No-Action
Letters
The Bureau proposed a number of
revisions to section D of the 2016
Policy, which concerned the Bureau’s
intended procedures for issuing NoAction Letters, including the expected
content of such letters. Industry
commenters generally supported these
proposed revisions. Consumer groups
opposed each proposed revision.
1. UDAAP
As noted, in the preamble of the 2016
Policy, the Bureau estimated that only
one to three actionable No-Action Letter
applications would be received each
year. The Bureau also stated that NoAction Letters focused on the UDAAP
prohibition in the Dodd-Frank Act 26 are
expected to be particularly uncommon.
In the proposed Policy, the Bureau
stated that there would be no such
expectation under the proposed Policy.
Industry commenters uniformly
supported this policy shift. For
example, a group of trade associations
stated that a No-Action Letter that does
not include assurance against UDAAP
26 12
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liability has limited value due to the
subjectivity of such claims. Similarly, a
trade association commented that the
fact that the majority of enforcement
actions are brought under UDAAP
authority makes clear that entities are in
need of guidance in a gray area that is
principle based rather than rule based.
In contrast, consumer groups opposed
this policy shift. The consumer groups
stated that, under the proposed Policy,
the Bureau would give a stamp of
approval that a company is not
committing UDAAPs. This is not
correct. Rather, the proposal provided
that a No-Action letter would include a
statement that, subject to good faith,
substantial compliance with the terms
and conditions of the letter, and in the
exercise of its discretion, the Bureau
will not make supervisory findings or
bring a supervisory or enforcement
action against the recipient predicated
on the recipient’s offering or providing
the described aspects of the product or
service under its authority to prevent
unfair, deceptive, or abusive acts or
practices. The proposal noted that this
statement implies that the Bureau has
not determined that the acts or practices
in question are unfair, deceptive, or
abusive. A statement that the Bureau
has not made a UDAAP determination
is different than a statement that the
Bureau has determined that the acts or
practices in question do not constitute
a UDAAP. The final Policy retains this
‘‘implication’’ statement.
The consumer groups also opposed
this policy shift on the more general
ground that many aspects of the way a
product or service works in practice or
is implemented could be poorly
understood or could change from the
time an application is granted, and
unfair, deceptive or abusive aspects of a
product or service ‘‘might only become
apparent in the future.’’ A group of State
Attorneys General made essentially the
same point.
The Bureau is not persuaded that
such considerations warrant placing a
categorical limitation on UDAAPfocused No-Action Letters. The
proposed Policy stated that No-Action
Letters would be based on particular
facts and circumstances and be limited
to the recipient’s offering or providing
the ‘‘described aspects of the product or
service.’’ The proposal explained that
the term ‘‘described aspects of the
product or service’’ is a short-hand term
used in the proposed Policy to
encompass the subject matter scope of a
No-Action Letter, including both the
particular aspects of the product or
service in question, and the particular
manner in which it is offered or
provided. These aspects of the proposal
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are being finalized as proposed. The
Bureau intends that a particular NoAction Letter issued under the Policy
will include a description of this subject
matter scope. Indeed, it is in the interest
of both the Bureau and the recipient that
the subject matter scope is described
with as much precision as possible. To
the extent the recipient significantly
changes the ‘‘described aspects of the
product or service’’ without seeking a
modification of the No-Action Letter
under section D.1 of the Policy, the
recipient would risk exceeding the
subject matter scope of the letter, and
thus would expose itself to a potential
Bureau supervisory or enforcement
action. Relatedly, to the extent the
recipient fails to apprise the Bureau of
material changes to information
included in the application, as required
by section C.4 of the Policy, the
recipient would risk failing to
substantially comply in good faith with
one of the terms of the letter—which
could be a ground for termination or
even a retroactive enforcement action
under section D.2 of the Policy.
As regards consumer groups’
speculative scenario in which the
recipient does not significantly change
the described aspects of the product or
service but a UDAAP ‘‘becomes
apparent in the future,’’ the Bureau
could terminate the No-Action Letter on
the ground that the described aspects of
the product or service failed to perform
as anticipated in the Policy, as specified
in sections C.7 and D.2 of the Policy.
2. Interpretations
Under section D.4 of the 2016 Policy,
No-Action Letters were expected to
include a lengthy disclaimer that the
letter does not constitute an
interpretation, exception, waiver, or safe
harbor. As part of the Bureau’s general
streamlining effort, the proposed Policy
would not have included this statement
in No-Action Letters. Commenters
interpreted the proposed omission of
this statement to mean that the Bureau
now intends to provide interpretations
in No-Action Letters.
More specifically, consumer groups
stated that the deletion suggests that the
Bureau may include legal
interpretations in No-Action Letters in
the hope that they will be viewed as
official interpretations to which courts
will defer, and strongly opposed such a
shift. In contrast, a group of trade
associations urged the Bureau to include
in a No-Action Letter an affirmation that
its issuance represents the Bureau’s
conclusion that the product or service in
question, implemented consistently
with the terms and conditions of the
letter, does not violate applicable
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Federal consumer financial law,
including the prohibition on UDAAP.
Relatedly, these commenters requested
that the final Policy emphasize the
deference assigned by Congress to the
Bureau’s interpretation of Federal
consumer financial law in order to
encourage courts, other regulators, and
private litigants to defer to Bureau NoAction Letters. Similarly, an advisory/
research organization recommended
that No-Action Letters include an
explanation of the Bureau’s rationale for
granting the application, and provide
assurances that the Bureau views the
conduct in question as being consistent
with relevant statutory or regulatory
requirements.
The proposed deletion of the ‘‘no
interpretation’’ disclaimer was not
intended to signal a shift to including
official interpretations in No-Action
Letters, or any lesser types of
interpretation for that matter. To clarify
this point, the Bureau is adding to the
list of statements expected to be
included in a No-Action Letter, a
statement that the letter does not
purport to express any legal conclusions
regarding the meaning or application of
the laws and/or regulations within the
scope of the letter.
While the Bureau appreciates the
desire for liability protection greater
than that provided by No-Action Letters,
it believes that the better means to this
end is making available forms of
compliance assistance that provide a
high-degree of such protection. This is
one reason why the Bureau proposed
the Product Sandbox Policy and is
finalizing certain aspects of it, as the
Compliance Assistance Sandbox Policy
(CASP), contemporaneously with the
finalization of the Policy. The Bureau
also appreciates the need and desire for
the type of compliance assistance
provided by interpretations.
Accordingly, the Bureau intends to
separately propose an interpretive letter
program as soon as practicable.
3. Limitation to the Application
Information
Section D.3 of the 2016 Policy
provided that the expected contents of
a No-Action Letter include a statement
that the letter is based on the facts stated
and factual representations made in the
request, and is contingent on the
correctness of such facts and factual
representations. As part of its general
effort to streamline the Policy, the
Bureau did not include this statement in
the proposed Policy. However, section
I.A of the proposed Policy, which
provided a general description of NoAction Letters, stated that such letters
are based on particular facts and
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circumstances. To clarify this point,
section C.3(c) of the final Policy
provides that a No-Action Letter is
expected to include a statement that the
No-Action Letter is based on the factual
representations made in the application,
which may be incorporated by
reference.
F. Alternative Procedures
The proposed Policy would have
permitted No-Action Letter applications
from trade associations, service
providers, and other third parties. The
proposal recognized that third parties,
which generally do not themselves
provide consumer financial products or
services, may face challenges when
attempting to submit an application
pursuant to the standard process
contemplated in the proposal.
Accordingly, the Bureau proposed an
alternative process for third parties: The
Bureau would issue a provisional NoAction Letter based on the information
available to the third party at the time
of application and then issue a nonprovisional letter once necessary
information became available about the
entities intending to use the product or
service in question and how they
intended to offer or provide it.
Comments from trade associations
were generally supportive of the
proposed third-party application
procedures. Some of these comments
noted that group applications by trade
associations would equalize access to
No-Action Letters and allow smaller
financial institutions to participate in
the program. Other trade association
commenters explained that third-party
applications would increase use of the
Policy and thereby provide the Bureau
with greater evidence of unnecessary
regulatory barriers and potential
methods to address those barriers.
Another trade association stated that
third-party applications would correctly
focus on the product or service at issue
rather than the entity or entities
involved in the provision of the product
or service. While supportive of the
overall process, some trade associations
sought greater clarity regarding the
specific steps of the application and
issuance process, including those
related to provisional No-Action Letters.
Comments from consumer groups and
a law firm expressed significant
concerns about allowing trade
associations and service providers to
apply for No-Action Letters. These
commenters stated that permitting such
applications would mean that a NoAction Letter could cover entire markets
or thousands of clients and potentially
affect millions of consumers. These
types of applications would also,
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according to the same commenters,
afford the Bureau no ability to evaluate
the practices of the company that
provides the product or service in
question. These commenters further
asserted that allowing parties other than
the applicant to come forward later and
automatically join a No-Action Letter,
without additional review or approval
by the Bureau, would shirk the Bureau’s
duty to protect consumers.27
A comment from a group of State
Attorneys General likewise raised the
possibility that third-party applications
could lead to blanket coverage of entire
industries while making it difficult for
the Bureau to enforce No-Action Letter
conditions. The comment also
questioned how the Bureau could
ensure the veracity and accuracy of an
application submitted by a party other
than the party that would ultimately be
the recipient of a No-Action Letter.
Finally, an academic commenter
noted that, while No-Action Letter
applications should not be granted
without particularized analysis, trade
association applications could help
ensure that similarly situated
competitors receive consistent treatment
and that no single No-Action Letter
recipient receives an undue competitive
advantage. Comments by some trade
associations also encouraged the Bureau
to implement application processes that
would help ensure consistent treatment
of competitors providing a product or
service similar to one that is already the
subject of a No-Action Letter.
As regards the proposed procedures
for third-party applications, the Bureau
was not proposing to issue a No-Action
Letter to a company without knowing
who is requesting it and without
conducting a particularized analysis of
how the company intends to offer or
provide the product or service. This is
the reason why the proposed Policy
limited third-party applicants to
provisional No-Action Letters until
information necessary for a complete
application is submitted. Nor would
there be an ‘‘automatic’’ process under
the proposed Policy that would allow a
non-applicant to subsequently join a
No-Action Letter without additional
individualized assessment by the
Bureau.
The final Policy seeks to clarify the
alternative application process that
service providers, trade associations,
consumer groups, and other third
parties may use. This clarification
includes adding a separate section to the
27 Some of the same commenters contended that
such broad No-Action Letters would be legislative
rules. These comments are addressed in section
III.A.2, supra.
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Policy on this topic and providing
greater detail and specificity regarding
the various steps of the process. In
particular, under new section E.1 of the
final Policy, a service provider or
facilitator (e.g., a trade association,
consumer group, or other third party)
could provide the application
information specified in section A with
appropriate adjustments given that the
applicant itself will not be offering or
providing the consumer financial
product or service in question. The
section also describes the manner in
which the Bureau intends to assess the
application information provided and
the type of document successful
applicants should expect to receive from
the Bureau. The final Policy refers to
this type of document as a ‘‘No-Action
Letter Template’’ instead of a
‘‘provisional’’ No-Action Letter in order
to more accurately describe the
intended purpose of this document and
clarify that it would be non-operative
and non-binding on the Bureau. New
section E.1 also describes the Bureau’s
anticipated application, assessment, and
issuance procedures for applications for
a standard No-Action Letter based on a
No-Action Template.
New section E.2 addresses comments
regarding applications involving
products or services that are
substantially similar to those that are
the subject of an existing No-Action
Letter. The Bureau believes applications
involving a product or service that is
substantially similar to the product or
service that is the subject of an existing
No-Action Letter warrant an alternative
application procedure that focuses on
similarities in the product or service
itself and the manner in which it is
offered or provided. While the Bureau
intends to assess this applicant-specific
information in a particularized manner,
it anticipates being able to process such
applications in a timeframe shorter than
that specified in section B given that the
underlying No-Action Letter has already
been granted.
Finally, consistent with the fact that
the Policy is a general statement of
policy under the APA, new section E
includes a final footnote explaining that,
in circumstances where neither the
Standard Process nor the alternative
procedures described in section E
(Alternative Process) are appropriate,
the Bureau may utilize other procedures
that diverge in one or more respects
from the Standard Process or the
Alternative Process, consistent with the
purposes of the Policy.
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G. Compliance With No-Action Letter
Terms and Conditions
Section D.1 of the 2016 Policy
provided that the no-action statement
included in a No-Action Letter does not
mean that the Bureau will not conduct
supervisory activities or engage in
enforcement investigation to evaluate
the requester’s compliance with the
terms of the No-Action Letter or to
evaluate other matters. Consumer
groups opposed this change, arguing
that the Policy should include, at the
very least, a statement that the Bureau
retains this investigation and
supervision authority. It appears that
these commenters did not notice that
the proposed Policy included a proviso
that the Bureau maintains the right to
obtain information relating to the
consumer financial product or service
subject to a No-Action Letter under its
applicable supervision and enforcement
authorities. The final Policy modifies
this proviso somewhat, as explained
below.
Several industry commenters
expressed concern that the Bureau’s
reliance on its supervisory authority to
evaluate compliance with a No-Action
Letter would create an unlevel playing
field between recipients that are
supervised by the Bureau and recipients
that are not. To address this
circumstance, an industry policy
organization suggested that No-Action
Letters issued to firms not subject to the
Bureau’s supervisory authority include
a term requiring affirmative consent to
the submission of data to and review by
the Bureau with respect to compliance
with the other terms and conditions of
the letter.
The Bureau declines to make the
recommended change to the Policy.
Although the Bureau maintains the right
to obtain information about the product
or service subject to a No-Action Letter
using its supervisory authority, it does
not follow that the Bureau intends to
routinely do so. Moreover, the Bureau
has authorities other than supervisory
authority that can be used for this
purpose. To clarify this issue, the
Bureau is amending the proviso that
was included in the proposal to state
that the Bureau maintains the authority
to obtain information relating to the
consumer financial product or service
subject to a No-Action Letter under its
applicable supervision, enforcement,
and other authorities in the same
manner and frequency that it obtains
information relating to consumer
financial products or services not
subject to a No-Action Letter.
Furthermore, under section C.4 of the
final Policy, all recipients of a No-
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Action Letter—regardless of their
supervisory status—are required to
apprise the Bureau of (a) material
changes to information included in the
application and (b) material information
indicating that the described aspects of
the product or service are not
performing as anticipated in the
application.
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H. Modification and Termination
The 2016 Policy provided that a NoAction Letter would include a statement
that the letter is subject to modification
or revocation at any time at the
discretion of Bureau staff for any reason.
The 2016 Policy also stated that a NoAction Letter would include a statement
that, to the extent that the facts and
representations in the request are
materially inaccurate, or the requester
fails to satisfy conditions or violates
limitations specified in the No-Action
Letter, and in other similar
circumstances, the No-Action Letter is
by its own terms inapplicable (even
without modification or revocation);
and the staff may recommend initiating
a retrospective enforcement or
supervisory action if appropriate. The
2016 Policy also anticipated that NoAction Letter recipients would be given
the grounds for a potential modification
or revocation and an opportunity to
respond.
The Bureau proposed revising this
aspect of the 2016 Policy in various
respects. The proposed Policy stated
that the Bureau might revoke a NoAction Letter in whole or in part, in
certain circumstances—but that the
Bureau expected revocation to be quite
rare. The proposal also stated that the
Bureau expects a No-Action Letter to
specify the grounds for revocation, and
that the Bureau anticipates specifying
three such grounds. A No-Action Letter
under the proposed Policy would also
include a statement that, if the letter is
revoked for a reason other than the
recipient’s (or recipients’) failure to
substantially comply in good faith with
the terms and conditions of the letter,
the revocation is prospective only; i.e.,
that the Bureau would not pursue an
action to impose retroactive liability in
such circumstances. In addition, the
proposed Policy described the steps the
Bureau intended to take prior to
revoking a No-Action Letter. These steps
included providing recipients with
notice of the ground(s) for revocation,
an opportunity to respond (including an
opportunity to cure a failure to
substantially comply in good-faith with
the terms and conditions of the NoAction Letter), and a period for winding
down the offering or providing of the
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product or service in question in most
circumstances.
While generally supportive of these
proposed changes, trade association
commenters and a research/advisory
organization requested greater clarity on
the anticipated grounds for revocation
and certain portions of the proposed
revocation procedures. Consumer group
commenters urged the Bureau to
provide additional grounds for
revocation and retroactive liability, and
had concerns about certain steps of the
proposed revocation procedures.
1. Grounds for Termination and
Retroactive Liability
The Bureau received a number of
comments regarding the three
anticipated grounds for revocation
identified in the proposal. The first such
ground was failure to substantially
comply in good faith with the terms and
conditions of the No-Action Letter. A
research/advisory organization urged
the Bureau to clarify this standard,
particularly regarding its application to
technical deficiencies, harmless
compliance failures, and the like. The
same commenter also requested more
clarity on the second ground for
revocation identified in the proposal: A
determination by the Bureau that the
recipient’s offering or providing the
described aspects of the product or
service is causing material, tangible,
harm to consumers. A group of trade
associations asserted that the second
ground is undefined and subjective, and
expressed concern that revocation based
on this ground would constitute a
finding of fault against the recipient.
These commenters recommended that
the second ground be replaced with a
determination by the Bureau that the
product or service did not perform as
intended.
The Bureau also received a comment
on the third ground for revocation
identified in the proposal: A change in
the legal context within which the letter
was granted as a result of statutory
amendments or Supreme Court
opinions. Consumer groups asserted
that this ground is too narrow because
the Supreme Court weighs in on fewer
than 100 cases a year—most of which do
not involve consumer financial products
or services, and lower courts create
binding law that should guide the
Bureau’s revocation decisions.
More generally, consumer groups
found the three anticipated grounds for
revocation to be too narrow individually
and, taken together, too limiting on the
Bureau. These groups contended that
the inclusion of these anticipated
grounds in the Policy would place a
high burden on the Bureau to revoke a
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48239
No-Action Letter in order to protect
consumers.
Finally, comments were submitted on
the statement regarding retroactive
liability in the proposed Policy.
Industry commenters generally
supported this statement. Consumer
groups urged the Bureau to retain
material inaccuracy of facts and
representations in an application as an
additional ground for retroactive
liability. A research/advisory group
recommended that the Bureau list
consumer harm caused by the product
or service in question as an additional
basis for retroactive liability.
Based on these comments and other
considerations, the Bureau is revising
the discussion of revocation in the final
Policy in certain respects (and locating
these changes in a new section (section
D) concerning Modification and
Termination). First, in the proposal, the
Bureau stated that it expected
revocation of a No-Action Letter to be
quite rare. To clarify this point, the
Bureau is adding an express statement
that the Bureau intends that the
recipient of a No-Action Letter should
be able to reasonably rely on the NoAction Letter, including especially the
no-action statement.
Second, the Bureau agrees that the
proposed ‘‘material, tangible harm’’
ground may not be sufficiently clear and
objective and accordingly is replacing it
with the ground recommended by
commenters: Failure to perform as
anticipated in the application. The
Bureau is also adding a footnote
explaining that this ground includes the
materialization of consumer risks
identified in the application, or the
materialization of other consumer risks
not identified in the application.
Third, as noted, the proposed Policy
simply identified three anticipated
grounds for revocation, but failed to
identify a more general standard or
principle underlying them. To clarify
this point, the final Policy states that a
No-Action Letter will include a
statement that the Bureau may terminate
the letter if it determines that it is
necessary or appropriate to do so to
advance the primary purposes of the
Policy, such as where the recipient fails
to substantially comply in good faith
with the terms and conditions of the
letter; the described aspects of the
product or service do not perform as
anticipated in the application; or
controlling law changes as a result of a
statutory change or a Supreme Court
decision that clearly permits or clearly
prohibits conduct covered by the letter.
Fourth, as recommended by a group
of trade associations, the Bureau is
replacing the term ‘‘revocation’’ with
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the term ‘‘termination’’ because it is
concerned that ‘‘revocation’’
misleadingly suggests that any
termination would involve a Bureau
determination of wrongdoing on the
part of the recipient.
Fifth, the Bureau is revising the
retroactive liability statement to provide
that a failure to substantially comply in
good faith with the terms and
conditions of the No-Action Letter that
causes ‘‘Dodd-Frank Act actionable
substantial injury,’’ under 12 U.S.C.
5531(c), would provide the basis for
termination and an action to impose
retroactive liability.28
The Bureau declines to adopt the
recommendation to identify material
inaccuracy of facts and representations
in an application as a separate potential
basis for a retroactive action because it
believes doing so is unnecessary. As
noted above, the Bureau expects that a
No-Action Letter issued under the final
Policy will include a statement that the
letter is based on factual representations
made in the application. Relatedly,
pursuant to section C.4 of the Policy, a
No-Action Letter is expected to include
a requirement to apprise the Bureau of
material (a) changes to information
included in the application and (b)
information indicating that the
described aspects of the product or
service are not performing as
anticipated in the application. A
recipient’s failure to substantially
comply in good faith with this
requirement would provide a necessary
condition for retroactive liability under
the Policy.
The Bureau also declines to provide
additional clarity regarding the ‘‘goodfaith substantial compliance’’ standard
because it believes these terms have a
sufficiently established meaning in the
law.
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2. Termination Procedures
The Bureau received a number of
comments about the revocation
procedures described in the proposed
Policy. Consumer groups raised
concerns about the statement that, if the
Bureau determines that the recipient
failed to substantially comply in good
faith with the terms and conditions of
the No-Action Letter, it will offer the
recipient an opportunity to cure the
failure within a reasonable period of
28 The Bureau expects that termination on this
ground will be especially rare. The Bureau believes
that bad actors intent on evading the law, and the
terms and conditions of a No-Action Letter, are the
least likely type of entity to apply for a letter. To
the extent such entities express interest in a NoAction Letter or apply for one, they are likely to be
weeded out through the Bureau’s anticipated due
diligence process and thus not receive a letter in the
first place.
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time before revoking the No-Action
Letter. In their view, companies that act
in bad faith or violate the terms of a NoAction Letter should have no second
chance at complying with those terms.
The Bureau is persuaded by this
comment. Although the Bureau
anticipates that there will be few, if any,
cases in which a recipient fails to
comply in good-faith with the terms and
conditions of the No-Action Letter, in
such cases an opportunity to cure would
be inappropriate. However, there may
be cases in which an opportunity to
cure may be appropriate, such as when
the recipient attempts to comply in good
faith, but fails to comply with relatively
technical terms and conditions.
Accordingly, in the final Policy, this
statement has been revised to provide
that the Bureau intends to offer an
opportunity to cure in appropriate
circumstances. In addition, the Bureau
notes that a request for modification
under section D.1 of the final Policy
may be more appropriate in some cases
than providing an opportunity to cure.
The proposed Policy also stated that,
in most cases, the Bureau expects to
allow the recipient of a No-Action Letter
to wind-down the offering or providing
of the described aspects of the product
or service during an appropriate period
after revocation. Consumer groups
contended that the proposed Policy
provided the Bureau too little flexibility
to revoke a No-Action Letter without a
wind-down period. The Bureau
disagrees. While the Bureau expects a
wind-down period to be afforded in the
rare instance that a No-Action Letter is
terminated, the proposed Policy does
not guarantee a wind-down period.
Thus, in appropriate cases, the Bureau
has the flexibility to terminate without
providing a wind-down period.
A group of trade associations noted
that the proposed Policy’s provision
regarding a wind-down period, which
stated that the wind-down period would
be an appropriate period after
revocation, differed from the parallel
provision in the proposed Product
Sandbox Policy, which stated that the
wind-down period would be six
months. A nonpartisan public policy
organization likewise identified this
discrepancy. This discrepancy was
inadvertent. The Bureau believes that a
six-month period is equally appropriate
for No-Action Letters and has
accordingly specified such a six month
period in the final Policy.
A research/advisory group urged the
Bureau to provide greater detail and a
more formalized process respecting how
the Bureau will (i) determine a
reasonable time frame for a recipient to
cure a failure to comply with the terms
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of a No-Action Letter, (ii) offer an
opportunity to respond to a revocation,
as well as the period of time provided
for a response, and (iii) issue a
revocation and whether such a
revocation would be made public. The
Bureau generally declines to provide
additional detail regarding the
termination process for the reasons set
forth in section II above. However, the
Bureau is including in the final Policy
a statement that termination information
will be published on the Bureau’s
website.
3. Modification
As indicated above, the ‘‘any time/any
reason’’ statement in the 2016 Policy
covered modification of a No-Action
Letter as well as revocation. The Bureau
proposed omitting this statement, and
did not propose alternative language
concerning modification. Consumer
groups noted this silence about
modification, and suggested that the
final Policy should provide for
modification. A trade association
suggested that modification procedures
should be included in the final Policy
because some innovative consumer
financial products and services depend
on machine learning and artificial
intelligence and will therefore evolve
through continuous ‘‘learning’’ and
routine re-evaluation of data and
models. The commenter recommended
that the Bureau develop a framework
that allows for slight and graduated
deviations from the product or service
described in the application, rather than
require the recipient to submit an
entirely new application each time there
is a change.
The Bureau generally agrees that the
Policy should include anticipated
procedures for modifying No-Action
Letters. Accordingly, the final Policy
includes a new section (D.1) that
specifies the Bureau’s anticipated
procedures regarding requests for
modification of a No-Action Letter.
I. Coordination With Other Regulators
Section G of the proposed Policy
stated that the Bureau is interested in
entering into agreements with State
authorities that issue similar forms of
no-action relief that would provide for
an alternative means of receiving a NoAction Letter from the Bureau.
Consumer groups read this statement as
implying that a company that obtained
a no-action letter from a State would
‘‘automatically’’ receive one from the
Bureau. That is not the Bureau’s intent.
Rather, the Bureau anticipates that such
agreements would include provisions
designed to ensure that the Bureau’s
issuance of a No-Action Letter in such
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circumstances would be consistent with
its statutory authority and duties, as
well as applicable law more generally.
The Bureau has no intention of issuing
a No-Action Letter though this type of
alternative means if it believes that
consumers would be injured.
The proposed Policy also would have
permitted applicants to request that the
Bureau coordinate with other regulators
with respect to the application. A group
of trade associations commented that
the Bureau should not put the onus on
the applicant to identify other
governmental authorities with which
the Bureau may coordinate. Rather, the
Bureau should lead the coordination
effort among Federal and State
regulators, as it is better positioned to
do so than the applicant. More broadly,
these commenters urged the Bureau to
ensure that other regulators understand
the Policy and to request that other
regulators defer to the Bureau’s NoAction Letters. These comments were
seconded by an industry policy
organization.
As evidenced by the inclusion in the
Policy of a separate section headed
Regulatory Coordination, the Bureau
very much appreciates the need for
coordination with other regulators for
purposes of operating the Policy.
However, such coordination must be
balanced against other considerations.
For example, as the Policy notes, if an
applicant wishes the Bureau to
coordinate with other regulators, the
Bureau may need more time to process
the application, depending on the
degree of coordination requested.
Moreover, the degree of coordination
needed likely will vary from case to
case. The Bureau intends to use its best
efforts to find the optimal balance
between coordination and other
considerations for each No-Action Letter
issued under the Policy. For the reasons
discussed above, the Bureau is
finalizing the section on regulatory
coordination largely as proposed.
J. Confidentiality and Disclosure
Section E of the 2016 Policy, headed
Bureau Disclosure of Entity Data, was
quite brief. The primary statement made
was that the Bureau’s disclosure of a
version or summary of the application
and any data received from the
applicant in connection with a request
for a No-Action Letter is governed by
the Bureau’s Rule on Disclosure of
Records and Information (Disclosure
Rule). The Bureau subsequently
received requests that the Bureau
provide a more detailed explanation of
its plans relating to disclosure of
information received from applicants for
and recipients of No-Action Letters. In
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response, the Bureau proposed
expanding this section to include the
Bureau’s expectations regarding which
types of data and information submitted
by applicants and recipients would
qualify as business information and
confidential supervisory information
under the Disclosure Rule.
Industry commenters generally
supported the proposed expansion.
Consumer groups stated that the revised
section is in tension with the
requirements of the Freedom of
Information Act (FOIA), and questioned
how the Bureau can forecast that certain
aspects of applications will satisfy
applicable FOIA exemption
requirements. The Bureau is basing its
expectations, in part, on the nature of
the information requested from
applicants and recipients, and the final
Policy notes that information submitted
that is not actually responsive to a
particular request may not be protected
from disclosure.
The Bureau is not finalizing the
proposed language regarding
confidential supervisory information
because it has determined it to be
unnecessary. The Bureau believes that
potential applicants’ main concern is
that trade secrets and proprietary
business information submitted to the
Bureau by applicants and recipients not
be publicly disclosed. This concern can
be adequately addressed by the
statements in section G of the final
Policy that the Bureau anticipates that
much of this information will qualify as
confidential information, and, more
specifically, business information
exempt from public disclosure.
In addition, in light of a recent
Supreme Court opinion concerning
FOIA Exemption 4,29 the Bureau is
adding to section G a statement making
clear that where information submitted
to the Bureau is both customarily and
actually treated as private by the
submitter, the Bureau intends to treat it
as confidential in accordance with the
Disclosure Rule.
The proposed Policy stated that the
Bureau may publish denials of
applications for a No-Action Letter on
its website, including an explanation of
why the application was denied,
particularly if it determined that doing
so would be in the public interest. The
Bureau received divergent comments on
this aspect of the proposal. A group of
trade associations supported the
publication of denials on the ground
that such transparency will inform
market participants about the types of
proposals that are more or less likely to
29 See Food Mktg. Inst. v. Argus Leader Media,
139 S.Ct. 2356 (June 24, 2019).
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receive approval, and the accompanying
reasons for approval or denial will
promote agency accountability for the
No-Action Letter Policy. In contrast, a
trade association stated that it sees no
utility in publishing denials. The
Bureau is finalizing the statement about
denials as proposed. The Bureau notes
that the final Policy, as did the proposal,
includes two related statements about
denials: (1) The Bureau intends to
publish denials only after the applicant
is given an opportunity to request
reconsideration of the denial, and (2)
upon request, and if disclosure is not
required by 5 U.S.C. 552(a)(2) or other
applicable law, the Bureau does not
intend to release identifying information
from published denials, and intends to
redact such information from the
denials published on its website.
More generally, the Bureau expects
denials to be quite rare, for at least two
reasons. First, the Policy strongly
encourages potential applicants to
contact the Office of Innovation for
informal, preliminary discussion of a
contemplated proposal prior to
submitting a formal application. If it
appears during such discussions that an
application is not likely to be granted,
the potential applicant may choose not
to submit an application in the first
place. Second, the Policy provides that
an application may be withdrawn at any
time. If the applicant has reason to
believe its application may not be
granted, it can withdraw the application
prior to a denial.
K. Relation to Other Bureau Innovation
Policies
A group of trade associations
requested clarity on which of the
Bureau’s three proposed innovation
policies to apply under in a given case.
The same commenter requested that,
during the preliminary, informal
discussions, which the proposed Policy
would have encouraged potential
applicants to have with the Bureau, the
Bureau discuss with the potential
applicant which process will be best
suited for the product or service in
question. Given the necessarily general
nature of the three policies and the
necessarily particular nature of a given
proposal, the answer to the first request
is provided by a positive answer to the
second request. That is, the Bureau does
intend to discuss with potential
applicants during the preliminary,
informal discussion phase which of the
policies is best suited for the product or
service in question.
L. Public Input
In comments on the proposed 2016
Policy, certain consumer group
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commenters requested that the Bureau
modify the proposed 2016 Policy to
provide that any No-Action Letter
would be subject to a 30-day notice-andcomment period, preferably in advance
of No-Action Letter issuance. These
commenters asserted that such a process
is advisable to balance an applicant’s
self-interested submissions by bringing
to bear other viewpoints through a
public process. The Bureau declined to
adopt the comment period suggestion
because (i) comment periods are not
typical of other agencies’ no-action
letter programs; and (ii) the Bureau
believed that imposing such a comment
period requirement in advance of
issuance would unnecessarily
discourage No-Action Letter
applications, delay the process of
granting or denying applications, and
thus inhibit the intended benefits of the
proposed 2016 Policy.
The comments on the proposed Policy
did not include such an express
comment for a notice-and-comment
process for No-Action Letters issued
under the proposed Policy. Rather,
consumer groups noted the lack of
public input on particular No-Action
Letters in the course of expressing other
concerns about the proposed Policy. In
response to this implied request for
public input, the Bureau reiterates the
points it made in its response to the
express request for public input in the
comments on the proposed 2016 Policy.
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IV. Regulatory Requirements
The Bureau has concluded that this
Policy Guidance constitutes an agency
general statement of policy exempt from
the notice and comment rulemaking
requirements under the Administrative
Procedure Act, pursuant to 5 U.S.C.
553(b). The Policy is intended to
provide information regarding the
Bureau’s plans to exercise its
enforcement and supervisory discretion
to provide No-Action Letters. The Policy
does not impose any legal requirements
on external parties, nor does it create or
confer any substantive rights on external
parties that could be enforceable in any
administrative or civil proceeding.
Because no notice of proposed
rulemaking is required, the Regulatory
Flexibility Act does not require an
initial or final regulatory flexibility
analysis.30
V. Congressional Review Act
Pursuant to the Congressional Review
Act (5 U.S.C. 801 et seq.), the Bureau
plans to submit a report containing this
Policy and other required information to
each House of Congress and the
30 5
16:11 Sep 12, 2019
VI. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(PRA) (44 U.S.C 3501 et seq.) requires
that federal agencies may not conduct or
sponsor, and notwithstanding any other
provision of law, a person is not
required to respond to a collection of
information unless it displays a
currently valid OMB control number.
The information collection requirements
as contained in this final Policy and
identified below have been approved by
OMB and assigned the OMB control
number 3170–0059 OMB’s approval will
expire on September 30, 2022.
The information collections contained
in this Policy include Application for a
No Action Letter.
The Bureau’s proposed Policy,
published December 13, 2018, 83 FR
64036, sought comment on these
information collection requirements.
While the Bureau received numerous
comments on the Proposed Policy,
which are addressed above, the Bureau
received no comments specifically
regarding the burden estimates for these
information collections, utility or
appropriateness. Additional details on
comments received can be found in the
Supporting Statement for the related 30day notice published as required under
the PRA.31
A complete description of the
information collection requirements,
including the burden estimate methods,
is provided in the information
collection request (ICR) that the Bureau
submitted to OMB under the
requirements of the PRA. The ICR
submitted to OMB requesting approval
under the PRA for the information
collection requirements contained
herein is available at OMB’s publicfacing docket at www.reginfo.gov.
VII. Final Policy
The text of the final Policy is as
follows:
Policy on No-Action Letters
In section 1021(a) of the Dodd-Frank
Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act),
Congress established the Bureau of
Consumer Financial Protection’s
(Bureau’s) statutory purpose as ensuring
that all consumers have access to
markets for consumer financial products
and services and that markets for
31 See https://www.regulations.gov/
docket?D=CFPB-2019-0043.
U.S.C. 603(a), 604(a).
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Comptroller General prior to the
Policy’s applicability date. The Office of
Information and Regulatory Affairs has
designated this Policy as not a ‘‘major
rule’’ as defined by 5 U.S.C. 804(2).
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consumer financial products and
services are fair, transparent, and
competitive.32 Relatedly, the Bureau’s
objectives include exercising its
authorities under Federal consumer
financial law for the purposes of
ensuring that markets for consumer
financial products and services operate
transparently and efficiently to facilitate
access and innovation, and that
outdated, unnecessary, or unduly
burdensome regulations are regularly
identified and addressed in order to
reduce unwarranted regulatory
burdens.33
Congress has given the Bureau a
variety of authorities under title X of the
Dodd-Frank Act and the enumerated
consumer laws 34 that it can exercise to
promote this purpose and these
objectives. These authorities include
supervision and enforcement authority,
and the authority to issue orders and
guidance.35 These authorities provide
the basis for the Policy on No-Action
Letters (Policy) and the No-Action
Letters issued pursuant to the Policy.
The primary purposes of the Policy
are to provide a mechanism through
which the Bureau may more effectively
carry out its statutory purpose and
objectives and to facilitate compliance
with applicable Federal consumer
financial laws. The Bureau believes that
the No-Action Letters issued pursuant to
the Policy will benefit consumers,
entities that offer or provide consumer
financial products and services, and the
public interest more generally. The
Bureau expects that implementation of
the Policy will also inform the exercise
of its other authorities, including
rulemaking.36
The Policy consists of seven sections:
32 12
U.S.C. 5511(a).
U.S.C. 5511(b)(3), (5).
34 12 U.S.C. 5481(12).
35 See 12 U.S.C. 5561 et seq. (enforcement
authority); 12 U.S.C. 5531(a) (Unfair, Deceptive, or
Abusive Acts or Practices (UDAAP) enforcement
authority); 12 U.S.C. 5514, 5515 (supervision
authority); 12 U.S.C. 5511(a) (‘‘The Bureau shall
seek to implement and, where applicable, enforce
Federal consumer financial law . . .’’) (emphasis
added); 12 U.S.C. 5512(b)(1). See also Heckler v.
Chaney, 470 U.S. 821, 832 (1985); Board of Trade
v. SEC, 883 F.2d 525, 530–31 (7th Cir. 1989) (SEC
no-action letter).
36 The Policy is not intended to, nor should it be
construed to: (1) Restrict or limit in any way the
Bureau’s discretion in exercising its authorities,
including the provision of no-action or similar
compliance assistance other than pursuant to the
Policy; (2) constitute an interpretation of law; or (3)
create or confer upon any covered person,
consumer, or other external party any substantive
or procedural rights, obligations, or defenses that
are enforceable in any manner. In contrast, a
particular No-Action Letter involves the Bureau’s
exercise of its supervision and enforcement
discretion in a particular manner.
33 12
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• Section A describes information to
be included in an application for a NoAction Letter.
• Section B describes the factors the
Bureau intends to consider in assessing
applications for a No-Action Letter.
• Section C describes the standard
procedures the Bureau intends to use in
issuing No-Action Letters.
• Section D describes the procedures
the Bureau intends to use for
modification and termination of NoAction Letters.
• Section E describes alternative
application, assessment, and issuing
procedures that the Bureau may use for
certain circumstances.
• Section F describes how the Bureau
intends to coordinate with other
regulators with respect to No-Action
Letters.
• Section G describes the Bureau’s
intentions relating to disclosure of
information relating to No-Action
Letters.
A. Submitting Applications for NoAction Letters
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Potential applicants are strongly
encouraged to contact the Office of
Innovation at officeofinnovation@
cfpb.gov for informal, preliminary
discussion of a contemplated proposal
prior to submitting a formal
application.37
Applications for a No-Action Letter
should include the following:
1. The identity of the applicant; 38
2. A description of the consumer
financial product or service in question,
including (a) how the product or service
functions; (b) the terms on which it will
be offered; and (c) the manner in which
it is offered or provided, including any
consumer disclosures;
3. An explanation of the potential
consumer benefits associated with the
product or service;
4. An explanation of the potential
consumer risks associated with the
product or service, and how the
applicant intends to mitigate such risks;
5. An identification of the statutory
and/or regulatory provisions as to which
the applicant seeks a No-Action Letter
and an explanation of why a No-Action
Letter is needed, such as uncertainty or
ambiguity regarding the application of
the identified statutory and/or
regulatory provisions to the product or
service in question; 39
37 The email subject line should include: ‘‘NoAction Letter.’’
38 For convenience, the term ‘‘applicant’’ is used
in the Policy to refer both to single applicants and
joint applicants.
39 Applicants should describe the relevant
provisions with as much specificity as practicable,
in part to enable the Bureau to respond
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6. If the applicant wishes to request
confidential treatment under the
Freedom of Information Act (FOIA),40
the Bureau’s rule on Disclosure of
Records and Information (Disclosure
Rule),41 or other applicable law, this
request and the basis therefor should be
included in a separate letter and
submitted with the application.42 The
applicant should specifically identify
the information for which confidential
treatment is requested, and may
reference the Bureau’s intentions
regarding confidentiality under section
G of the Policy; and
7. If the applicant wishes the Bureau
to coordinate with other regulators, the
applicant should identify those
regulators, including but not limited to
those the applicant has contacted about
offering or providing the product or
service in question.43
Applications may be submitted via
email to: officeofinnovation@cfpb.gov or
through other means designated by the
Office of Innovation.44 Submitted
applications may be withdrawn at any
time.
B. Bureau Assessment of Applications
for No-Action Letters
In deciding whether to grant an
application for a No-Action Letter, the
Bureau intends to balance a variety of
factors, including an assessment of the
quality and persuasiveness of the
application, with particular emphasis
on the information specified in sections
A.3, A.4, and A.5; information about the
applicant and the product or service in
question derived through Bureau due
diligence processes; the extent to which
expeditiously to the application. The Bureau
recognizes that in some cases it may be difficult to
determine precisely which provisions would apply,
in the normal course, to the product or service in
question. In other cases, the applicant may lack the
legal resources to make a fully precise
determination. In such circumstances, the applicant
should provide the maximum specification
practicable under the circumstances and explain
the limits on further specification.
40 5 U.S.C. 552.
41 12 CFR part 1070.
42 Applicants should describe the relevant legal
bases for confidentiality with as much specificity as
practicable. The Bureau recognizes that some
applicants may lack the legal resources to provide
a detailed and complete showing. In such
circumstances, the applicant should provide the
maximum specification practicable under the
circumstances and explain the limits on further
specification.
43 When requested by an applicant, the Bureau
intends to coordinate with other Federal and State
regulators identified by the applicant, as
appropriate. However, depending on the extent of
coordination requested, the Bureau may not be able
to respond to the application within the time frame
specified in section B.
44 Except as provided in section A.1 and A.7,
applications should not include any personally
identifiable information (PII).
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granting the application would be
consistent with Bureau enforcement and
supervision priorities; an assessment of
litigation risk; and available Bureau
resources.45
The Bureau intends to grant or deny
an application within 60 days of
notifying the applicant that the Bureau
deems the application to be complete.
C. Bureau Procedures for Issuing NoAction Letters
When the Bureau decides to grant an
application for a No-Action Letter, it
intends to provide the recipient(s) with
a No-Action Letter signed by the
Assistant Director of the Office of
Innovation (pursuant to authority
delegated by the Director of the Bureau)
that sets forth the specific terms and
conditions of the No-Action Letter
provided.46 The Bureau expects a NoAction Letter will:
1. Identify the recipient; 47
2. Specify the subject matter scope of
the letter, i.e., the described aspects of
the product or service; 48
3. State that the letter:
(a) Is limited to the recipient, and
does not apply to any other persons or
entities;
(b) is limited to the recipient’s
offering or providing the described
aspects of the product or service, and
does not apply to the recipient’s offering
or providing different aspects of the
product or service;
(c) is based on the factual
representations made in the application,
which may be incorporated by
reference;
(d) does not purport to express any
legal conclusions regarding the meaning
or application of the laws and/or
regulations within the scope of the
letter; and
(e) does not constitute the Bureau’s
endorsement of the product or service
that is the subject of the letter, or any
other product or service offered or
provided by the recipient;
4. Require the recipient to apprise the
Bureau of (a) material changes to
45 The decision whether to grant an application
for a No-Action Letter will be within the Bureau’s
sole discretion.
46 If the Bureau decides to deny an application,
it intends to inform the applicant of its decision.
The Bureau intends to respond to reasonable
requests to reconsider its denial of an application
within 30 days of such requests. Applicants may
also withdraw, modify, and/or re-submit
applications at any time.
47 For convenience, the term ‘‘recipient’’ is used
in the Policy to refer both to an individual recipient
and joint recipients.
48 For convenience, ‘‘described aspects of the
product or service’’ is used in the Policy to capture
the subject matter scope of a No-Action Letter,
including both the particular aspects of the product
or service in question, and the particular manner in
which it is offered or provided.
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information included in the application
and (b) material information indicating
that the described aspects of the product
or service are not performing as
anticipated in the application; 49
5. Specify any other limitations or
conditions, and the extent to which the
Bureau intends to publicly disclose
information about the No-Action
Letter; 50
6. State that, unless or until
terminated by the Bureau as described
in section C.7, the Bureau will not make
supervisory findings or bring a
supervisory or enforcement action
against the recipient predicated on the
recipient’s offering or providing the
described aspects of the product or
service under (a) its authority to prevent
unfair, deceptive, or abusive acts or
practices; 51 or (b) any other described
statutory or regulatory authority within
the Bureau’s jurisdiction.52
7. State that, (i) the recipient may
reasonably rely on any Bureau
commitments made in the letter; (ii) the
Bureau may terminate the letter if it
determines that it is necessary or
appropriate to do so to advance the
primary purposes of the Policy, such as
where the recipient fails to substantially
comply in good faith with the terms and
conditions of the letter; the described
aspects of the product or service do not
perform as anticipated in the
application; 53 or controlling law
changes as a result of a statutory change
or a Supreme Court decision that clearly
permits or clearly prohibits conduct
covered by the letter; 54 and (iii) upon
termination, the Bureau will not bring
an action to impose retroactive liability
49 ‘‘Not performing as anticipated’’ includes the
materialization of consumer risks identified in the
application, and the materialization of other
consumer risks not identified in the application.
50 If an applicant objects to the disclosure of
certain information and the Bureau insists that the
information must be publicly disclosed if a NoAction Letter is issued, the applicant may withdraw
the application and the Bureau intends to treat all
information related to the application as
confidential to the full extent permitted by law.
51 Implicit in the statement under clause (a) is
that the Bureau has not determined that the acts or
practices in question are unfair, deceptive, or
abusive.
52 The Bureau maintains the authority to obtain
information relating to the consumer financial
product or service subject to a No-Action Letter
under its applicable supervision, enforcement, and
other authorities in the same manner and frequency
that it obtains information relating to consumer
financial products or services not subject to a NoAction Letter.
53 Such ground includes the materialization of
consumer risks identified in the application, and
the materialization of other consumer risks not
identified in the application.
54 If a Circuit Court of Appeals decision clearly
prohibits conduct covered by the letter, the Bureau
may consider modifying the letter so that it is
inoperative within that Circuit.
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with respect to conduct covered by the
letter, except where a failure to
substantially comply in good faith with
the terms and conditions of the letter
caused Dodd-Frank Act actionable
substantial injury.55
D. Procedures for Modification and
Termination of No-Action Letters
1. Modification Procedures
A recipient of a No-Action Letter may
apply for a modification of the letter.
The recipient may seek modification to
address an anticipated or unanticipated
change in circumstances, such as
iterations of the underlying product or
service or changes to the information
included in the No-Action Letter
application. Applications for a
modification should include the
following:
a. Any material changes to the
information included in the original
application;
b. The specific requested
modification(s) to the No-Action Letter;
c. The ground(s) for modifying the
No-Action Letter; and
d. Any other information the recipient
wishes to provide in support of the
modification application.
In deciding whether to grant an
application for modification of a NoAction Letter, the Bureau intends to
balance a variety of factors, including
the quality and persuasiveness of the
application. The Bureau expects to grant
or deny such applications within 30
days of notifying the applicant that the
Bureau has deemed the application to
be complete. When the Bureau grants an
application for modification, it intends
to provide the recipient with a modified
No-Action Letter in accordance with the
procedures specified in section C.
2. Termination Procedures
The Bureau intends that the recipient
of a No-Action Letter should be able to
reasonably rely on any Bureau
commitments made in the letter. The
Bureau expects termination of a NoAction Letter to be quite rare based, in
part, on its knowledge of no-action letter
55 ‘‘Dodd-Frank Act actionable substantial injury’’
means substantial injury that is not reasonably
avoidable by the consumer, where such substantial
injury is not outweighed by countervailing benefits
to consumers or to competition. See 12 U.S.C.
5531(c); see also 12 U.S.C. 5536(a)(1)(B). Such a
retroactive action would be particularly likely
where conduct covered by the letter caused DoddFrank Act actionable substantial injury without the
Bureau’s knowledge due to the recipient’s failure to
substantially comply in good faith with the
requirement under section C.4 to apprise the
Bureau of (a) material changes to information
included in the application and (b) material
information indicating that the described aspects of
the product or service are not performing as
anticipated in the application.
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programs operated by other Federal
agencies. Such agencies appear to
terminate no-action letters very
infrequently.56 The Bureau expects that
its practice with respect to termination
will be in line with the practices of
these agencies.
The Bureau expects a No-Action
Letter will state that, (i) the recipient
may reasonably rely on any Bureau
commitments made in the letter; (ii) the
Bureau may terminate the letter if it
determines that it is necessary or
appropriate to do so to advance the
primary purposes of the Policy, such as
where the recipient fails to substantially
comply in good faith with the terms and
conditions of the letter; the described
aspects of the product or service do not
perform as anticipated in the
application; 57 or controlling law
changes as a result of a statutory change
or a Supreme Court decision that clearly
permits or clearly prohibits conduct
covered by the letter; 58 and (iii) upon
termination, the Bureau will not bring
an action to impose retroactive liability
with respect to conduct covered by the
letter, except where a failure to
substantially comply in good faith with
the terms and conditions of the letter
caused Dodd-Frank Act actionable
substantial injury.59
The Bureau anticipates that such
retroactive actions will be exceedingly
56 The SEC’s website indicates that SEC staff has
issued over 2,500 no-action letters since 1971. See
https://www.sec.gov/corpfin/corpfin-no-actionletters#chron; https://www.sec.gov/divisions/
investment/im-noaction.shtml; https://
www.sec.gov/divisions/marketreg/mrnoaction.shtml. It appears that less than 1% of these
letters have been terminated, withdrawn, or
revoked. The CFTC’s website indicates that CFTC
staff has issued over 1,500 no-action letters since
1975. See https://www.cftc.gov/LawRegulation/
CFTCStaffLetters/letters.htm; https://www.cftc.gov/
LawRegulation/CFTCStaffLetters/archive.htm. It
appears that less than 1% of these letters have been
terminated, withdrawn, or revoked.
57 Such ground includes the materialization of
consumer risks identified in the application, or the
materialization of other consumer risks not
identified in the application.
58 If a Circuit Court of Appeals decision clearly
prohibits conduct covered by the letter, the Bureau
may consider modifying the letter so that it is
inoperative within that Circuit.
59 ‘‘Dodd-Frank Act actionable substantial injury’’
means substantial injury that is not reasonably
avoidable by the consumer, where such substantial
injury is not outweighed by countervailing benefits
to consumers or to competition. See 12 U.S.C.
5531(c); see also 12 U.S.C. 5536(a)(1)(B). Such a
retroactive action would be particularly likely
where conduct covered by the letter caused DoddFrank Act actionable substantial injury without the
Bureau’s knowledge due to the recipient’s failure to
substantially comply in good faith with the
requirement under section C.4 to apprise the
Bureau of (a) material changes to information
included in the application and (b) material
information indicating that the described aspects of
the product or service are not performing as
anticipated in the application.
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rare based, in part, on its knowledge of
the practices of other Federal agencies
that operate no-action letters programs.
It appears that, in the very small
percentage of cases in which such
agencies have terminated no-action
letters, they have not initiated actions to
impose retroactive liability.60 The
Bureau expects its practice regarding
such retroactive actions to be in line
with the practices of these agencies.
In accordance with principles of fair
notice, before terminating a No-Action
Letter, the Bureau intends to notify the
recipient of the possible grounds for
termination, and permit an opportunity
to respond within a reasonable period of
time. In appropriate cases, the Bureau
intends to offer the recipient an
opportunity to modify its conduct to
avoid termination. The Bureau intends
to allow the recipient to wind-down the
offering or providing of the described
aspects of the product or service during
a period of six months before
termination, unless the described
aspects of the product or service are
causing Dodd-Frank Act actionable
substantial injury to consumers, and a
wind-down period would permit such
injury to continue. If the Bureau
terminates a No-Action Letter, it intends
to do so in writing and specify the
reasons for its decision. The Bureau
intends to publish termination decisions
on its website.
E. Alternative Application, Assessment,
and Issuing Procedures
khammond on DSKBBV9HB2PROD with RULES
The Bureau recognizes that the
process described in sections A, B, and
C (Standard Process) may not be
appropriate in certain circumstances.
These include applications by service
providers that develop products or
services for use by covered persons that
offer or provide consumer financial
products or services; applications
facilitated by trade associations,
consumer groups, or other third parties
that are not themselves covered persons
that offer or provide consumer financial
products or services; and applications
involving a consumer financial product
or service that is substantially similar to
one that is the subject of an existing NoAction Letter.
60 See n.56, supra; Nicholas R. Parillo, Admin.
Conf. of the U.S., Federal Agency Guidance: An
Institutional Perspective 134 (2017), available at
https://www.acus.gov/report/agency-guidance-finalreport (‘‘regulated parties highly value [SEC] noaction letters, undoubtedly because the Commission
appears to have never proceeded against the
recipient of a no-action letter who acted in good
faith on the letter’s advice’’) (citations omitted)
(emphasis in the original).
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1. Service Provider and Facilitator
Applications
Service providers that develop
products or services for use by covered
persons that offer or provide consumer
financial products or services may use
the Standard Process if they have
secured an applicant that intends to use
the service provider’s product or service
in connection with offering or providing
a consumer financial product or service.
Similarly, No-Action Letter applications
facilitated by trade associations,
consumer groups, or other third parties
that are not covered persons that offer
or provide consumer financial products
or services may use the Standard
Process if the third party has secured an
applicant that intends to offer or
provide the consumer financial product
or service in question.
a. No-Action Letter Template. As an
alternative to using the Standard
Process, a service provider or facilitator
may apply for a No-Action Letter
Template. A No-Action Letter Template
is (i) non-operative, i.e., it itself is not
a No-Action Letter, and (ii) non-binding
on the Bureau.61
i. Application Information. Such
applications should include the
information specified in section A, as
applicable and with appropriate
adjustments given that the applicant
itself will not be offering or providing
the consumer financial product or
service in question. In particular, a
service provider applicant should
describe how it anticipates its product
or service will be used by a provider of
consumer financial products or services.
ii. Assessment. In deciding whether to
grant an application for a No-Action
Letter Template, the Bureau intends to
balance a variety of factors, as described
in section B, with appropriate
adjustments given the alternative nature
of the application. The Bureau intends
to grant or deny an application within
60 days of notifying the applicant that
the Bureau has deemed the application
to be complete.
iii. Issuance. The Bureau expects that
a No-Action Letter Template will
include many of the elements specified
in section C, with appropriate
adjustments based, in part, on the nonoperative, non-binding nature of a NoAction Letter Template. In addition, a
No-Action Letter Template will include
a statement that the Bureau intends to
grant applications for a No-Action Letter
based on the No-Action Letter Template,
61 In particular, the Bureau may modify a NoAction Letter Template in light of the additional
information provided in an application for a NoAction Letter under section E.1.b of the final Policy
based on a No-Action Letter Template.
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48245
under section E.1.b, in appropriate
cases.
b. No-Action Letter Based on a NoAction Letter Template. A covered
person that intends to offer or provide
a consumer financial product or service
covered by a No-Action Letter Template
(whether using a service provider
product or service, or otherwise) may
apply for a No-Action Letter based on
the No-Action Letter Template.
i. Application Information. Such
applications should include the
information specified in section A, with
appropriate adjustments. In particular,
the applicant should include (i) a
statement that the application is based
on a No-Action Letter Template and an
identification of the No-Action Letter
Template on which it is based; and (ii)
a statement describing how the
applicant’s offering or providing its
product or service is consistent with the
framework described in the No-Action
Letter Template. The application may
cross reference any relevant information
contained in the application for the NoAction Letter Template or the No-Action
Letter Template itself.
ii. Assessment. In deciding whether to
grant an application for a No-Action
Letter under section E.1.b, the Bureau
intends to balance a variety of factors,
as described in section B, with
appropriate adjustments. In particular,
the Bureau intends to include in its
assessment the additional factor of the
degree to which the applicant’s offering
or providing its product or service is
consistent with the framework
described in the No-Action Letter
Template. The Bureau anticipates being
able to process such applications in a
timeframe shorter than that specified in
section B given that the underlying NoAction Letter Template has already been
granted.
iii. Issuance. When the Bureau grants
an application for a No-Action Letter
under section E.1.b, it intends to
provide the recipient with a No-Action
Letter in accordance with the
procedures specified in section C.
2. Applications for Substantially Similar
Products or Services
If an applicant offers or provides a
consumer financial product or service
that it believes is substantially similar to
the consumer financial product or
service that is the subject of an existing
No-Action Letter, it may apply for a NoAction Letter based on the existing NoAction Letter.
a. Application Information. Such
applications should include the
information specified in section A, with
appropriate adjustments. In particular,
the applicant should include (i) a
E:\FR\FM\13SER1.SGM
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Federal Register / Vol. 84, No. 178 / Friday, September 13, 2019 / Rules and Regulations
statement that the application is based
on an existing No-Action Letter and an
identification of the No-Action Letter on
which it is based; and (ii) a statement
describing how the consumer financial
product or service in question and the
manner in which it is offered or
provided is substantially similar to the
consumer financial product or service
that is the subject of the existing NoAction Letter and the manner in which
it is offered or provided. The
application may cross reference any
relevant information contained in the
application for the existing No-Action
Letter or the existing No-Action Letter
itself.
b. Assessment. In deciding whether to
grant an application for such a NoAction Letter, the Bureau intends to
balance a variety of factors, as described
in section B, with appropriate
adjustments. In particular, the Bureau
intends to include in its assessment the
additional factor of the degree to which
the consumer financial product or
service in question, and the manner in
which it is offered or provided, is
substantially similar to these aspects of
the existing No-Action Letter. The
Bureau anticipates being able to process
such applications in a timeframe shorter
than that specified in section B given
that the underlying No-Action Letter has
already been granted.
c. Issuance. When the Bureau grants
an application for such a No-Action
Letter, it intends to provide the
recipient with a No-Action Letter in
accordance with the procedures
specified in section C.62
khammond on DSKBBV9HB2PROD with RULES
F. Regulatory Coordination
Section 1015 of the Dodd-Frank Act
instructs the Bureau to coordinate with
Federal agencies and State regulators, as
appropriate, to promote consistent
regulatory treatment of consumer
financial and investment products and
services.63 Similarly, section 1042(c) of
the Dodd-Frank Act instructs the Bureau
to provide guidance in order to further
coordinate actions with the State
attorneys general and other regulators.64
Such coordination includes
coordinating in circumstances where
other regulators have chosen to limit
their enforcement or other regulatory
authority. The Bureau is interested in
entering into agreements with State
62 In circumstances where neither the Standard
Process nor the alternative procedures described in
section E (Alternative Process) are appropriate, the
Bureau may utilize other procedures that diverge in
one or more respects from the Standard Process or
the Alternative Process, consistent with the
purposes of the Policy.
63 12 U.S.C. 5495.
64 12 U.S.C. 5552(c).
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Jkt 247001
authorities that issue similar forms of
no-action compliance assistance that
would provide for an alternative means
of receiving a No-Action Letter from the
Bureau, i.e., alternative to the process
described in sections A through D.
Furthermore, the Bureau is interested
in coordinating with other regulators
more generally. To this end, the Bureau
intends to enter into agreements
whenever practicable to coordinate NoAction Letters issued under the Policy
with similar forms of compliance
assistance offered by State, Federal, or
international regulators.
G. Bureau Disclosure of Information
Regarding No-Action Letters
Public disclosure of information
regarding No-Action Letters is governed
by applicable law, including the DoddFrank Act,65 the FOIA, and the
Disclosure Rule. The Disclosure Rule
generally prohibits the Bureau from
disclosing confidential information,66
and defines confidential information to
include information that may be exempt
from disclosure under the FOIA67—
including FOIA Exemption 4 regarding
trade secrets and confidential
commercial or financial information
that is privileged or confidential.68
Relatedly, the Disclosure Rule defines
business information as commercial or
financial information obtained by the
Bureau from a submitter that may be
protected from disclosure under FOIA
Exemption 4, and generally provides
that such business information shall not
be disclosed pursuant to a FOIA request
except in accordance with section
1070.20 of the rule.69
Consistent with applicable law, the
Bureau intends to publish No-Action
Letters and No-Action Letter Templates
on its website, as well as a version or
summary of the application. The Bureau
also may publish denials of applications
on its website, including an explanation
of why the application was denied,
particularly if it determines that doing
so would be in the public interest.70
Where information submitted to the
Bureau is both customarily and actually
treated as private by the submitter, the
Bureau intends to treat it as confidential
in accordance with the Disclosure
65 See,
e.g., 12 U.S.C. 5512(c)(8).
CFR 1070.41.
67 12 CFR 1070.2(f).
68 5 U.S.C. 552(b)(4).
69 12 CFR 1070.20(a), (b).
70 The Bureau intends to publish denials only
after the applicant is given an opportunity to
request reconsideration of the denial. Upon request,
and if disclosure is not required by 5 U.S.C.
552(a)(2) or other applicable law, the Bureau does
not intend to release identifying information from
published denials, and to instead redact such
information from denials published on its website.
66 12
PO 00000
Frm 00018
Fmt 4700
Sfmt 4700
Rule.71 The Bureau anticipates that
much of the information submitted by
applicants in their applications, and by
recipients during the pendency of the
No-Action Letter, will qualify as
confidential information under the
Disclosure Rule.72 In particular, the
Bureau expects that information
submitted that is responsive to sections
A.2, A.3, A.4, C.4, and parallel
information under sections E.1.a and
E.2.a, will qualify as business
information under the Disclosure
Rule.73 Other information submitted by
applicants or recipients may also qualify
as confidential information.
Disclosure of information or data
provided to the Bureau under the Policy
to other Federal and State agencies is
governed by applicable law, including
the Dodd-Frank Act 74 and the
Disclosure Rule.
To the extent the Bureau wishes to
publicly disclose non-confidential
information regarding a No-Action
Letter, the Bureau intends to include the
terms of such disclosure in the letter.
The Bureau intends to draft the NoAction Letter in a manner such that
confidential information is not
disclosed. Consistent with applicable
law and its own rules, the Bureau does
not intend to publicly disclose any
information that would conflict with
consumers’ privacy interests.
Dated: September 6, 2019.
Kathleen L. Kraninger,
Director, Bureau of Consumer Financial
Protection.
[FR Doc. 2019–19763 Filed 9–12–19; 8:45 am]
BILLING CODE 4810–AM–P
BUREAU OF CONSUMER FINANCIAL
PROTECTION
12 CFR Chapter X
[Docket No. CFPB–2018–0042]
Policy on the Compliance Assistance
Sandbox
Bureau of Consumer Financial
Protection.
ACTION: Policy guidance and procedural
rule.
AGENCY:
71 See Food Mktg. Inst. v. Argus Leader Media,
139 S.Ct. 2356 (June 24, 2019).
72 To the extent associated communications
include the same information, that information
would have the same status. But other information
in associated communications may be subject to
disclosure.
73 To the extent an applicant or recipient submits
information in connection with any of the
identified sections that is not actually responsive to
these sections, such information may be subject to
disclosure.
74 See, e.g., 12 U.S.C. 5512(c)(8).
E:\FR\FM\13SER1.SGM
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]]>Agencies
[Federal Register Volume 84, Number 178 (Friday, September 13, 2019)]
[Rules and Regulations]
[Pages 48229-48246]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-19763]
========================================================================
Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
========================================================================
Federal Register / Vol. 84, No. 178 / Friday, September 13, 2019 /
Rules and Regulations
[[Page 48229]]
BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Chapter X
[Docket No. CFPB-2018-0042]
Policy on No-Action Letters
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Policy guidance.
-----------------------------------------------------------------------
SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is
issuing its revised Policy on No-Action Letters (Policy), which is
intended to carry out certain of the Bureau's authorities under Federal
consumer financial law.
DATES: This Policy is applicable on September 10, 2019.
FOR FURTHER INFORMATION CONTACT: For additional information about the
Policy, contact Paul Watkins, Assistant Director; Edward Blatnik,
Deputy Counsel; Albert Chang, Counsel; Thomas L. Devlin, Senior
Counsel; Will Wade-Gery, Senior Advisor; Office of Innovation, at
[email protected] or 202-435-7000. If you require this
document in an alternative electronic format, please contact
[email protected].
SUPPLEMENTARY INFORMATION:
I. Background
In section 1021(a) of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act), Congress established the
Bureau's statutory purpose as ensuring that all consumers have access
to markets for consumer financial products and services and that
markets for consumer financial products and services are fair,
transparent, and competitive.\1\ Relatedly, the Bureau's objectives
include exercising its authorities under Federal consumer financial law
\2\ for the purposes of ensuring that markets for consumer financial
products and services operate transparently and efficiently to
facilitate access and innovation, and that outdated, unnecessary, or
unduly burdensome regulations are regularly identified and addressed in
order to reduce unwarranted regulatory burdens.\3\
---------------------------------------------------------------------------
\1\ 12 U.S.C. 5511(a).
\2\ 12 U.S.C. 5481(14).
\3\ 12 U.S.C. 5511(b)(3), (5).
---------------------------------------------------------------------------
As these provisions make clear, the Bureau's statutory mission of
protecting consumers is not limited to vigorously enforcing the law. It
includes facilitating innovation in markets for consumer financial
products and services, as innovation drives competition, which in turn
lowers prices and promotes access to more and better products and
services. Innovation holds the promise of benefitting consumers in
numerous ways, including by creating or expanding access to products
and services; increasing the range of products and services; improving
the functionality of existing products and services; reducing prices;
increasing consumer understanding and control; and enhancing safety and
security.\4\
---------------------------------------------------------------------------
\4\ See, e.g., United Nations Secretary-General's Special
Advocate for Inclusive Finance for Development and Cambridge Centre
for Alternative Finance, Early Lessons on Regulatory Innovations to
Enable Inclusive FinTech: Innovation Offices, Regulatory Sandboxes,
and RegTech (2019), available at https://www.unsgsa.org/resources/publications (``Innovation offices decrease barriers to entry by
reducing regulatory uncertainty, which promotes the entry,
capitalization, and growth of new firms in financial services
markets. New entrants, in turn, promote innovation and competition.
Increased competition can result in lower prices for consumers, a
greater range of products, and better services, all of which promote
financial inclusion.'') (citation omitted).
---------------------------------------------------------------------------
A primary means of facilitating innovation is removing barriers to
innovation. This can be accomplished in a variety of ways. As noted,
Congress expressly identified one of these: reducing unwarranted
regulatory burdens. Another consists in reducing uncertainty regarding
the meaning or application of statutory and regulatory provisions.
Faced with such regulatory uncertainty, some companies may hesitate to
develop and offer potentially beneficial products and services, not
wishing to run the risk of supervisory findings, enforcement actions,
or private lawsuits. Reducing this uncertainty may encourage these
companies to offer these products and thereby benefit consumers.
Such regulatory uncertainty may be particularly acute in the case
of innovative products and services, as such products and services may
not have existed, or even been contemplated, at the time potentially
applicable statutes and regulations were promulgated. In such
circumstances, companies with innovative financial products or services
may find it difficult to attract sufficient investment, business
partners, or other support, and bring innovative ideas to market in a
timely fashion.
Given that there are a variety of different impediments to
innovation, a variety of different regulatory tools are needed to
reduce such impediments. Congress has given the Bureau a variety of
authorities under title X of the Dodd-Frank Act and the enumerated
consumer laws \5\ that it can exercise to promote its purpose and
objectives, including facilitating innovation. These authorities
include supervision and enforcement authority, and the authority to
issue orders and guidance.\6\ These authorities provide the basis for
the Policy on No-Action Letters (Policy) and the No-Action Letters
issued pursuant to the Policy. Issuing such No-Action Letters is also a
means through which the Bureau can further its understanding of the
legal and policy implications of innovative products and services to
help support official interpretations and rulemakings.
---------------------------------------------------------------------------
\5\ 12 U.S.C. 5481(12).
\6\ See 12 U.S.C. 5561 et seq. (enforcement authority); 12
U.S.C. 5531(a) (Unfair, Deceptive, or Abusive Acts or Practices
(UDAAP) enforcement authority); 12 U.S.C. 5514, 5515 (supervision
authority); 12 U.S.C. 5511(a) (``The Bureau shall seek to implement
and, where applicable, enforce Federal consumer financial law . .
.'') (emphasis added); 12 U.S.C. 5512(b)(1). See also Heckler v.
Chaney, 470 U.S. 821, 832 (1985); Board of Trade v. SEC, 883 F.2d
525, 530-31 (7th Cir. 1989) (SEC no-action letter).
---------------------------------------------------------------------------
The Bureau proposed the original version of its Policy on No-Action
Letters in October 2014 \7\ and finalized it in February 2016 (2016
Policy).\8\ In the preamble of the 2016 Policy, the Bureau anticipated
that No-Action Letters would be provided rarely and on the basis of
exceptional circumstances, and estimated that the Bureau would on
average receive one to three actionable applications per year. This
estimate was based on the features built into the 2016 Policy; i.e.,
the 2016 Policy was designed to result in no more than three No-Action
Letters per year. The Bureau issued only one No-Action Letter under
[[Page 48230]]
the 2016 Policy in the nearly three-year period between its issuance
and publication of the proposed Policy in December 2018.\9\
---------------------------------------------------------------------------
\7\ 79 FR 62118 (Oct. 16, 2014).
\8\ 81 FR 8686 (Feb. 22, 2016).
\9\ See Bureau of Consumer Financial Protection, CFPB Announces
First No-Action Letter to Upstart Network (Sept. 14, 2017), https://www.consumerfinance.gov/about-us/newsroom/cfpb-announces-first-no-action-letter-upstart-network/.
---------------------------------------------------------------------------
The Bureau has determined that the approach to facilitating
consumer-beneficial innovation through No-Action Letters built into the
2016 Policy is not an adequate response to the extent of innovation
occurring in markets for consumer financial products and services.
Given that the 2016 Policy was designed to result in a small number of
No-Action Letters per year, the Bureau determined that the 2016 Policy
required modification. Accordingly, in December 2018, the Bureau
proposed to revise the 2016 Policy in order to more effectively carry
out the Bureau's statutory purpose and objectives.\10\
---------------------------------------------------------------------------
\10\ Policy on No-Action Letters and the BCFP Product Sandbox,
83 FR 64036 (Dec. 13, 2018). As indicated by the title of that
proposal, it consisted of two parts. The first part, concerning No-
Action Letters exclusively, is being finalized in the instant
document. The second part, concerning the creation of the Product
Sandbox, is being finalized simultaneously in a separate document as
the Compliance Assistance Sandbox Policy. The Bureau has determined
that finalizing the two policies in separate documents will be less
confusing for potential applicants, and better serve the public
interest.
---------------------------------------------------------------------------
II. Overview of Comments
The Bureau received 31 unique comments in response to the December
2018 proposal. Industry trade associations and other industry groups
submitted 12 comments. Individual financial services providers
submitted three comments. Four comments were submitted by consumer
groups and civil rights organizations. There were six comments from
research and advocacy organizations, two from groups of State Attorneys
General, one from a group of State regulators, one from an academic,
one from a law firm, and one from an individual.\11\
---------------------------------------------------------------------------
\11\ One of the four consumer group and civil rights
organization comment letters was a lengthy, detailed letter by a
consortium of nine consumer groups. Many of the comments in that
letter were echoed in four shorter letters: One from a consortium of
80 other consumer groups and civil rights organizations; one from an
individual consumer group; one from an individual civil rights
organization; and one from a law firm. In light of this overlap, and
for the sake of brevity, the term ``consumer groups'' is used in the
discussion of comments in section III to refer to comments included
in the lengthy letter, as well as the same comments included in the
four shorter letters.
---------------------------------------------------------------------------
Industry commenters uniformly supported the proposed Policy, and
stated that it is more likely to incent companies to apply for a No-
Action Letter than the 2016 Policy. One of the two groups of State
Attorneys General likewise supported the proposed Policy. Although
generally supportive of the proposed Policy, industry commenters
recommended discrete changes to certain provisions of the proposed
Policy.
In contrast, all but one of the consumer group commenters opposed
the proposed Policy on numerous grounds, and stated that it marks a
step backwards vis-[agrave]-vis the 2016 Policy. The second group of
State Attorneys General were of the same opinion. One consumer group
stated that provision of compliance assistance \12\ by the Bureau is
not really needed because (i) few technologies lead to products where
the application of a well-established law or regulation is in question,
and (ii) the vast majority of fintech innovation falls within known
product categories and rarely raises novel questions of law and policy.
The Bureau disagrees with this assessment.
---------------------------------------------------------------------------
\12\ As did the 2016 Policy, the proposed Policy used the
concept of statutory/regulatory ``relief'' as a generic term for
describing agency mechanisms for addressing regulatory uncertainty
and barriers. The CFTC uses the same term for this purpose in its
procedures governing various such mechanisms. See 17 CFR 140.99.
However, a number of commenters that generally opposed the proposed
Policy read the term ``relief'' as signaling an intention by the
Bureau to assist applicants in evading the law. That was not the
Bureau's intention. Rather, the relief intended was relief from
statutory/regulatory uncertainty, not relief from statutory or
regulatory requirements. To clarify this point, the final Policy
uses ``compliance assistance'' as the generic term for such
mechanisms.
---------------------------------------------------------------------------
The other consumer groups and the group of State Attorneys General
appear to agree with the Bureau's view that innovative products and
services face regulatory uncertainty, but disagreed with the Bureau's
approach in the proposed Policy to address it. Instead, these
commenters generally supported the approach taken in the 2016 Policy,
and thus opposed virtually every revision of the 2016 Policy proposed
by the Bureau.
This disagreement between the Bureau and these commenters regarding
the optimal level of facilitation of consumer-beneficial innovation may
be based, in turn, on a disagreement about the Bureau's consumer
protection mission under title X of the Dodd-Frank Act. As these
commenters emphasized, Congress gave the Bureau supervisory and
enforcement authority to protect consumers from unfair, deceptive, and
abusive acts and practices, as well as other violations of Federal
consumer financial law.\13\ As noted above, however, the Bureau reads
the purpose and objectives Congress set for the Bureau as clearly
signaling that the Bureau should also exercise its numerous authorities
to facilitate access and innovation in markets for consumer financial
products and services. These commenters, in contrast, appear to
diminish this aspect of the Bureau's consumer protection mission. For
example, one consumer group letter states that facilitating consumer-
beneficial innovation falls outside the Bureau's ``core mission.''
---------------------------------------------------------------------------
\13\ 12 U.S.C. 5511(b)(2); 5536(a).
---------------------------------------------------------------------------
Many comments from stakeholders across the spectrum requested
greater specificity or detail regarding various provisions of the
proposed Policy. The Bureau notes in this regard that the Securities
and Exchange Commission's (SEC) procedures regarding no-action letters
are significantly shorter and less detailed than the proposed
Policy.\14\ Nonetheless, the SEC has managed to provide scores of no-
action letters per year over the course of many decades in a manner
that is widely viewed as promoting the interests of regulated entities,
shareholders, and the public more generally.\15\ Indeed, a number of
the streamlining revisions in the proposed Policy were designed to move
the Policy in the direction of the SEC model.
---------------------------------------------------------------------------
\14\ Securities and Exchange Commission, Procedures Applicable
to Requests for No-Action and Interpretive Letters, Securities Act
Release No. 6269 (Dec. 23, 1980) (available at: https://www.sec.gov/rules/other/33-6269.pdf).
\15\ See, e.g., Donna M. Nagy, Judicial Reliance on Regulatory
Interpretations in SEC No-Action Letters: Current Problems and a
Proposed Framework, 83 Cornell L. Rev. 921, 934 n.45 (1998).
---------------------------------------------------------------------------
The Policy is designed to apprise potential applicants and other
stakeholders of one way in which the Bureau plans to exercise its
supervision and enforcement discretion, namely, through the issuance of
No-Action Letters under the Policy. The Policy is necessarily
relatively general as compared to particular No-Action Letters issued
under it. Moreover, given that the Policy is being issued based on
relatively little practical experience in issuing No-Action Letters,
the Bureau is concerned that an attempt to provide significantly more
detail and specificity at this time would be counterproductive.
Nevertheless, the Bureau has provided additional specificity and detail
in a number of instances, as explained below. As the Bureau gains
experience implementing the Policy and engages in additional
stakeholder outreach, it will consider the extent to which additional
clarifications or adjustments are necessary or appropriate.
Finally, the Bureau voluntarily sought public comment on the
proposed Policy
[[Page 48231]]
because it recognizes that facilitating consumer-beneficial innovation
is a topic in which many stakeholders have a keen interest, and because
it anticipated receiving comments that would enable it to improve the
proposed Policy. The Bureau appreciates all of the comments received
and has given each of them careful consideration. In the proposal, the
Bureau strove to facilitate consumer-beneficial innovation, while
minimizing the risk of consumer harm. Based on the many constructive,
and instructive, comments received, the Bureau has further revised the
Final Policy in line with these goals.
III. Summary of Comments, Bureau Responses, and Resulting Policy
Changes
This section provides a summary of the significant comments
received by subject matter. It also summarizes the Bureau's assessment
of such comments by subject matter and, where applicable, describes the
resulting changes that the Bureau is making in the final Policy.\16\
---------------------------------------------------------------------------
\16\ The Bureau has also made a number of technical changes to
the final Policy to accommodate the revisions described below and to
increase clarity.
---------------------------------------------------------------------------
A. Compliance With Administrative Law
The Bureau received a number of comments claiming that the proposed
Policy violates applicable rulemaking requirements as well as other
requirements of administrative law. Relatedly, some commenters argued
that individual No-Action Letters could violate applicable rulemaking
requirements.
1. Legal Status of the Policy
In section III of the document published in the Federal Register on
December 13, 2018, the Bureau stated that, if finalized, the two-part
proposed Policy would constitute an agency general statement of policy
and a rule of agency organization, procedure, or practice exempt from
the notice and comment rulemaking requirements under the Administrative
Procedure Act (APA). Due to the types of compliance assistance that
would be available under Part II of the two-part proposed Policy, the
Bureau deemed it appropriate to treat Part II as both a general
statement of policy and a procedural rule. It was largely for this
reason that section III stated that the entire proposal (i.e., both
parts), if finalized, would constitute a general statement of policy
and a procedural rule. Now that the Bureau is separately finalizing the
No-Action Letter Policy, it has determined that the Policy is more
appropriately characterized solely as a general statement of policy.
Consumer groups disagreed with the Bureau's characterization of the
proposed Policy as a general statement of policy, arguing that the
proposed Policy, if finalized, would be a de facto legislative rule
because (i) it would limit the Bureau's discretion to take a
supervision or enforcement action once it issues a No-Action Letter;
and (ii) it would replace staff-issued No-Action Letters with Bureau-
issued No-Action Letters.\17\ Each of these claims concerns the binding
nature of particular No-Action Letters, rather than the proposed
Policy--a topic addressed in section III.A.2 below.
---------------------------------------------------------------------------
\17\ The same commenters also took issue with the Bureau's
characterization of the proposed Policy as a procedural rule. In
light of the Bureau's determination that it is more appropriate to
characterize the Policy as a general statement of policy only--and
not also a procedural rule--the Bureau is not responding to this
line of comment in the instant document. Rather, the Bureau is
responding to this line of comment in the document finalizing Part
II of the proposed Policy as the Compliance Assistance Sandbox
Policy.
---------------------------------------------------------------------------
As finalized, the Policy is a non-binding general statement of
policy under applicable law.\18\ As stated in section IV below, the
Policy is intended to provide information to interested parties
regarding the Bureau's plans to exercise its enforcement and
supervisory discretion to provide No-Action Letters.\19\ The Bureau
retains the discretion to change these plans as it gains experience in
operating the Policy--just as it had done in the 2016 Policy.\20\
---------------------------------------------------------------------------
\18\ See, e.g., Syncor Int'l v. Shalala, 127 F.3d 90, 94 (D.C.
Cir. 1997) (``By issuing a policy statement, an agency simply lets
the public know its current . . . approach. The agency retains the
discretion and the authority to change its position--even abruptly--
in any specific case because a change in its policy does not affect
the legal norm.'').
\19\ See, e.g., Attorney General's Manual on the Administrative
Procedure Act 30 n.3 (1947) (providing that policy statements are
issued ``to advise the public prospectively of the manner in which
the agency proposes to exercise a discretionary power.'')
\20\ 81 FR 8686, 8687 (Feb. 22, 2016).
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2. Legal Status of No-Action Letters
As noted above, and in the proposal, a particular No-Action Letter
would constitute an exercise of the Bureau's supervisory and
enforcement discretion. Consumer groups appeared to accept this
characterization as to some No-Action Letters, but argued that other
No-Action Letters could be de facto legislative rules issued in
contravention of applicable law because they could change, in a binding
manner, and broadly, whether and how consumer protection laws apply in
the future. The claim that such No-Action Letters would be binding and
have future effect is based on their claim that No-Action Letters would
restrict the Bureau's ability to take enforcement or supervision action
in the future. That claim was based, in turn, on two features of the
proposal: (1) The Bureau's statement that, whereas a No-Action Letter
under the 2016 Policy was a staff recommendation of no-action, a No-
Action Letter under the proposed Policy would be issued by duly
authorized officials of the Bureau in order to provide recipients
greater assurance that the Bureau itself stands behind the No-Action
Letters; and (2) the Bureau's proposal to omit from No-Action Letters a
statement that the letter is subject to modification or revocation at
any time at the discretion of the staff for any reason.
As regards the first feature, the shift from staff-issued No-Action
Letters to Bureau-issued No-Action Letters was proposed to address
concerns that a no-action recommendation by some Bureau staff would be
reversed sometime later by other Bureau staff with a different view of
the matter, and to provide applicants with a reasonable basis for
believing that this ``whiplash'' scenario would not occur under the
proposed Policy. The commenters' apparent argument that a no-action
position issued by an agency, as opposed to a staff recommendation of
no-action, transforms an exercise of enforcement discretion into a
legislative rule is without basis. It is well-settled that agency-level
exercise of enforcement discretion, even if stated in binding terms,
does not constitute legislative rulemaking.\21\
---------------------------------------------------------------------------
\21\ See, e.g., Ass'n of Irritated Residents v. E.P.A., 494 F.3d
1027 (D.C. Cir. 2007); Schering Corp. v. Heckler, 779 F.2d 683 (D.C.
Cir. 1985); New York State Dept. of Law v. F.C.C., 984 F.2d 1209
(D.C. Cir. 1993).
---------------------------------------------------------------------------
As regards the second feature, the Bureau proposed omitting the
``any time/any reason'' statement because it was concerned that this
statement may create a false impression about the Bureau's intent
regarding revocation, and thus may deter entities with potentially
beneficial products and services from applying for a No-Action Letter.
It could mistakenly be understood to suggest that the Bureau plans to
modify or revoke No-Action Letters ad libitum. As the Bureau noted in
the proposal, other Federal agencies with no-action letter programs
have terminated no-action letters very rarely. The Bureau anticipates
that revocations would be equally rare under the Policy. Accordingly,
section C.7 of the final Policy replaces the ``any time/any reason''
statement with the more
[[Page 48232]]
accurate statement that the Bureau may terminate \22\ a No-Action
Letter if it determines that doing so is necessary or appropriate to
promote the primary purposes of the Policy as stated therein, and gives
three examples of such circumstances.
---------------------------------------------------------------------------
\22\ As explained below, the Bureau is replacing the term
``revocation,'' which was used in the proposed Policy, with the term
``termination'' in the final Policy.
---------------------------------------------------------------------------
As noted, the consumer groups also identified effecting a change in
existing law or regulations as an element of No-Action Letters that
could be legislative rules. Prima facie, an exercise of discretion not
to enforce a particular statutory or regulatory provision against a
particular entity does not effect a change in the agency's substantive
interpretation or implementation of the provision. The provision
remains unchanged, and the agency may decide to bring an enforcement
action against another entity based on a violation of the provision.
Finally, as noted, the consumer groups also identified breadth or
generality as a feature of No-Action Letters that could be legislative
rules. They identified several types of generality: (i) No-Action
Letters that would apply generally to all consumers that might use a
given company's product or service; (ii) No-Action Letters that would
apply to all members of an industry association; and (iii) No-Action
Letters that would apply to all customers of a software provider. These
commenters indicated that No-Action Letters of the second two types
could result from the proposed alternative process for applications by
third parties, under which an industry association or service provider
could apply for a provisional No-Action Letter on behalf of their
member or customers, and additional members or customers could be added
to the letter over time.
The Bureau proposed this alternative process to address
circumstances in which the standard process of applying for a No-Action
Letter might not work for one reason or another. As explained in
section III.F below, the Bureau is finalizing this aspect of the
proposal by adding a new section E to the Policy, which provides
greater detail and clarity regarding alternative application,
assessment, and issuance procedures. Like the standard process
described in sections A through C, these alternative procedures are
necessarily somewhat general and open-ended. Not only is the Policy a
general statement of policy, but, as noted in section II above, the
Bureau has relatively little experience in implementing this type of
policy. And this is a fortiori the case as regards the alternative
application procedures, which were not a feature of the 2016 Policy.
The Bureau is mindful of the concerns raised by commenters and intends
to implement these procedures in a manner consistent with the APA's
procedural and substantive requirements.
3. Arbitrary and Capricious
The proposed Policy stated that its main purpose is to provide a
mechanism through which the Bureau may more effectively carry out its
statutory purpose of ensuring that all consumers have access to markets
for consumer financial products and services and that markets for
consumer financial products and services are fair, transparent, and
competitive; and its statutory objectives, which include exercising its
authorities under Federal consumer financial law for the purposes of
ensuring that markets for consumer financial products and services
operate transparently and efficiently to facilitate access and
innovation. In the preamble of the proposed Policy, the Bureau
described various changes it was proposing to make to the 2016 Policy
and explained that those changes were designed, inter alia, to
streamline the application and review process and to bring the Policy
more in line with certain aspects of no-action letter programs operated
by other Federal agencies.
Consumer groups claimed that the proposed Policy, if finalized,
would be arbitrary and capricious for several reasons. The Bureau notes
that a determination of whether the Policy is arbitrary or capricious
would be based on the content of the final Policy, not the proposed
Policy. Accordingly, the discussion below references the final Policy
as well as the proposed Policy.
First, consumer groups contended that the proposed Policy entirely
fails to consider an important aspect of the problem the proposed
Policy was intended to address by making no mention of its impact on
consumers. The Bureau disagrees. As noted in the proposed Policy and in
section II above, the main purpose of the Policy is to more effectively
carry out the Bureau's consumer-focused purpose and objectives. In
addition, the Bureau expects that (i) applications for a No-Action
Letter under the Policy will include a discussion of both consumer
benefit and consumer risk, and (ii) the Bureau's assessment of
applications will place particular emphasis on these aspects of the
application.
Second, consumer groups claimed that the Bureau failed to give
adequate reasons for the proposed revisions of the 2016 Policy. More
specifically, they stated that the only rationale the Bureau provided
was that more incentives need to be provided to companies to apply for
a No-Action Letter in light of the fact that the Bureau issued only one
No-Action Letter under the 2016 Policy. As noted above, however, the
Bureau provided other rationales, including streamlining the
application and review processes and bringing the Policy more in line
with certain features of no-action letter programs operated by other
Federal agencies.
Third, these commenters asserted that the proposed Policy offers
``virtually no explanation'' of the proposed revisions to the 2016
Policy. As noted above, however, such explanations were provided in the
proposed Policy. Moreover, additional explanations of the revisions are
provided throughout the instant preamble.
B. Scope of the Proposed Policy
A number of comments from stakeholders across the spectrum
addressed the subject matter scope of the proposed Policy, i.e., the
types of products or services that could be included in an application.
Section A.3 of the 2016 Policy provided that No-Action Letters were not
intended for either well-established products or purely hypothetical
products that are not close to being able to be offered. And in
response to comments on the proposed 2016 Policy regarding the types of
products or services within its scope, the Bureau noted that the 2016
Policy was limited to emerging products. The proposed Policy omitted
the statement regarding well-established products and hypothetical
products, and likewise did not state that No-Action Letters would be
limited to emerging products and services.
Consumer groups opposed these proposed changes, and interpreted
them as signaling the Bureau's intention to provide No-Action Letters
for well-established products that do not need a No-Action Letter, and
to give companies a ``back-door channel'' to obtain outcomes they
failed to obtain through the notice-and-comment process. This was not
the Bureau's intent in proposing these changes. As noted above, one of
the primary bases of the Policy is to more effectively implement the
Bureau's statutory objective of facilitating innovation. Innovation is
a broad concept, and not limited to new or emerging products and
services. As regards the concern that the Bureau intends to grant No-
Action Letters in cases where they are not needed, it is unclear why an
entity would take the
[[Page 48233]]
trouble to apply for a No-Action Letter in such a case. In any event,
the Bureau has no intention to issue No-Action Letters in such
circumstances.
The Bureau proposed to omit the statement about hypothetical
products because it was concerned that the statement might discourage
applications regarding products and services under development that
could benefit consumers. Indeed, it is for this reason that the Bureau
proposed accepting applications from service providers and is including
a process for such applications in section E.1 of the final Policy (as
discussed in section III.F below).
Industry commenters generally understood the Bureau's intent in
proposing to omit the above statements, but asked the Bureau to state
more expressly in the final Policy that the Policy is not intended to
be limited to new or emerging products. That is indeed the case, and
the text of the final Policy is consistent with that position.
C. Application Elements
In finalizing the 2016 Policy, the Bureau addressed two types of
comments on the application section of the proposed 2016 Policy: (i)
Comments that the proposal would have required applicants to submit an
unduly burdensome volume of information; and (ii) comments that the
information requirements be minimized specifically for smaller
organizations that may have relatively fewer resources to devote to the
No-Action Letter process. The Bureau declined to reduce the volume of
information to be included in applications for a No-Action Letter based
on its belief that the volume was not unduly burdensome. The Bureau's
main rationale in this regard was its expectation that any
conscientious firm intending to launch a consumer financial product or
service that would raise substantial regulatory questions would compile
the same information on its own, apart from an application for a No-
Action Letter.
In addition, the Bureau stated that it planned to monitor the
effectiveness of the 2016 Policy and to assess periodically whether
changes to the Policy would better effectuate the purposes of
facilitating innovation and otherwise substantially enhancing consumer
benefit. In the proposed Policy, the Bureau explained that it was
proposing to revise the 2016 Policy in various respects for a number of
reasons. Most generally, the Bureau explained the proposed changes were
designed to increase utilization of the Policy, thereby enabling the
Bureau to more effectively carry out its statutory purpose and
objectives. More specifically, the Bureau explained that certain
proposed changes were designed to (i) streamline the application and
review process by eliminating redundant and unduly burdensome elements;
and (ii) more closely align the Policy with certain elements of no-
action letter programs operated by other Federal agencies.
The Bureau believes that the low level of interest in applying for
a No-Action Letter under the 2016 Policy indicates that the application
elements included in the 2016 Policy were in fact unduly burdensome,
particularly when viewed as a total package. In addition, the Bureau
believes that a more streamlined set of application elements will
ensure that smaller entities are not disadvantaged relative to larger
entities in being able to take advantage of the Policy. The Bureau also
believes that the rationale provided in the 2016 Policy for why the
package of application information was not unduly burdensome is
inapplicable or overstated as regards certain application elements in
the 2016 Policy, as explained below.
Industry commenters generally supported the proposed revisions of
the application section of the 2016 Policy. Consumer groups opposed
each proposed revision, and in some cases urged the Bureau to request
more information from applicants than is specified in the 2016 Policy.
1. Explanation of Consumer Risk
Section A.5 of the 2016 Policy instructed applicants to include a
candid explanation of potential consumer risks posed by the product--
particularly as compared to other products available in the
marketplace--and undertakings by the applicant to address and minimize
such risks. Section A.14 of the 2016 Policy instructed applicants to
include a description of any particular consumer safeguards the
applicant will employ, although they may not be required by law, if a
No-Action Letter is issued, including any mitigation of potential for
or consequences of consumer injury. It went on to say that the
description should specify the requester's basis for asserting and
considering that such safeguards are effective, and should also address
any future study the requester will undertake to further evaluate the
effectiveness of such safeguards.
The Bureau proposed replacing section A.5 with a similar
instruction to include an explanation of the potential consumer risks
posed by the product or service and/or the manner in which it is
offered or provided, and how the applicant(s) intends to mitigate such
risks. The Bureau proposed omitting section A.14 altogether. Consumer
groups asserted that these proposed revisions would lead to the Bureau
granting No-Action Letters without any reliable assessment of risks to
consumers, and urged the Bureau not to finalize the proposed revisions.
The Bureau believes that proposed revisions to section A.5, as
finalized, retain the core information needed for the Bureau to assess
consumer risk. The information to be provided in applications for no-
action letters provided by other Federal agencies typically does not
include a comparison to risks posed by competitors' offerings.\23\ Nor
does the Bureau believe that potential applicants typically have such
information ready to hand, including especially smaller entities. The
same is true of the ``future study'' portion of section A.14. The
Bureau thus remains of the view that these elements of the 2016 Policy
are unduly burdensome.
---------------------------------------------------------------------------
\23\ See, e.g., Securities and Exchange Commission, Procedures
Applicable to Requests for No-Action and Interpretive Letters,
Securities Act Release No. 6269 (Dec. 5, 1980) (available at: https://www.sec.gov/rules/other/33-6269.pdf); Commodity Futures Trading
Commission, Requests for Exemptive, No-Action and Interpretative
Letters, 17 CFR 140.99; Federal Housing Finance Agency, 12 CFR
1211.1, 1211.4, 1211.6; Federal Energy Regulatory Commission,
Informal Staff Advice on Regulatory Requirements; Interpretive Order
Regarding No-Action Letter Process, 70 FR 71487 (Nov. 29, 2005).
---------------------------------------------------------------------------
The Bureau likewise continues to believe that the remainder of
section A.14 of the 2016 Policy is largely redundant vis-[agrave]-vis
section A.5. A description of any particular consumer safeguards the
requester will employ, including any mitigation of potential for or
consequences of consumer injury, and a specification of the requester's
basis for asserting and considering that such safeguards are effective
(per section A.14) is substantially similar to a candid explanation of
potential consumer risks posed by the product and undertakings by the
requester to address and minimize such risks (per section A.5).
More generally, section B of the final Policy specifies that the
Bureau intends to base its assessment of applications, inter alia, on
the quality and persuasiveness of the application, with particular
emphasis on the consumer risk element. This should incent applicants to
ensure that the information they submit regarding consumer risk is of
high quality and persuasive.
[[Page 48234]]
2. Substantial Consumer Benefit and Substantial Legal Uncertainty
The 2016 Policy instructed applicants to explain how the product in
question is likely to provide ``substantial'' consumer benefit to
consumers, and to identify the ``substantial'' regulatory uncertainty
on which the request for a No-Action Letter is based. These were key
features of a policy designed to result in one to three actionable No-
Action Letter applications per year. The Bureau thus proposed to
eliminate these limitations as part of its general policy shift toward
increasing the level of support for consumer-beneficial innovation.
Industry commenters and advisory/research organizations supported these
proposed changes. Consumer groups opposed them.
Regarding the proposed elimination of ``substantial'' as to
consumer benefit, consumer groups' opposition appears to be based on
their general support of the approach to innovation-facilitation taken
in the 2016 Policy. The Bureau is finalizing the revised application
element as proposed, i.e., as instructing applicants to include an
explanation of the potential consumer benefits of the product or
service and/or the manner in which it is offered or provided, because
it continues to believe this change vis-[agrave]-vis the 2016 Policy is
needed to increase use of the Policy.
The Bureau is finalizing the proposed elimination of
``substantial'' as to legal uncertainty for the same reason. Consumer
groups noted that the proposed Policy instructs applicants instead to
identify ``potential'' uncertainty for which a No-Action Letter is
needed. The Bureau acknowledges that use of the term ``potential'' in
this context can be improved. The Bureau's use of this term was driven
by its recognition that the full extent of uncertainty may not be
apparent at the time an application is submitted. To allow for this
circumstance, the proposed Policy includes a footnote explaining that
the Bureau recognizes that in some cases it may be difficult to
determine precisely which provisions would apply, in the normal course,
to the product or service in question; that, in other cases, the
applicant may lack the legal resources to make a fully precise
determination; and that, in such circumstances, the applicant should
provide the maximum specification practicable under the circumstances
and explain the limits on further specification. It is thus unnecessary
to attempt to make the same point using the term ``potential,'' and
that term is not included in section A.5 of the final Policy.
3. Compliance With Other Law
The Bureau proposed eliminating three elements of section A of the
2016 Policy that concerned compliance with other law in some manner.
Section A.6.c required a showing of the product's compliance with other
relevant Federal and State regulatory requirements. Section A.10
required an affirmation that, to the requester's knowledge (except as
specifically disclosed in the request), neither the requester nor any
other party with substantial ties to transactions involving the product
is the subject of an ongoing, imminent, or threatened governmental
investigation, supervisory review, enforcement action, or private civil
action respecting the product, or any related or similar product.
Section A.11 required an affirmation that (except as specifically
disclosed in the request) the principals of the requester have not been
subject to license discipline, adverse supervisory action, or
enforcement action with respect to any financial product, license, or
transaction within the past ten years. Relatedly, section C.7 of the
2016 Policy--which the Bureau also proposed eliminating--provided that
one of the considerations Bureau staff would use in assessing
applications was whether the applicant is demonstrably in compliance
with other relevant Federal and State regulatory requirements.
Industry commenters were generally supportive of these proposed
revisions. Consumer groups worried that these proposed revisions
signaled the Bureau's intent to short-circuit enforcement of the law by
other government agencies or consumers and to interfere in ongoing
disputes, and urged the Bureau to reinstate them. The Bureau declines
to do so for a number of reasons. First, the Bureau is concerned that
these elements of section A of the 2016 Policy, in combination with
section C.7 of the 2016 Policy, unnecessarily discouraged viable
applications. Potential applicants could have interpreted these
provisions to mean that No-Action Letters would only be provided to
entities, individuals, and products/services that had never been so
much as threatened with some type of governmental action or private
lawsuit. Indeed, potential applicants could have interpreted section
A.10 to mean that there would be no point in submitting an application
for a No-Action Letter if other entities with ``substantial ties'' to
transactions involving the product or service, or even ``related or
similar'' products or services, had been threatened with such action or
suits.
Second, the Bureau is concerned that these provisions are unduly
burdensome--as suggested by commenters on the proposed 2016 Policy. An
applicant would have to ``show'' or ``demonstrate'' that the product or
service was compliant with all relevant law. An applicant would have to
list not only ongoing investigations or lawsuits, but also
``threatened'' investigations and suits. And the list would have to
contain not only actions and suits targeted at the applicant, but also
those targeted at any entity with ``substantial ties'' to ``related or
similar'' products or services. An application would have to list all
types of adverse actions against the principals of the applicant during
the prior ten years. Finally, the applicant effectively would have to
attest that these lists are full and complete.\24\
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\24\ The Bureau notes that procedures governing applications for
no-action letters issued by other Federal regulators typically do
not include this type of listing of ongoing or threatened actions by
other regulators and private litigants. See n.22, supra.
---------------------------------------------------------------------------
Third, the Bureau believes that the more effective and efficient
means of handling the concerns raised by consumer groups is to clarify
that the Bureau expects its assessment of applications (described in
section B of the final Policy) to include due diligence regarding the
applicant, its principals, and the product or service in question.
Despite not including sections A.7, A.10, and A.11 of the 2016 Policy
in the final Policy for the reasons set forth above, the Bureau does
not intend to allow the Policy to be used--or rather abused--by
entities seeking to evade investigations or actions by other
regulators. On the contrary, the Bureau intends to conduct necessary
and appropriate due diligence on applicants--including consulting with
other regulators--to ensure that the Policy is used for its intended
purposes.
4. Duration and Data Sharing
The 2016 Policy did not expressly provide that No-Action Letters
would be of limited duration. But section A.13 instructed applicants to
specify whether the request is limited to a particular time period. And
section C.8 provided that the Bureau would base its assessment of
applications, in part, on the extent to which the application is
sufficiently limited in time, volume of transactions, or otherwise, to
allow the Bureau to learn about the product and the aspects in question
while minimizing any consumer risk. There was thus a suggestion that
applications for No-Action Letters of unlimited duration might be
disfavored.
[[Page 48235]]
Section A.9 of the 2016 Policy instructed applicants to include an
undertaking, if the request is granted, to share appropriate data
regarding the product with the Bureau, including data regarding the
impact of the product on consumers, and its plans for development of
additional data. Section C.9 provided that the Bureau's assessment of
applications would be based, in part, on the extent to which any data
that the entity has provided and agrees to provide to the Bureau
regarding the operation of the product's aspects in question will be
expected to further consumer protection.
In the proposed Policy, the Bureau stated that the default
assumption under the proposed Policy would be that No-Action Letters
would be of unlimited duration and that there would be no expectation
of data sharing. The Bureau explained that it was proposing these
changes in order to bring the Policy more in line with certain elements
of the no-action letter programs of other agencies.
Industry commenters generally supported these proposed shifts,
while consumer groups opposed them. In consumer groups' view, the
duration of No-Action Letters should be determined on a case-by-case
basis. If a No-Action Letter addresses a narrow technical issue there
may be no reason for an end date. But UDAAP-focused No-Action Letters,
for example, should be of short duration. Similarly, consumer groups
advised the Bureau to at least require No-Action Letter recipients to
submit data on the consumer impact of the products or services in
question.
The Bureau believes there is some merit to the consumer groups'
point that a one-size-fits-all approach to the duration of No-Action
Letters is inadvisable. In certain cases, it may be appropriate to
limit the duration of a No-Action Letter. Indeed, in some cases an
applicant itself might wish the No-Action Letter to be of limited
duration. However, the Bureau believes that, to account for such
variation, it is not necessary to change the Policy as proposed.
Nothing in the final Policy prevents No-Action Letters of limited
duration. In a given case, if the Bureau and/or the applicant believes
that a temporal limitation is appropriate, such a limitation can be
included in the No-Action Letter.
The Bureau declines the specific request to require recipients of a
No-Action Letter under the Policy to routinely submit data regarding
consumer impact. However, the Bureau agrees with the general concern
behind this specific request: If the product or service covered by a
No-Action Letter is not performing as anticipated in the application--
including especially by injuring consumers--it is important for the
Bureau to become aware of that fact as soon as reasonably possible. To
address this general concern, a No-Action Letters under the proposed
Policy would have required recipients to inform the Bureau of material
changes to information included in the application that would
materially increase the risk of material, tangible harm to consumers.
As noted below in section III.H.1, commenters found this ``material,
tangible harm'' standard to be vague and subjective. To address this
issue, and to increase the likelihood that the Bureau will learn of any
consumer injury caused by the product or service covered by a No-Action
Letter in a timely manner, the Bureau is revising this provision
(section C.4 in the final Policy) to include the Bureau's expectation
that a No-Action Letter will require recipients ``to apprise the Bureau
of (a) material changes to information included in the application and
(b) material information indicating that the described aspects of the
product or service are not performing as anticipated in the
application.'' In addition, the Bureau is adding a footnote to section
C.4 explaining that ``not performing as anticipated'' includes the
materialization of consumer risks identified in the application, and
the materialization of other consumer risks not identified in the
application.
5. Non-Endorsement
Section A.10 of the 2016 Policy advised applicants to include a
commitment that, if the application is granted, the recipient will not
represent that the Bureau or its staff has licensed, authorized or
endorsed the product, or its permissibility or appropriateness, in any
way. In the proposed Policy, the Bureau proposed deleting this element
as part of its general streamlining effort.
Consumer groups urged the Bureau to retain this element. The Bureau
declines to do so, but agrees with the commenters' more general point
that receipt of a No-Action Letter should not be misconstrued to be the
Bureau's endorsement of the product or service in question--which could
potentially give the recipient an unfair advantage over its competitors
or mislead consumers. Accordingly, the Bureau is adding to the list of
statements that would be included in a No-Action Letter a statement
that the No-Action Letter does not constitute an endorsement of the
product or service that is the subject of the letter, or of any other
product or service offered or provided by the recipient(s).\25\
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\25\ See section C.3(e) of the final Policy.
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D. Bureau Assessment of Applications
1. Assessment Factors
Consistent with the Bureau's proposed streamlining of the
application elements of the 2016 Policy, the Bureau proposed
streamlining section C of the 2016 Policy to focus the Bureau's
assessment on the core application elements: The potential benefits of
the product or service, its potential consumer risks, and the need for
a No-Action Letter. Industry commenters generally supported these
proposed changes. Consumer groups opposed these proposed changes, and
asserted that they would result in vague assessment criteria and demand
no accountability to the Bureau or to the public. They accordingly
urged the Bureau to retain all of the assessment criteria in the 2016
Policy.
The Bureau emphasizes that it did not propose a wholesale
replacement of the assessment elements of the 2016 Policy. Rather, as
noted, the Bureau proposed retaining what it viewed as the core
assessment elements, and discarding only those falling outside the
core. More specifically, the proposal would have largely retained
sections C.2 (consumer benefit); C.4 (consumer risk); and C.5
(regulatory uncertainty). The Bureau believes that section C.1,
regarding consumer understanding, was largely redundant vis-[agrave]-
vis sections C.2 and C.4; that section C.3, regarding the availability
of benefits in the existing marketplace, was largely redundant vis-
[agrave]-vis section C.2; and that section C.6, regarding whether the
identified regulatory uncertainty may be better addressed by other
means, was largely redundant vis-[agrave]-vis section C.5. As for
section C.7, regarding compliance with other law, it is addressed above
in section III.C.3. Similarly, sections C.8 and C.9, regarding temporal
duration and data sharing, are addressed above in section III.C.4. The
same is true to some extent of section C.10, regarding the applicant's
amenability to public disclosure of relevant data. Since the default
assumption under the final Policy is that no data sharing will be
required, the applicant's amenability to public disclosure of shared
data is generally not a relevant assessment element.
More generally, the Bureau acknowledges that the assessment section
of the proposal may have sketched an incomplete picture of the Bureau's
intended assessment of
[[Page 48236]]
applications. The Bureau intended to apprise potential applicants and
other interested stakeholders that its assessment of applications would
focus on the quality and persuasiveness of the applications,
particularly the elements concerning consumer benefit, consumer risk,
and regulatory uncertainty. The Bureau did not intend to suggest that
other factors will not play a role in its decisions. To remove any such
misimpression, the Bureau is revising section C of the final Policy to
clarify that it expects its assessment of applications to involve a
complicated balancing of many factors, including an assessment of the
quality and persuasiveness of the application, with particular emphasis
on the information specified in sections A.3, A.4, and A.5; as well as
information about the applicant and the product or service in question
derived through Bureau due diligence processes; the extent to which
granting the application would be consistent with Bureau enforcement
and supervision priorities; an assessment of litigation risk; and
available Bureau resources.
2. Assessment Timeframe
The proposed Policy stated the Bureau's intention to grant or deny
an application within 60 days of notifying the applicant that the
Bureau has deemed the application to be complete. The Bureau received a
range of comments on this new provision. Consumer groups stated that a
60-day review period is unreasonably short and will encourage hasty and
flawed reviews of applications, resulting in harm to consumers. They
recommended that the Bureau not make any assurances regarding the time
it will take to review an application, and that any specific time
period should be much longer and more flexible than 60 days. A trade
association stated that 60 days is too long, and encouraged the Bureau
to commit to completing its assessment of applications within 30 days.
An advisory/research organization opined that while 60 days should
generally be sufficient, the Bureau should afford itself the option of
taking an additional 30 days, provided notice is given to the
applicant.
The Bureau is finalizing the 60-day provision as proposed because
it believes that this period strikes the optimal balance between
permitting sufficient time for a thorough review of applications and
encouraging entities to submit applications. Consumer groups' concerns
may be based somewhat on a misunderstanding of the provision. Their
comments appear to envision a scenario in which no more than 60 days
will elapse between the Bureau first setting eyes on a potential
application and the Bureau granting or denying a formal application.
The proposed Policy encouraged potential applicants to contact the
Bureau for informal, preliminary discussion of a proposal before
submitting a formal application. The final Policy strongly encourages
such informal, preliminary discussion. Thus, in a typical case, the
Bureau's review of a proposal likely would take place over a period
longer than 60 days. The new 60-day provision is designed to give an
applicant reasonable assurance that, once an application is deemed to
be complete, the Bureau intends to grant or deny it within 60 days.
That said, the final Policy indicates that certain circumstances may
lead to a longer processing time, such as a request that the Bureau
coordinate with other regulators prior to granting or denying an
application.
More generally, the Bureau has no intention of permitting the 60-
day review goal to trump its goal of thoroughly assessing applications
before granting them, as the latter is more integral to the long-term
success of the Policy and the consumer benefit the Bureau expects the
Policy to yield. Moreover, if experience operating the Policy indicates
that the 60-day review period is not working as intended, the Bureau
intends to adjust it in an appropriate manner.
E. Issuance and Content of No-Action Letters
The Bureau proposed a number of revisions to section D of the 2016
Policy, which concerned the Bureau's intended procedures for issuing
No-Action Letters, including the expected content of such letters.
Industry commenters generally supported these proposed revisions.
Consumer groups opposed each proposed revision.
1. UDAAP
As noted, in the preamble of the 2016 Policy, the Bureau estimated
that only one to three actionable No-Action Letter applications would
be received each year. The Bureau also stated that No-Action Letters
focused on the UDAAP prohibition in the Dodd-Frank Act \26\ are
expected to be particularly uncommon. In the proposed Policy, the
Bureau stated that there would be no such expectation under the
proposed Policy.
---------------------------------------------------------------------------
\26\ 12 U.S.C. 5531, 5536.
---------------------------------------------------------------------------
Industry commenters uniformly supported this policy shift. For
example, a group of trade associations stated that a No-Action Letter
that does not include assurance against UDAAP liability has limited
value due to the subjectivity of such claims. Similarly, a trade
association commented that the fact that the majority of enforcement
actions are brought under UDAAP authority makes clear that entities are
in need of guidance in a gray area that is principle based rather than
rule based.
In contrast, consumer groups opposed this policy shift. The
consumer groups stated that, under the proposed Policy, the Bureau
would give a stamp of approval that a company is not committing UDAAPs.
This is not correct. Rather, the proposal provided that a No-Action
letter would include a statement that, subject to good faith,
substantial compliance with the terms and conditions of the letter, and
in the exercise of its discretion, the Bureau will not make supervisory
findings or bring a supervisory or enforcement action against the
recipient predicated on the recipient's offering or providing the
described aspects of the product or service under its authority to
prevent unfair, deceptive, or abusive acts or practices. The proposal
noted that this statement implies that the Bureau has not determined
that the acts or practices in question are unfair, deceptive, or
abusive. A statement that the Bureau has not made a UDAAP determination
is different than a statement that the Bureau has determined that the
acts or practices in question do not constitute a UDAAP. The final
Policy retains this ``implication'' statement.
The consumer groups also opposed this policy shift on the more
general ground that many aspects of the way a product or service works
in practice or is implemented could be poorly understood or could
change from the time an application is granted, and unfair, deceptive
or abusive aspects of a product or service ``might only become apparent
in the future.'' A group of State Attorneys General made essentially
the same point.
The Bureau is not persuaded that such considerations warrant
placing a categorical limitation on UDAAP-focused No-Action Letters.
The proposed Policy stated that No-Action Letters would be based on
particular facts and circumstances and be limited to the recipient's
offering or providing the ``described aspects of the product or
service.'' The proposal explained that the term ``described aspects of
the product or service'' is a short-hand term used in the proposed
Policy to encompass the subject matter scope of a No-Action Letter,
including both the particular aspects of the product or service in
question, and the particular manner in which it is offered or provided.
These aspects of the proposal
[[Page 48237]]
are being finalized as proposed. The Bureau intends that a particular
No-Action Letter issued under the Policy will include a description of
this subject matter scope. Indeed, it is in the interest of both the
Bureau and the recipient that the subject matter scope is described
with as much precision as possible. To the extent the recipient
significantly changes the ``described aspects of the product or
service'' without seeking a modification of the No-Action Letter under
section D.1 of the Policy, the recipient would risk exceeding the
subject matter scope of the letter, and thus would expose itself to a
potential Bureau supervisory or enforcement action. Relatedly, to the
extent the recipient fails to apprise the Bureau of material changes to
information included in the application, as required by section C.4 of
the Policy, the recipient would risk failing to substantially comply in
good faith with one of the terms of the letter--which could be a ground
for termination or even a retroactive enforcement action under section
D.2 of the Policy.
As regards consumer groups' speculative scenario in which the
recipient does not significantly change the described aspects of the
product or service but a UDAAP ``becomes apparent in the future,'' the
Bureau could terminate the No-Action Letter on the ground that the
described aspects of the product or service failed to perform as
anticipated in the Policy, as specified in sections C.7 and D.2 of the
Policy.
2. Interpretations
Under section D.4 of the 2016 Policy, No-Action Letters were
expected to include a lengthy disclaimer that the letter does not
constitute an interpretation, exception, waiver, or safe harbor. As
part of the Bureau's general streamlining effort, the proposed Policy
would not have included this statement in No-Action Letters. Commenters
interpreted the proposed omission of this statement to mean that the
Bureau now intends to provide interpretations in No-Action Letters.
More specifically, consumer groups stated that the deletion
suggests that the Bureau may include legal interpretations in No-Action
Letters in the hope that they will be viewed as official
interpretations to which courts will defer, and strongly opposed such a
shift. In contrast, a group of trade associations urged the Bureau to
include in a No-Action Letter an affirmation that its issuance
represents the Bureau's conclusion that the product or service in
question, implemented consistently with the terms and conditions of the
letter, does not violate applicable Federal consumer financial law,
including the prohibition on UDAAP. Relatedly, these commenters
requested that the final Policy emphasize the deference assigned by
Congress to the Bureau's interpretation of Federal consumer financial
law in order to encourage courts, other regulators, and private
litigants to defer to Bureau No-Action Letters. Similarly, an advisory/
research organization recommended that No-Action Letters include an
explanation of the Bureau's rationale for granting the application, and
provide assurances that the Bureau views the conduct in question as
being consistent with relevant statutory or regulatory requirements.
The proposed deletion of the ``no interpretation'' disclaimer was
not intended to signal a shift to including official interpretations in
No-Action Letters, or any lesser types of interpretation for that
matter. To clarify this point, the Bureau is adding to the list of
statements expected to be included in a No-Action Letter, a statement
that the letter does not purport to express any legal conclusions
regarding the meaning or application of the laws and/or regulations
within the scope of the letter.
While the Bureau appreciates the desire for liability protection
greater than that provided by No-Action Letters, it believes that the
better means to this end is making available forms of compliance
assistance that provide a high-degree of such protection. This is one
reason why the Bureau proposed the Product Sandbox Policy and is
finalizing certain aspects of it, as the Compliance Assistance Sandbox
Policy (CASP), contemporaneously with the finalization of the Policy.
The Bureau also appreciates the need and desire for the type of
compliance assistance provided by interpretations. Accordingly, the
Bureau intends to separately propose an interpretive letter program as
soon as practicable.
3. Limitation to the Application Information
Section D.3 of the 2016 Policy provided that the expected contents
of a No-Action Letter include a statement that the letter is based on
the facts stated and factual representations made in the request, and
is contingent on the correctness of such facts and factual
representations. As part of its general effort to streamline the
Policy, the Bureau did not include this statement in the proposed
Policy. However, section I.A of the proposed Policy, which provided a
general description of No-Action Letters, stated that such letters are
based on particular facts and circumstances. To clarify this point,
section C.3(c) of the final Policy provides that a No-Action Letter is
expected to include a statement that the No-Action Letter is based on
the factual representations made in the application, which may be
incorporated by reference.
F. Alternative Procedures
The proposed Policy would have permitted No-Action Letter
applications from trade associations, service providers, and other
third parties. The proposal recognized that third parties, which
generally do not themselves provide consumer financial products or
services, may face challenges when attempting to submit an application
pursuant to the standard process contemplated in the proposal.
Accordingly, the Bureau proposed an alternative process for third
parties: The Bureau would issue a provisional No-Action Letter based on
the information available to the third party at the time of application
and then issue a non-provisional letter once necessary information
became available about the entities intending to use the product or
service in question and how they intended to offer or provide it.
Comments from trade associations were generally supportive of the
proposed third-party application procedures. Some of these comments
noted that group applications by trade associations would equalize
access to No-Action Letters and allow smaller financial institutions to
participate in the program. Other trade association commenters
explained that third-party applications would increase use of the
Policy and thereby provide the Bureau with greater evidence of
unnecessary regulatory barriers and potential methods to address those
barriers. Another trade association stated that third-party
applications would correctly focus on the product or service at issue
rather than the entity or entities involved in the provision of the
product or service. While supportive of the overall process, some trade
associations sought greater clarity regarding the specific steps of the
application and issuance process, including those related to
provisional No-Action Letters.
Comments from consumer groups and a law firm expressed significant
concerns about allowing trade associations and service providers to
apply for No-Action Letters. These commenters stated that permitting
such applications would mean that a No-Action Letter could cover entire
markets or thousands of clients and potentially affect millions of
consumers. These types of applications would also,
[[Page 48238]]
according to the same commenters, afford the Bureau no ability to
evaluate the practices of the company that provides the product or
service in question. These commenters further asserted that allowing
parties other than the applicant to come forward later and
automatically join a No-Action Letter, without additional review or
approval by the Bureau, would shirk the Bureau's duty to protect
consumers.\27\
---------------------------------------------------------------------------
\27\ Some of the same commenters contended that such broad No-
Action Letters would be legislative rules. These comments are
addressed in section III.A.2, supra.
---------------------------------------------------------------------------
A comment from a group of State Attorneys General likewise raised
the possibility that third-party applications could lead to blanket
coverage of entire industries while making it difficult for the Bureau
to enforce No-Action Letter conditions. The comment also questioned how
the Bureau could ensure the veracity and accuracy of an application
submitted by a party other than the party that would ultimately be the
recipient of a No-Action Letter.
Finally, an academic commenter noted that, while No-Action Letter
applications should not be granted without particularized analysis,
trade association applications could help ensure that similarly
situated competitors receive consistent treatment and that no single
No-Action Letter recipient receives an undue competitive advantage.
Comments by some trade associations also encouraged the Bureau to
implement application processes that would help ensure consistent
treatment of competitors providing a product or service similar to one
that is already the subject of a No-Action Letter.
As regards the proposed procedures for third-party applications,
the Bureau was not proposing to issue a No-Action Letter to a company
without knowing who is requesting it and without conducting a
particularized analysis of how the company intends to offer or provide
the product or service. This is the reason why the proposed Policy
limited third-party applicants to provisional No-Action Letters until
information necessary for a complete application is submitted. Nor
would there be an ``automatic'' process under the proposed Policy that
would allow a non-applicant to subsequently join a No-Action Letter
without additional individualized assessment by the Bureau.
The final Policy seeks to clarify the alternative application
process that service providers, trade associations, consumer groups,
and other third parties may use. This clarification includes adding a
separate section to the Policy on this topic and providing greater
detail and specificity regarding the various steps of the process. In
particular, under new section E.1 of the final Policy, a service
provider or facilitator (e.g., a trade association, consumer group, or
other third party) could provide the application information specified
in section A with appropriate adjustments given that the applicant
itself will not be offering or providing the consumer financial product
or service in question. The section also describes the manner in which
the Bureau intends to assess the application information provided and
the type of document successful applicants should expect to receive
from the Bureau. The final Policy refers to this type of document as a
``No-Action Letter Template'' instead of a ``provisional'' No-Action
Letter in order to more accurately describe the intended purpose of
this document and clarify that it would be non-operative and non-
binding on the Bureau. New section E.1 also describes the Bureau's
anticipated application, assessment, and issuance procedures for
applications for a standard No-Action Letter based on a No-Action
Template.
New section E.2 addresses comments regarding applications involving
products or services that are substantially similar to those that are
the subject of an existing No-Action Letter. The Bureau believes
applications involving a product or service that is substantially
similar to the product or service that is the subject of an existing
No-Action Letter warrant an alternative application procedure that
focuses on similarities in the product or service itself and the manner
in which it is offered or provided. While the Bureau intends to assess
this applicant-specific information in a particularized manner, it
anticipates being able to process such applications in a timeframe
shorter than that specified in section B given that the underlying No-
Action Letter has already been granted.
Finally, consistent with the fact that the Policy is a general
statement of policy under the APA, new section E includes a final
footnote explaining that, in circumstances where neither the Standard
Process nor the alternative procedures described in section E
(Alternative Process) are appropriate, the Bureau may utilize other
procedures that diverge in one or more respects from the Standard
Process or the Alternative Process, consistent with the purposes of the
Policy.
G. Compliance With No-Action Letter Terms and Conditions
Section D.1 of the 2016 Policy provided that the no-action
statement included in a No-Action Letter does not mean that the Bureau
will not conduct supervisory activities or engage in enforcement
investigation to evaluate the requester's compliance with the terms of
the No-Action Letter or to evaluate other matters. Consumer groups
opposed this change, arguing that the Policy should include, at the
very least, a statement that the Bureau retains this investigation and
supervision authority. It appears that these commenters did not notice
that the proposed Policy included a proviso that the Bureau maintains
the right to obtain information relating to the consumer financial
product or service subject to a No-Action Letter under its applicable
supervision and enforcement authorities. The final Policy modifies this
proviso somewhat, as explained below.
Several industry commenters expressed concern that the Bureau's
reliance on its supervisory authority to evaluate compliance with a No-
Action Letter would create an unlevel playing field between recipients
that are supervised by the Bureau and recipients that are not. To
address this circumstance, an industry policy organization suggested
that No-Action Letters issued to firms not subject to the Bureau's
supervisory authority include a term requiring affirmative consent to
the submission of data to and review by the Bureau with respect to
compliance with the other terms and conditions of the letter.
The Bureau declines to make the recommended change to the Policy.
Although the Bureau maintains the right to obtain information about the
product or service subject to a No-Action Letter using its supervisory
authority, it does not follow that the Bureau intends to routinely do
so. Moreover, the Bureau has authorities other than supervisory
authority that can be used for this purpose. To clarify this issue, the
Bureau is amending the proviso that was included in the proposal to
state that the Bureau maintains the authority to obtain information
relating to the consumer financial product or service subject to a No-
Action Letter under its applicable supervision, enforcement, and other
authorities in the same manner and frequency that it obtains
information relating to consumer financial products or services not
subject to a No-Action Letter.
Furthermore, under section C.4 of the final Policy, all recipients
of a No-
[[Page 48239]]
Action Letter--regardless of their supervisory status--are required to
apprise the Bureau of (a) material changes to information included in
the application and (b) material information indicating that the
described aspects of the product or service are not performing as
anticipated in the application.
H. Modification and Termination
The 2016 Policy provided that a No-Action Letter would include a
statement that the letter is subject to modification or revocation at
any time at the discretion of Bureau staff for any reason. The 2016
Policy also stated that a No-Action Letter would include a statement
that, to the extent that the facts and representations in the request
are materially inaccurate, or the requester fails to satisfy conditions
or violates limitations specified in the No-Action Letter, and in other
similar circumstances, the No-Action Letter is by its own terms
inapplicable (even without modification or revocation); and the staff
may recommend initiating a retrospective enforcement or supervisory
action if appropriate. The 2016 Policy also anticipated that No-Action
Letter recipients would be given the grounds for a potential
modification or revocation and an opportunity to respond.
The Bureau proposed revising this aspect of the 2016 Policy in
various respects. The proposed Policy stated that the Bureau might
revoke a No-Action Letter in whole or in part, in certain
circumstances--but that the Bureau expected revocation to be quite
rare. The proposal also stated that the Bureau expects a No-Action
Letter to specify the grounds for revocation, and that the Bureau
anticipates specifying three such grounds. A No-Action Letter under the
proposed Policy would also include a statement that, if the letter is
revoked for a reason other than the recipient's (or recipients')
failure to substantially comply in good faith with the terms and
conditions of the letter, the revocation is prospective only; i.e.,
that the Bureau would not pursue an action to impose retroactive
liability in such circumstances. In addition, the proposed Policy
described the steps the Bureau intended to take prior to revoking a No-
Action Letter. These steps included providing recipients with notice of
the ground(s) for revocation, an opportunity to respond (including an
opportunity to cure a failure to substantially comply in good-faith
with the terms and conditions of the No-Action Letter), and a period
for winding down the offering or providing of the product or service in
question in most circumstances.
While generally supportive of these proposed changes, trade
association commenters and a research/advisory organization requested
greater clarity on the anticipated grounds for revocation and certain
portions of the proposed revocation procedures. Consumer group
commenters urged the Bureau to provide additional grounds for
revocation and retroactive liability, and had concerns about certain
steps of the proposed revocation procedures.
1. Grounds for Termination and Retroactive Liability
The Bureau received a number of comments regarding the three
anticipated grounds for revocation identified in the proposal. The
first such ground was failure to substantially comply in good faith
with the terms and conditions of the No-Action Letter. A research/
advisory organization urged the Bureau to clarify this standard,
particularly regarding its application to technical deficiencies,
harmless compliance failures, and the like. The same commenter also
requested more clarity on the second ground for revocation identified
in the proposal: A determination by the Bureau that the recipient's
offering or providing the described aspects of the product or service
is causing material, tangible, harm to consumers. A group of trade
associations asserted that the second ground is undefined and
subjective, and expressed concern that revocation based on this ground
would constitute a finding of fault against the recipient. These
commenters recommended that the second ground be replaced with a
determination by the Bureau that the product or service did not perform
as intended.
The Bureau also received a comment on the third ground for
revocation identified in the proposal: A change in the legal context
within which the letter was granted as a result of statutory amendments
or Supreme Court opinions. Consumer groups asserted that this ground is
too narrow because the Supreme Court weighs in on fewer than 100 cases
a year--most of which do not involve consumer financial products or
services, and lower courts create binding law that should guide the
Bureau's revocation decisions.
More generally, consumer groups found the three anticipated grounds
for revocation to be too narrow individually and, taken together, too
limiting on the Bureau. These groups contended that the inclusion of
these anticipated grounds in the Policy would place a high burden on
the Bureau to revoke a No-Action Letter in order to protect consumers.
Finally, comments were submitted on the statement regarding
retroactive liability in the proposed Policy. Industry commenters
generally supported this statement. Consumer groups urged the Bureau to
retain material inaccuracy of facts and representations in an
application as an additional ground for retroactive liability. A
research/advisory group recommended that the Bureau list consumer harm
caused by the product or service in question as an additional basis for
retroactive liability.
Based on these comments and other considerations, the Bureau is
revising the discussion of revocation in the final Policy in certain
respects (and locating these changes in a new section (section D)
concerning Modification and Termination). First, in the proposal, the
Bureau stated that it expected revocation of a No-Action Letter to be
quite rare. To clarify this point, the Bureau is adding an express
statement that the Bureau intends that the recipient of a No-Action
Letter should be able to reasonably rely on the No-Action Letter,
including especially the no-action statement.
Second, the Bureau agrees that the proposed ``material, tangible
harm'' ground may not be sufficiently clear and objective and
accordingly is replacing it with the ground recommended by commenters:
Failure to perform as anticipated in the application. The Bureau is
also adding a footnote explaining that this ground includes the
materialization of consumer risks identified in the application, or the
materialization of other consumer risks not identified in the
application.
Third, as noted, the proposed Policy simply identified three
anticipated grounds for revocation, but failed to identify a more
general standard or principle underlying them. To clarify this point,
the final Policy states that a No-Action Letter will include a
statement that the Bureau may terminate the letter if it determines
that it is necessary or appropriate to do so to advance the primary
purposes of the Policy, such as where the recipient fails to
substantially comply in good faith with the terms and conditions of the
letter; the described aspects of the product or service do not perform
as anticipated in the application; or controlling law changes as a
result of a statutory change or a Supreme Court decision that clearly
permits or clearly prohibits conduct covered by the letter.
Fourth, as recommended by a group of trade associations, the Bureau
is replacing the term ``revocation'' with
[[Page 48240]]
the term ``termination'' because it is concerned that ``revocation''
misleadingly suggests that any termination would involve a Bureau
determination of wrongdoing on the part of the recipient.
Fifth, the Bureau is revising the retroactive liability statement
to provide that a failure to substantially comply in good faith with
the terms and conditions of the No-Action Letter that causes ``Dodd-
Frank Act actionable substantial injury,'' under 12 U.S.C. 5531(c),
would provide the basis for termination and an action to impose
retroactive liability.\28\
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\28\ The Bureau expects that termination on this ground will be
especially rare. The Bureau believes that bad actors intent on
evading the law, and the terms and conditions of a No-Action Letter,
are the least likely type of entity to apply for a letter. To the
extent such entities express interest in a No-Action Letter or apply
for one, they are likely to be weeded out through the Bureau's
anticipated due diligence process and thus not receive a letter in
the first place.
---------------------------------------------------------------------------
The Bureau declines to adopt the recommendation to identify
material inaccuracy of facts and representations in an application as a
separate potential basis for a retroactive action because it believes
doing so is unnecessary. As noted above, the Bureau expects that a No-
Action Letter issued under the final Policy will include a statement
that the letter is based on factual representations made in the
application. Relatedly, pursuant to section C.4 of the Policy, a No-
Action Letter is expected to include a requirement to apprise the
Bureau of material (a) changes to information included in the
application and (b) information indicating that the described aspects
of the product or service are not performing as anticipated in the
application. A recipient's failure to substantially comply in good
faith with this requirement would provide a necessary condition for
retroactive liability under the Policy.
The Bureau also declines to provide additional clarity regarding
the ``good-faith substantial compliance'' standard because it believes
these terms have a sufficiently established meaning in the law.
2. Termination Procedures
The Bureau received a number of comments about the revocation
procedures described in the proposed Policy. Consumer groups raised
concerns about the statement that, if the Bureau determines that the
recipient failed to substantially comply in good faith with the terms
and conditions of the No-Action Letter, it will offer the recipient an
opportunity to cure the failure within a reasonable period of time
before revoking the No-Action Letter. In their view, companies that act
in bad faith or violate the terms of a No-Action Letter should have no
second chance at complying with those terms. The Bureau is persuaded by
this comment. Although the Bureau anticipates that there will be few,
if any, cases in which a recipient fails to comply in good-faith with
the terms and conditions of the No-Action Letter, in such cases an
opportunity to cure would be inappropriate. However, there may be cases
in which an opportunity to cure may be appropriate, such as when the
recipient attempts to comply in good faith, but fails to comply with
relatively technical terms and conditions. Accordingly, in the final
Policy, this statement has been revised to provide that the Bureau
intends to offer an opportunity to cure in appropriate circumstances.
In addition, the Bureau notes that a request for modification under
section D.1 of the final Policy may be more appropriate in some cases
than providing an opportunity to cure.
The proposed Policy also stated that, in most cases, the Bureau
expects to allow the recipient of a No-Action Letter to wind-down the
offering or providing of the described aspects of the product or
service during an appropriate period after revocation. Consumer groups
contended that the proposed Policy provided the Bureau too little
flexibility to revoke a No-Action Letter without a wind-down period.
The Bureau disagrees. While the Bureau expects a wind-down period to be
afforded in the rare instance that a No-Action Letter is terminated,
the proposed Policy does not guarantee a wind-down period. Thus, in
appropriate cases, the Bureau has the flexibility to terminate without
providing a wind-down period.
A group of trade associations noted that the proposed Policy's
provision regarding a wind-down period, which stated that the wind-down
period would be an appropriate period after revocation, differed from
the parallel provision in the proposed Product Sandbox Policy, which
stated that the wind-down period would be six months. A nonpartisan
public policy organization likewise identified this discrepancy. This
discrepancy was inadvertent. The Bureau believes that a six-month
period is equally appropriate for No-Action Letters and has accordingly
specified such a six month period in the final Policy.
A research/advisory group urged the Bureau to provide greater
detail and a more formalized process respecting how the Bureau will (i)
determine a reasonable time frame for a recipient to cure a failure to
comply with the terms of a No-Action Letter, (ii) offer an opportunity
to respond to a revocation, as well as the period of time provided for
a response, and (iii) issue a revocation and whether such a revocation
would be made public. The Bureau generally declines to provide
additional detail regarding the termination process for the reasons set
forth in section II above. However, the Bureau is including in the
final Policy a statement that termination information will be published
on the Bureau's website.
3. Modification
As indicated above, the ``any time/any reason'' statement in the
2016 Policy covered modification of a No-Action Letter as well as
revocation. The Bureau proposed omitting this statement, and did not
propose alternative language concerning modification. Consumer groups
noted this silence about modification, and suggested that the final
Policy should provide for modification. A trade association suggested
that modification procedures should be included in the final Policy
because some innovative consumer financial products and services depend
on machine learning and artificial intelligence and will therefore
evolve through continuous ``learning'' and routine re-evaluation of
data and models. The commenter recommended that the Bureau develop a
framework that allows for slight and graduated deviations from the
product or service described in the application, rather than require
the recipient to submit an entirely new application each time there is
a change.
The Bureau generally agrees that the Policy should include
anticipated procedures for modifying No-Action Letters. Accordingly,
the final Policy includes a new section (D.1) that specifies the
Bureau's anticipated procedures regarding requests for modification of
a No-Action Letter.
I. Coordination With Other Regulators
Section G of the proposed Policy stated that the Bureau is
interested in entering into agreements with State authorities that
issue similar forms of no-action relief that would provide for an
alternative means of receiving a No-Action Letter from the Bureau.
Consumer groups read this statement as implying that a company that
obtained a no-action letter from a State would ``automatically''
receive one from the Bureau. That is not the Bureau's intent. Rather,
the Bureau anticipates that such agreements would include provisions
designed to ensure that the Bureau's issuance of a No-Action Letter in
such
[[Page 48241]]
circumstances would be consistent with its statutory authority and
duties, as well as applicable law more generally. The Bureau has no
intention of issuing a No-Action Letter though this type of alternative
means if it believes that consumers would be injured.
The proposed Policy also would have permitted applicants to request
that the Bureau coordinate with other regulators with respect to the
application. A group of trade associations commented that the Bureau
should not put the onus on the applicant to identify other governmental
authorities with which the Bureau may coordinate. Rather, the Bureau
should lead the coordination effort among Federal and State regulators,
as it is better positioned to do so than the applicant. More broadly,
these commenters urged the Bureau to ensure that other regulators
understand the Policy and to request that other regulators defer to the
Bureau's No-Action Letters. These comments were seconded by an industry
policy organization.
As evidenced by the inclusion in the Policy of a separate section
headed Regulatory Coordination, the Bureau very much appreciates the
need for coordination with other regulators for purposes of operating
the Policy. However, such coordination must be balanced against other
considerations. For example, as the Policy notes, if an applicant
wishes the Bureau to coordinate with other regulators, the Bureau may
need more time to process the application, depending on the degree of
coordination requested. Moreover, the degree of coordination needed
likely will vary from case to case. The Bureau intends to use its best
efforts to find the optimal balance between coordination and other
considerations for each No-Action Letter issued under the Policy. For
the reasons discussed above, the Bureau is finalizing the section on
regulatory coordination largely as proposed.
J. Confidentiality and Disclosure
Section E of the 2016 Policy, headed Bureau Disclosure of Entity
Data, was quite brief. The primary statement made was that the Bureau's
disclosure of a version or summary of the application and any data
received from the applicant in connection with a request for a No-
Action Letter is governed by the Bureau's Rule on Disclosure of Records
and Information (Disclosure Rule). The Bureau subsequently received
requests that the Bureau provide a more detailed explanation of its
plans relating to disclosure of information received from applicants
for and recipients of No-Action Letters. In response, the Bureau
proposed expanding this section to include the Bureau's expectations
regarding which types of data and information submitted by applicants
and recipients would qualify as business information and confidential
supervisory information under the Disclosure Rule.
Industry commenters generally supported the proposed expansion.
Consumer groups stated that the revised section is in tension with the
requirements of the Freedom of Information Act (FOIA), and questioned
how the Bureau can forecast that certain aspects of applications will
satisfy applicable FOIA exemption requirements. The Bureau is basing
its expectations, in part, on the nature of the information requested
from applicants and recipients, and the final Policy notes that
information submitted that is not actually responsive to a particular
request may not be protected from disclosure.
The Bureau is not finalizing the proposed language regarding
confidential supervisory information because it has determined it to be
unnecessary. The Bureau believes that potential applicants' main
concern is that trade secrets and proprietary business information
submitted to the Bureau by applicants and recipients not be publicly
disclosed. This concern can be adequately addressed by the statements
in section G of the final Policy that the Bureau anticipates that much
of this information will qualify as confidential information, and, more
specifically, business information exempt from public disclosure.
In addition, in light of a recent Supreme Court opinion concerning
FOIA Exemption 4,\29\ the Bureau is adding to section G a statement
making clear that where information submitted to the Bureau is both
customarily and actually treated as private by the submitter, the
Bureau intends to treat it as confidential in accordance with the
Disclosure Rule.
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\29\ See Food Mktg. Inst. v. Argus Leader Media, 139 S.Ct. 2356
(June 24, 2019).
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The proposed Policy stated that the Bureau may publish denials of
applications for a No-Action Letter on its website, including an
explanation of why the application was denied, particularly if it
determined that doing so would be in the public interest. The Bureau
received divergent comments on this aspect of the proposal. A group of
trade associations supported the publication of denials on the ground
that such transparency will inform market participants about the types
of proposals that are more or less likely to receive approval, and the
accompanying reasons for approval or denial will promote agency
accountability for the No-Action Letter Policy. In contrast, a trade
association stated that it sees no utility in publishing denials. The
Bureau is finalizing the statement about denials as proposed. The
Bureau notes that the final Policy, as did the proposal, includes two
related statements about denials: (1) The Bureau intends to publish
denials only after the applicant is given an opportunity to request
reconsideration of the denial, and (2) upon request, and if disclosure
is not required by 5 U.S.C. 552(a)(2) or other applicable law, the
Bureau does not intend to release identifying information from
published denials, and intends to redact such information from the
denials published on its website.
More generally, the Bureau expects denials to be quite rare, for at
least two reasons. First, the Policy strongly encourages potential
applicants to contact the Office of Innovation for informal,
preliminary discussion of a contemplated proposal prior to submitting a
formal application. If it appears during such discussions that an
application is not likely to be granted, the potential applicant may
choose not to submit an application in the first place. Second, the
Policy provides that an application may be withdrawn at any time. If
the applicant has reason to believe its application may not be granted,
it can withdraw the application prior to a denial.
K. Relation to Other Bureau Innovation Policies
A group of trade associations requested clarity on which of the
Bureau's three proposed innovation policies to apply under in a given
case. The same commenter requested that, during the preliminary,
informal discussions, which the proposed Policy would have encouraged
potential applicants to have with the Bureau, the Bureau discuss with
the potential applicant which process will be best suited for the
product or service in question. Given the necessarily general nature of
the three policies and the necessarily particular nature of a given
proposal, the answer to the first request is provided by a positive
answer to the second request. That is, the Bureau does intend to
discuss with potential applicants during the preliminary, informal
discussion phase which of the policies is best suited for the product
or service in question.
L. Public Input
In comments on the proposed 2016 Policy, certain consumer group
[[Page 48242]]
commenters requested that the Bureau modify the proposed 2016 Policy to
provide that any No-Action Letter would be subject to a 30-day notice-
and-comment period, preferably in advance of No-Action Letter issuance.
These commenters asserted that such a process is advisable to balance
an applicant's self-interested submissions by bringing to bear other
viewpoints through a public process. The Bureau declined to adopt the
comment period suggestion because (i) comment periods are not typical
of other agencies' no-action letter programs; and (ii) the Bureau
believed that imposing such a comment period requirement in advance of
issuance would unnecessarily discourage No-Action Letter applications,
delay the process of granting or denying applications, and thus inhibit
the intended benefits of the proposed 2016 Policy.
The comments on the proposed Policy did not include such an express
comment for a notice-and-comment process for No-Action Letters issued
under the proposed Policy. Rather, consumer groups noted the lack of
public input on particular No-Action Letters in the course of
expressing other concerns about the proposed Policy. In response to
this implied request for public input, the Bureau reiterates the points
it made in its response to the express request for public input in the
comments on the proposed 2016 Policy.
IV. Regulatory Requirements
The Bureau has concluded that this Policy Guidance constitutes an
agency general statement of policy exempt from the notice and comment
rulemaking requirements under the Administrative Procedure Act,
pursuant to 5 U.S.C. 553(b). The Policy is intended to provide
information regarding the Bureau's plans to exercise its enforcement
and supervisory discretion to provide No-Action Letters. The Policy
does not impose any legal requirements on external parties, nor does it
create or confer any substantive rights on external parties that could
be enforceable in any administrative or civil proceeding. Because no
notice of proposed rulemaking is required, the Regulatory Flexibility
Act does not require an initial or final regulatory flexibility
analysis.\30\
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\30\ 5 U.S.C. 603(a), 604(a).
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V. Congressional Review Act
Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.),
the Bureau plans to submit a report containing this Policy and other
required information to each House of Congress and the Comptroller
General prior to the Policy's applicability date. The Office of
Information and Regulatory Affairs has designated this Policy as not a
``major rule'' as defined by 5 U.S.C. 804(2).
VI. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) (44 U.S.C 3501 et seq.)
requires that federal agencies may not conduct or sponsor, and
notwithstanding any other provision of law, a person is not required to
respond to a collection of information unless it displays a currently
valid OMB control number. The information collection requirements as
contained in this final Policy and identified below have been approved
by OMB and assigned the OMB control number 3170-0059 OMB's approval
will expire on September 30, 2022.
The information collections contained in this Policy include
Application for a No Action Letter.
The Bureau's proposed Policy, published December 13, 2018, 83 FR
64036, sought comment on these information collection requirements.
While the Bureau received numerous comments on the Proposed Policy,
which are addressed above, the Bureau received no comments specifically
regarding the burden estimates for these information collections,
utility or appropriateness. Additional details on comments received can
be found in the Supporting Statement for the related 30-day notice
published as required under the PRA.\31\
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\31\ See https://www.regulations.gov/docket?D=CFPB-2019-0043.
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A complete description of the information collection requirements,
including the burden estimate methods, is provided in the information
collection request (ICR) that the Bureau submitted to OMB under the
requirements of the PRA. The ICR submitted to OMB requesting approval
under the PRA for the information collection requirements contained
herein is available at OMB's public-facing docket at www.reginfo.gov.
VII. Final Policy
The text of the final Policy is as follows:
Policy on No-Action Letters
In section 1021(a) of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act), Congress established the
Bureau of Consumer Financial Protection's (Bureau's) statutory purpose
as ensuring that all consumers have access to markets for consumer
financial products and services and that markets for consumer financial
products and services are fair, transparent, and competitive.\32\
Relatedly, the Bureau's objectives include exercising its authorities
under Federal consumer financial law for the purposes of ensuring that
markets for consumer financial products and services operate
transparently and efficiently to facilitate access and innovation, and
that outdated, unnecessary, or unduly burdensome regulations are
regularly identified and addressed in order to reduce unwarranted
regulatory burdens.\33\
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\32\ 12 U.S.C. 5511(a).
\33\ 12 U.S.C. 5511(b)(3), (5).
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Congress has given the Bureau a variety of authorities under title
X of the Dodd-Frank Act and the enumerated consumer laws \34\ that it
can exercise to promote this purpose and these objectives. These
authorities include supervision and enforcement authority, and the
authority to issue orders and guidance.\35\ These authorities provide
the basis for the Policy on No-Action Letters (Policy) and the No-
Action Letters issued pursuant to the Policy.
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\34\ 12 U.S.C. 5481(12).
\35\ See 12 U.S.C. 5561 et seq. (enforcement authority); 12
U.S.C. 5531(a) (Unfair, Deceptive, or Abusive Acts or Practices
(UDAAP) enforcement authority); 12 U.S.C. 5514, 5515 (supervision
authority); 12 U.S.C. 5511(a) (``The Bureau shall seek to implement
and, where applicable, enforce Federal consumer financial law . .
.'') (emphasis added); 12 U.S.C. 5512(b)(1). See also Heckler v.
Chaney, 470 U.S. 821, 832 (1985); Board of Trade v. SEC, 883 F.2d
525, 530-31 (7th Cir. 1989) (SEC no-action letter).
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The primary purposes of the Policy are to provide a mechanism
through which the Bureau may more effectively carry out its statutory
purpose and objectives and to facilitate compliance with applicable
Federal consumer financial laws. The Bureau believes that the No-Action
Letters issued pursuant to the Policy will benefit consumers, entities
that offer or provide consumer financial products and services, and the
public interest more generally. The Bureau expects that implementation
of the Policy will also inform the exercise of its other authorities,
including rulemaking.\36\
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\36\ The Policy is not intended to, nor should it be construed
to: (1) Restrict or limit in any way the Bureau's discretion in
exercising its authorities, including the provision of no-action or
similar compliance assistance other than pursuant to the Policy; (2)
constitute an interpretation of law; or (3) create or confer upon
any covered person, consumer, or other external party any
substantive or procedural rights, obligations, or defenses that are
enforceable in any manner. In contrast, a particular No-Action
Letter involves the Bureau's exercise of its supervision and
enforcement discretion in a particular manner.
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The Policy consists of seven sections:
[[Page 48243]]
Section A describes information to be included in an
application for a No-Action Letter.
Section B describes the factors the Bureau intends to
consider in assessing applications for a No-Action Letter.
Section C describes the standard procedures the Bureau
intends to use in issuing No-Action Letters.
Section D describes the procedures the Bureau intends to
use for modification and termination of No-Action Letters.
Section E describes alternative application, assessment,
and issuing procedures that the Bureau may use for certain
circumstances.
Section F describes how the Bureau intends to coordinate
with other regulators with respect to No-Action Letters.
Section G describes the Bureau's intentions relating to
disclosure of information relating to No-Action Letters.
A. Submitting Applications for No-Action Letters
Potential applicants are strongly encouraged to contact the Office
of Innovation at [email protected] for informal, preliminary
discussion of a contemplated proposal prior to submitting a formal
application.\37\
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\37\ The email subject line should include: ``No-Action
Letter.''
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Applications for a No-Action Letter should include the following:
1. The identity of the applicant; \38\
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\38\ For convenience, the term ``applicant'' is used in the
Policy to refer both to single applicants and joint applicants.
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2. A description of the consumer financial product or service in
question, including (a) how the product or service functions; (b) the
terms on which it will be offered; and (c) the manner in which it is
offered or provided, including any consumer disclosures;
3. An explanation of the potential consumer benefits associated
with the product or service;
4. An explanation of the potential consumer risks associated with
the product or service, and how the applicant intends to mitigate such
risks;
5. An identification of the statutory and/or regulatory provisions
as to which the applicant seeks a No-Action Letter and an explanation
of why a No-Action Letter is needed, such as uncertainty or ambiguity
regarding the application of the identified statutory and/or regulatory
provisions to the product or service in question; \39\
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\39\ Applicants should describe the relevant provisions with as
much specificity as practicable, in part to enable the Bureau to
respond expeditiously to the application. The Bureau recognizes that
in some cases it may be difficult to determine precisely which
provisions would apply, in the normal course, to the product or
service in question. In other cases, the applicant may lack the
legal resources to make a fully precise determination. In such
circumstances, the applicant should provide the maximum
specification practicable under the circumstances and explain the
limits on further specification.
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6. If the applicant wishes to request confidential treatment under
the Freedom of Information Act (FOIA),\40\ the Bureau's rule on
Disclosure of Records and Information (Disclosure Rule),\41\ or other
applicable law, this request and the basis therefor should be included
in a separate letter and submitted with the application.\42\ The
applicant should specifically identify the information for which
confidential treatment is requested, and may reference the Bureau's
intentions regarding confidentiality under section G of the Policy; and
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\40\ 5 U.S.C. 552.
\41\ 12 CFR part 1070.
\42\ Applicants should describe the relevant legal bases for
confidentiality with as much specificity as practicable. The Bureau
recognizes that some applicants may lack the legal resources to
provide a detailed and complete showing. In such circumstances, the
applicant should provide the maximum specification practicable under
the circumstances and explain the limits on further specification.
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7. If the applicant wishes the Bureau to coordinate with other
regulators, the applicant should identify those regulators, including
but not limited to those the applicant has contacted about offering or
providing the product or service in question.\43\
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\43\ When requested by an applicant, the Bureau intends to
coordinate with other Federal and State regulators identified by the
applicant, as appropriate. However, depending on the extent of
coordination requested, the Bureau may not be able to respond to the
application within the time frame specified in section B.
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Applications may be submitted via email to:
[email protected] or through other means designated by the
Office of Innovation.\44\ Submitted applications may be withdrawn at
any time.
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\44\ Except as provided in section A.1 and A.7, applications
should not include any personally identifiable information (PII).
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B. Bureau Assessment of Applications for No-Action Letters
In deciding whether to grant an application for a No-Action Letter,
the Bureau intends to balance a variety of factors, including an
assessment of the quality and persuasiveness of the application, with
particular emphasis on the information specified in sections A.3, A.4,
and A.5; information about the applicant and the product or service in
question derived through Bureau due diligence processes; the extent to
which granting the application would be consistent with Bureau
enforcement and supervision priorities; an assessment of litigation
risk; and available Bureau resources.\45\
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\45\ The decision whether to grant an application for a No-
Action Letter will be within the Bureau's sole discretion.
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The Bureau intends to grant or deny an application within 60 days
of notifying the applicant that the Bureau deems the application to be
complete.
C. Bureau Procedures for Issuing No-Action Letters
When the Bureau decides to grant an application for a No-Action
Letter, it intends to provide the recipient(s) with a No-Action Letter
signed by the Assistant Director of the Office of Innovation (pursuant
to authority delegated by the Director of the Bureau) that sets forth
the specific terms and conditions of the No-Action Letter provided.\46\
The Bureau expects a No-Action Letter will:
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\46\ If the Bureau decides to deny an application, it intends to
inform the applicant of its decision. The Bureau intends to respond
to reasonable requests to reconsider its denial of an application
within 30 days of such requests. Applicants may also withdraw,
modify, and/or re-submit applications at any time.
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1. Identify the recipient; \47\
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\47\ For convenience, the term ``recipient'' is used in the
Policy to refer both to an individual recipient and joint
recipients.
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2. Specify the subject matter scope of the letter, i.e., the
described aspects of the product or service; \48\
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\48\ For convenience, ``described aspects of the product or
service'' is used in the Policy to capture the subject matter scope
of a No-Action Letter, including both the particular aspects of the
product or service in question, and the particular manner in which
it is offered or provided.
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3. State that the letter:
(a) Is limited to the recipient, and does not apply to any other
persons or entities;
(b) is limited to the recipient's offering or providing the
described aspects of the product or service, and does not apply to the
recipient's offering or providing different aspects of the product or
service;
(c) is based on the factual representations made in the
application, which may be incorporated by reference;
(d) does not purport to express any legal conclusions regarding the
meaning or application of the laws and/or regulations within the scope
of the letter; and
(e) does not constitute the Bureau's endorsement of the product or
service that is the subject of the letter, or any other product or
service offered or provided by the recipient;
4. Require the recipient to apprise the Bureau of (a) material
changes to
[[Page 48244]]
information included in the application and (b) material information
indicating that the described aspects of the product or service are not
performing as anticipated in the application; \49\
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\49\ ``Not performing as anticipated'' includes the
materialization of consumer risks identified in the application, and
the materialization of other consumer risks not identified in the
application.
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5. Specify any other limitations or conditions, and the extent to
which the Bureau intends to publicly disclose information about the No-
Action Letter; \50\
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\50\ If an applicant objects to the disclosure of certain
information and the Bureau insists that the information must be
publicly disclosed if a No-Action Letter is issued, the applicant
may withdraw the application and the Bureau intends to treat all
information related to the application as confidential to the full
extent permitted by law.
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6. State that, unless or until terminated by the Bureau as
described in section C.7, the Bureau will not make supervisory findings
or bring a supervisory or enforcement action against the recipient
predicated on the recipient's offering or providing the described
aspects of the product or service under (a) its authority to prevent
unfair, deceptive, or abusive acts or practices; \51\ or (b) any other
described statutory or regulatory authority within the Bureau's
jurisdiction.\52\
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\51\ Implicit in the statement under clause (a) is that the
Bureau has not determined that the acts or practices in question are
unfair, deceptive, or abusive.
\52\ The Bureau maintains the authority to obtain information
relating to the consumer financial product or service subject to a
No-Action Letter under its applicable supervision, enforcement, and
other authorities in the same manner and frequency that it obtains
information relating to consumer financial products or services not
subject to a No-Action Letter.
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7. State that, (i) the recipient may reasonably rely on any Bureau
commitments made in the letter; (ii) the Bureau may terminate the
letter if it determines that it is necessary or appropriate to do so to
advance the primary purposes of the Policy, such as where the recipient
fails to substantially comply in good faith with the terms and
conditions of the letter; the described aspects of the product or
service do not perform as anticipated in the application; \53\ or
controlling law changes as a result of a statutory change or a Supreme
Court decision that clearly permits or clearly prohibits conduct
covered by the letter; \54\ and (iii) upon termination, the Bureau will
not bring an action to impose retroactive liability with respect to
conduct covered by the letter, except where a failure to substantially
comply in good faith with the terms and conditions of the letter caused
Dodd-Frank Act actionable substantial injury.\55\
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\53\ Such ground includes the materialization of consumer risks
identified in the application, and the materialization of other
consumer risks not identified in the application.
\54\ If a Circuit Court of Appeals decision clearly prohibits
conduct covered by the letter, the Bureau may consider modifying the
letter so that it is inoperative within that Circuit.
\55\ ``Dodd-Frank Act actionable substantial injury'' means
substantial injury that is not reasonably avoidable by the consumer,
where such substantial injury is not outweighed by countervailing
benefits to consumers or to competition. See 12 U.S.C. 5531(c); see
also 12 U.S.C. 5536(a)(1)(B). Such a retroactive action would be
particularly likely where conduct covered by the letter caused Dodd-
Frank Act actionable substantial injury without the Bureau's
knowledge due to the recipient's failure to substantially comply in
good faith with the requirement under section C.4 to apprise the
Bureau of (a) material changes to information included in the
application and (b) material information indicating that the
described aspects of the product or service are not performing as
anticipated in the application.
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D. Procedures for Modification and Termination of No-Action Letters
1. Modification Procedures
A recipient of a No-Action Letter may apply for a modification of
the letter. The recipient may seek modification to address an
anticipated or unanticipated change in circumstances, such as
iterations of the underlying product or service or changes to the
information included in the No-Action Letter application. Applications
for a modification should include the following:
a. Any material changes to the information included in the original
application;
b. The specific requested modification(s) to the No-Action Letter;
c. The ground(s) for modifying the No-Action Letter; and
d. Any other information the recipient wishes to provide in support
of the modification application.
In deciding whether to grant an application for modification of a
No-Action Letter, the Bureau intends to balance a variety of factors,
including the quality and persuasiveness of the application. The Bureau
expects to grant or deny such applications within 30 days of notifying
the applicant that the Bureau has deemed the application to be
complete. When the Bureau grants an application for modification, it
intends to provide the recipient with a modified No-Action Letter in
accordance with the procedures specified in section C.
2. Termination Procedures
The Bureau intends that the recipient of a No-Action Letter should
be able to reasonably rely on any Bureau commitments made in the
letter. The Bureau expects termination of a No-Action Letter to be
quite rare based, in part, on its knowledge of no-action letter
programs operated by other Federal agencies. Such agencies appear to
terminate no-action letters very infrequently.\56\ The Bureau expects
that its practice with respect to termination will be in line with the
practices of these agencies.
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\56\ The SEC's website indicates that SEC staff has issued over
2,500 no-action letters since 1971. See https://www.sec.gov/corpfin/corpfin-no-action-letters#chron; https://www.sec.gov/divisions/investment/im-noaction.shtml; https://www.sec.gov/divisions/marketreg/mr-noaction.shtml. It appears that less than 1% of these
letters have been terminated, withdrawn, or revoked. The CFTC's
website indicates that CFTC staff has issued over 1,500 no-action
letters since 1975. See https://www.cftc.gov/LawRegulation/CFTCStaffLetters/letters.htm; https://www.cftc.gov/LawRegulation/CFTCStaffLetters/archive.htm. It appears that less than 1% of these
letters have been terminated, withdrawn, or revoked.
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The Bureau expects a No-Action Letter will state that, (i) the
recipient may reasonably rely on any Bureau commitments made in the
letter; (ii) the Bureau may terminate the letter if it determines that
it is necessary or appropriate to do so to advance the primary purposes
of the Policy, such as where the recipient fails to substantially
comply in good faith with the terms and conditions of the letter; the
described aspects of the product or service do not perform as
anticipated in the application; \57\ or controlling law changes as a
result of a statutory change or a Supreme Court decision that clearly
permits or clearly prohibits conduct covered by the letter; \58\ and
(iii) upon termination, the Bureau will not bring an action to impose
retroactive liability with respect to conduct covered by the letter,
except where a failure to substantially comply in good faith with the
terms and conditions of the letter caused Dodd-Frank Act actionable
substantial injury.\59\
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\57\ Such ground includes the materialization of consumer risks
identified in the application, or the materialization of other
consumer risks not identified in the application.
\58\ If a Circuit Court of Appeals decision clearly prohibits
conduct covered by the letter, the Bureau may consider modifying the
letter so that it is inoperative within that Circuit.
\59\ ``Dodd-Frank Act actionable substantial injury'' means
substantial injury that is not reasonably avoidable by the consumer,
where such substantial injury is not outweighed by countervailing
benefits to consumers or to competition. See 12 U.S.C. 5531(c); see
also 12 U.S.C. 5536(a)(1)(B). Such a retroactive action would be
particularly likely where conduct covered by the letter caused Dodd-
Frank Act actionable substantial injury without the Bureau's
knowledge due to the recipient's failure to substantially comply in
good faith with the requirement under section C.4 to apprise the
Bureau of (a) material changes to information included in the
application and (b) material information indicating that the
described aspects of the product or service are not performing as
anticipated in the application.
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The Bureau anticipates that such retroactive actions will be
exceedingly
[[Page 48245]]
rare based, in part, on its knowledge of the practices of other Federal
agencies that operate no-action letters programs. It appears that, in
the very small percentage of cases in which such agencies have
terminated no-action letters, they have not initiated actions to impose
retroactive liability.\60\ The Bureau expects its practice regarding
such retroactive actions to be in line with the practices of these
agencies.
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\60\ See n.56, supra; Nicholas R. Parillo, Admin. Conf. of the
U.S., Federal Agency Guidance: An Institutional Perspective 134
(2017), available at https://www.acus.gov/report/agency-guidance-final-report (``regulated parties highly value [SEC] no-action
letters, undoubtedly because the Commission appears to have never
proceeded against the recipient of a no-action letter who acted in
good faith on the letter's advice'') (citations omitted) (emphasis
in the original).
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In accordance with principles of fair notice, before terminating a
No-Action Letter, the Bureau intends to notify the recipient of the
possible grounds for termination, and permit an opportunity to respond
within a reasonable period of time. In appropriate cases, the Bureau
intends to offer the recipient an opportunity to modify its conduct to
avoid termination. The Bureau intends to allow the recipient to wind-
down the offering or providing of the described aspects of the product
or service during a period of six months before termination, unless the
described aspects of the product or service are causing Dodd-Frank Act
actionable substantial injury to consumers, and a wind-down period
would permit such injury to continue. If the Bureau terminates a No-
Action Letter, it intends to do so in writing and specify the reasons
for its decision. The Bureau intends to publish termination decisions
on its website.
E. Alternative Application, Assessment, and Issuing Procedures
The Bureau recognizes that the process described in sections A, B,
and C (Standard Process) may not be appropriate in certain
circumstances. These include applications by service providers that
develop products or services for use by covered persons that offer or
provide consumer financial products or services; applications
facilitated by trade associations, consumer groups, or other third
parties that are not themselves covered persons that offer or provide
consumer financial products or services; and applications involving a
consumer financial product or service that is substantially similar to
one that is the subject of an existing No-Action Letter.
1. Service Provider and Facilitator Applications
Service providers that develop products or services for use by
covered persons that offer or provide consumer financial products or
services may use the Standard Process if they have secured an applicant
that intends to use the service provider's product or service in
connection with offering or providing a consumer financial product or
service. Similarly, No-Action Letter applications facilitated by trade
associations, consumer groups, or other third parties that are not
covered persons that offer or provide consumer financial products or
services may use the Standard Process if the third party has secured an
applicant that intends to offer or provide the consumer financial
product or service in question.
a. No-Action Letter Template. As an alternative to using the
Standard Process, a service provider or facilitator may apply for a No-
Action Letter Template. A No-Action Letter Template is (i) non-
operative, i.e., it itself is not a No-Action Letter, and (ii) non-
binding on the Bureau.\61\
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\61\ In particular, the Bureau may modify a No-Action Letter
Template in light of the additional information provided in an
application for a No-Action Letter under section E.1.b of the final
Policy based on a No-Action Letter Template.
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i. Application Information. Such applications should include the
information specified in section A, as applicable and with appropriate
adjustments given that the applicant itself will not be offering or
providing the consumer financial product or service in question. In
particular, a service provider applicant should describe how it
anticipates its product or service will be used by a provider of
consumer financial products or services.
ii. Assessment. In deciding whether to grant an application for a
No-Action Letter Template, the Bureau intends to balance a variety of
factors, as described in section B, with appropriate adjustments given
the alternative nature of the application. The Bureau intends to grant
or deny an application within 60 days of notifying the applicant that
the Bureau has deemed the application to be complete.
iii. Issuance. The Bureau expects that a No-Action Letter Template
will include many of the elements specified in section C, with
appropriate adjustments based, in part, on the non-operative, non-
binding nature of a No-Action Letter Template. In addition, a No-Action
Letter Template will include a statement that the Bureau intends to
grant applications for a No-Action Letter based on the No-Action Letter
Template, under section E.1.b, in appropriate cases.
b. No-Action Letter Based on a No-Action Letter Template. A covered
person that intends to offer or provide a consumer financial product or
service covered by a No-Action Letter Template (whether using a service
provider product or service, or otherwise) may apply for a No-Action
Letter based on the No-Action Letter Template.
i. Application Information. Such applications should include the
information specified in section A, with appropriate adjustments. In
particular, the applicant should include (i) a statement that the
application is based on a No-Action Letter Template and an
identification of the No-Action Letter Template on which it is based;
and (ii) a statement describing how the applicant's offering or
providing its product or service is consistent with the framework
described in the No-Action Letter Template. The application may cross
reference any relevant information contained in the application for the
No-Action Letter Template or the No-Action Letter Template itself.
ii. Assessment. In deciding whether to grant an application for a
No-Action Letter under section E.1.b, the Bureau intends to balance a
variety of factors, as described in section B, with appropriate
adjustments. In particular, the Bureau intends to include in its
assessment the additional factor of the degree to which the applicant's
offering or providing its product or service is consistent with the
framework described in the No-Action Letter Template. The Bureau
anticipates being able to process such applications in a timeframe
shorter than that specified in section B given that the underlying No-
Action Letter Template has already been granted.
iii. Issuance. When the Bureau grants an application for a No-
Action Letter under section E.1.b, it intends to provide the recipient
with a No-Action Letter in accordance with the procedures specified in
section C.
2. Applications for Substantially Similar Products or Services
If an applicant offers or provides a consumer financial product or
service that it believes is substantially similar to the consumer
financial product or service that is the subject of an existing No-
Action Letter, it may apply for a No-Action Letter based on the
existing No-Action Letter.
a. Application Information. Such applications should include the
information specified in section A, with appropriate adjustments. In
particular, the applicant should include (i) a
[[Page 48246]]
statement that the application is based on an existing No-Action Letter
and an identification of the No-Action Letter on which it is based; and
(ii) a statement describing how the consumer financial product or
service in question and the manner in which it is offered or provided
is substantially similar to the consumer financial product or service
that is the subject of the existing No-Action Letter and the manner in
which it is offered or provided. The application may cross reference
any relevant information contained in the application for the existing
No-Action Letter or the existing No-Action Letter itself.
b. Assessment. In deciding whether to grant an application for such
a No-Action Letter, the Bureau intends to balance a variety of factors,
as described in section B, with appropriate adjustments. In particular,
the Bureau intends to include in its assessment the additional factor
of the degree to which the consumer financial product or service in
question, and the manner in which it is offered or provided, is
substantially similar to these aspects of the existing No-Action
Letter. The Bureau anticipates being able to process such applications
in a timeframe shorter than that specified in section B given that the
underlying No-Action Letter has already been granted.
c. Issuance. When the Bureau grants an application for such a No-
Action Letter, it intends to provide the recipient with a No-Action
Letter in accordance with the procedures specified in section C.\62\
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\62\ In circumstances where neither the Standard Process nor the
alternative procedures described in section E (Alternative Process)
are appropriate, the Bureau may utilize other procedures that
diverge in one or more respects from the Standard Process or the
Alternative Process, consistent with the purposes of the Policy.
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F. Regulatory Coordination
Section 1015 of the Dodd-Frank Act instructs the Bureau to
coordinate with Federal agencies and State regulators, as appropriate,
to promote consistent regulatory treatment of consumer financial and
investment products and services.\63\ Similarly, section 1042(c) of the
Dodd-Frank Act instructs the Bureau to provide guidance in order to
further coordinate actions with the State attorneys general and other
regulators.\64\ Such coordination includes coordinating in
circumstances where other regulators have chosen to limit their
enforcement or other regulatory authority. The Bureau is interested in
entering into agreements with State authorities that issue similar
forms of no-action compliance assistance that would provide for an
alternative means of receiving a No-Action Letter from the Bureau,
i.e., alternative to the process described in sections A through D.
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\63\ 12 U.S.C. 5495.
\64\ 12 U.S.C. 5552(c).
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Furthermore, the Bureau is interested in coordinating with other
regulators more generally. To this end, the Bureau intends to enter
into agreements whenever practicable to coordinate No-Action Letters
issued under the Policy with similar forms of compliance assistance
offered by State, Federal, or international regulators.
G. Bureau Disclosure of Information Regarding No-Action Letters
Public disclosure of information regarding No-Action Letters is
governed by applicable law, including the Dodd-Frank Act,\65\ the FOIA,
and the Disclosure Rule. The Disclosure Rule generally prohibits the
Bureau from disclosing confidential information,\66\ and defines
confidential information to include information that may be exempt from
disclosure under the FOIA\67\--including FOIA Exemption 4 regarding
trade secrets and confidential commercial or financial information that
is privileged or confidential.\68\ Relatedly, the Disclosure Rule
defines business information as commercial or financial information
obtained by the Bureau from a submitter that may be protected from
disclosure under FOIA Exemption 4, and generally provides that such
business information shall not be disclosed pursuant to a FOIA request
except in accordance with section 1070.20 of the rule.\69\
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\65\ See, e.g., 12 U.S.C. 5512(c)(8).
\66\ 12 CFR 1070.41.
\67\ 12 CFR 1070.2(f).
\68\ 5 U.S.C. 552(b)(4).
\69\ 12 CFR 1070.20(a), (b).
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Consistent with applicable law, the Bureau intends to publish No-
Action Letters and No-Action Letter Templates on its website, as well
as a version or summary of the application. The Bureau also may publish
denials of applications on its website, including an explanation of why
the application was denied, particularly if it determines that doing so
would be in the public interest.\70\
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\70\ The Bureau intends to publish denials only after the
applicant is given an opportunity to request reconsideration of the
denial. Upon request, and if disclosure is not required by 5 U.S.C.
552(a)(2) or other applicable law, the Bureau does not intend to
release identifying information from published denials, and to
instead redact such information from denials published on its
website.
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Where information submitted to the Bureau is both customarily and
actually treated as private by the submitter, the Bureau intends to
treat it as confidential in accordance with the Disclosure Rule.\71\
The Bureau anticipates that much of the information submitted by
applicants in their applications, and by recipients during the pendency
of the No-Action Letter, will qualify as confidential information under
the Disclosure Rule.\72\ In particular, the Bureau expects that
information submitted that is responsive to sections A.2, A.3, A.4,
C.4, and parallel information under sections E.1.a and E.2.a, will
qualify as business information under the Disclosure Rule.\73\ Other
information submitted by applicants or recipients may also qualify as
confidential information.
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\71\ See Food Mktg. Inst. v. Argus Leader Media, 139 S.Ct. 2356
(June 24, 2019).
\72\ To the extent associated communications include the same
information, that information would have the same status. But other
information in associated communications may be subject to
disclosure.
\73\ To the extent an applicant or recipient submits information
in connection with any of the identified sections that is not
actually responsive to these sections, such information may be
subject to disclosure.
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Disclosure of information or data provided to the Bureau under the
Policy to other Federal and State agencies is governed by applicable
law, including the Dodd-Frank Act \74\ and the Disclosure Rule.
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\74\ See, e.g., 12 U.S.C. 5512(c)(8).
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To the extent the Bureau wishes to publicly disclose non-
confidential information regarding a No-Action Letter, the Bureau
intends to include the terms of such disclosure in the letter. The
Bureau intends to draft the No-Action Letter in a manner such that
confidential information is not disclosed. Consistent with applicable
law and its own rules, the Bureau does not intend to publicly disclose
any information that would conflict with consumers' privacy interests.
Dated: September 6, 2019.
Kathleen L. Kraninger,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2019-19763 Filed 9-12-19; 8:45 am]
BILLING CODE 4810-AM-P
