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CFPB moves to further ease enforcement on financial services industry

Releases new rules on “no-action letters” and proposes “product sandbox”

In the last few days of his leadership at the Consumer Financial Protection Bureau, Mick Mulvaney moved to further ease the bureau’s enforcement of the industries that it oversees.

In a proposal set to be introduced into the Federal Register soon, the CFPB is proposing new rules surrounding “no-action letters,” a bureau enforcement measure introduced under former CFPB Director Richard Cordray that’s designed to aid innovation in the financial markets.

The no-action letter is an assurance from the bureau that it won’t take action against a financial services provider for trying a new product or service as long as the company provides certain information to the bureau and complies with a series of rules.

Under the program, the CFPB issued only one no-action letter. Last year, the CFPB sent its only no-action letter to Upstart Network, a company that uses alternative data in making credit and pricing decisions, in order gain more information on alternative credit.

The no-action letters were part of an effort called “Project Catalyst,” which was a CFPB initiative designed to encourage consumer-friendly developments in the consumer financial marketplace.

Under Mulvaney, Project Catalyst was reorganized this summer and renamed the “Office of Innovation.”

And now, just before he was replaced by the now-permanent director of the CFPB, Kathy Kraninger, Mulvaney moved to make it easier for companies to obtain a no-action letter as part of an effort to facilitate more innovation in the financial industry.

HousingWire obtained a copy of the proposal, which states that the bureau believes that the process required to obtain a no-action letter has not provided companies with “sufficient incentives.”

The proposal would streamline the application process, streamline the bureau’s processing of applications, expand on the types of “statutory and/or regulatory relief available,” and other measures.

Under the proposal, companies would be required to share less data with the bureau, a requirement the bureau now finds to be “unduly burdensome” for companies.

Additionally, the CFPB proposal would create a “Product Sandbox,” which would allow and encourage companies to create and test new products and services under safe harbor provisions from the bureau itself.

Put simply, the sandboxes would allow certain companies under certain circumstances to innovate without fear of a CFPB enforcement action, as long as they play by the CFPB’s rules.

The concept is similar to the “regulatory sandboxes” that were proposed earlier this year by the Department of the Treasury.” In the regulatory sandbox proposal, regulators would work directly with the companies they regulate to help firms innovate new products and services.

The proposal drew the ire of Rep. Maxine Waters, D-Calif., who is set to lead the powerful House Financial Services Committee when the new congressional session begins next year.

“I am very concerned by the Consumer Bureau proposal, issued in the last days of Mick Mulvaney’s leadership, to significantly loosen its “no-action letter” policy in a way that could let bad actors that abuse consumers off the hook entirely from enforcement action by the agency. This is yet another step to weaken the Consumer Bureau and curtail its enforcement tools,” Waters said in a statement.

 “While it is important for our financial regulators to encourage responsible innovation, this is a deeply irresponsible overreach that instead encourages and abets consumer abuses by putting certain financial institutions in an enforcement-free-zone,” Waters continued.

“[Donald] Trump and his appointees have done everything in their power to undermine the Consumer Bureau. Mick Mulvaney, who Trump installed to serve as Acting Director of the agency, dropped lawsuits and investigations into abusive payday lenders, took away the Office of Fair Lending and Equal Opportunity’s enforcement powers, fired the members of the agency’s Consumer Advisory Board, scaled back enforcement actions against bad actors, sought to slash the agency’s budget, and apparently made it his mission to help out bad actors,” Waters continued.

Waters noted that she recently introduced legislation that would repeal many of the changes made at the CFPB by the Trump administration, and said that she has no plans to discontinue her defense of the bureau.

“I am committed to holding the Trump Administration accountable and ensuring that the Consumer Bureau can resume its important work protecting American consumers,” Waters concluded.

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