ICYMI – CFPB Introduces the “No Action Policy”

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It sounds a little strange. A policy created for no action. It outlines what companies must do to determine if CFPB will not take, or is not contemplating taking, supervisory or regulatory action pertaining to a specific financial product to be offered to consumers (No Action.)

Pretty good deal. It’s like when you play Monopoly and you pull the get out of jail free card before you go to jail. Nice to have a little insurance.

CFPB indicates that a company can request that CFPB issues a No Action Letter. They would do so under any of the following circumstances:

1. Prior to introducing a new financial product or a variation of an existing product
2. The company believes the product may be of some material benefit to the consumer
3. The company outlines the product details and indicates why is it of benefit to the consumer.

CFPB does their review and if everything is okay, they issue a letter indicating that they have no present intention to recommend initiation of any enforcement or supervisory action based on the information received about the product being offered. The issuance of the letter, it’s content, timing, and any expiration is solely at the discretion of CFPB.

The idea here is to take away the uncertainty of a company when thinking of introducing new financial products. Get the “CYA” letter first so you don’t need to fear some major regulatory change that could put its success, and the company, in jeopardy. Something like this sure could have helped those online fantasy football sites.

Any downside? Maybe!

By providing CFPB with the details of new intended financial products in advance, they have access to all the background data to determine if there should be regulatory oversight. Although when the request is first submitted for the No Action letter there may be no regulatory action or oversight intended, that could change real fast once CFPB sees all the detail.

On the other hand, if all goes well the entity gets an initial pass on any new regulations geared specifically toward the new product. As it is in most cases, the devil is always in the details. It depends on the intricacies of the product or service, the impact on the consumer, both good and bad, and how far-reaching are the effects of the product.

Let’s just take as an example: A lender goes to CFPB with an online loan application and loan processing? Sounds like a benefit to the consumer. The benefits might be ease of application, timeliness, or convenience. Why not?

Instead, CFPB sees this as discriminatory. Not all applicants have the same computer knowledge or access to a computer. Maybe they believe that the consumer won’t get an adequate explanation of the products offered and this could be too confusing to many consumers.

So, regulations get introduced that lenders must first get an acknowledgment that a consumer accepts an online application process and has adequate access to systems and hardware. These include detailed specifics for the online application and processing portals, so they are all alike and don’t confuse a consumer. This would include the required online disclosures explaining the reason for, and use of, information provided and collected.

All of these steps would be in the interest of consumer education and understanding; similar to a uniform loan estimate and closing disclosure. They should all look alike and provide the same information, in the exact same format.

This is just one example. But, I think you get the idea. Although at the time of the No Action Letter request there may not be any intention to initiate enforcement or regulatory action/requirements, once the submission is carefully reviewed and analyzed things could change. Such a change could derail a new product or severely delay its implementation, with the end effect increasing the cost to bring it to market and administer it once in place.

CFPB’s intentions for the No Action Letter Policy are good and admirable. But, we all know what they say about “intentions.”

In some cases, it may be better to ask for forgiveness rather than permission. You be the judge.

Lend responsibly my friends.

About the Author

Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.