CFPB updates policy statements on no-action letters and compliance assistance

On January 10, 2025, the Consumer Financial Protection Bureau (CFPB) made significant changes to its policy statements on No-Action Letters (NALs) and Compliance Assistance Sandbox (CAS) Approvals, just days before the upcoming administration change. These alterations were implemented quietly without any public comment or a separate press release. The updated policies aim to tackle various concerns surrounding the previous framework, such as issues related to the transition of government officials to private practice, the dominance of specific firms, and the absence of an expiration date. While the new policies can be adjusted or revoked promptly due to their nature as policy statements, the decision to uphold them ultimately falls on the incoming leadership. Despite this, industry experts believe that the strict requirements set by the policies are unlikely to entice either established or emerging companies to take advantage of these programs.

Both No-Action Letters (NALs) and Compliance Assistance Sandbox (CAS) Approvals serve as tools for regulatory relief within the financial services industry. An NAL assures a company that the CFPB will refrain from taking enforcement action against them under specific circumstances, allowing them to provide products or services without fear of repercussions. Conversely, a sandbox approval grants businesses temporary compliance protection from existing laws as they experiment with new products or services, specifically under the Truth in Lending Act, the Equal Credit Opportunity Act, and the Electronic Fund Transfer Act.

These policies are designed to mitigate unnecessary regulatory burdens and uncertainties that could impede the progress of innovation in the financial services sector. By offering safe harbors and protection from regulatory action, companies can innovate freely, leading to the creation of new and improved products and services that benefit consumers. While NALs have been utilized by various federal agencies like the Securities and Exchange Commission, sandbox approvals are a newer concept, gaining traction in countries like the United Kingdom through the U.K. Financial Conduct Authority.

The Consumer Financial Protection Bureau (CFPB) has a statutory mandate, as outlined in the Dodd-Frank Act, to ensure that consumer financial markets operate transparently and efficiently to promote access and innovation. Over its 13-year history, the CFPB has pursued this objective through evolving strategies, with the recent revisions to the NAL and CAS Approval policies signaling an ongoing debate within the organization. Initially introduced in 2016 under Director Richard Cordray, the NAL policy was intended for limited use and saw minimal issuance during its early years. In 2019, under Director Kathy Kraninger, the policy was expanded to enhance access to NALs, and new policies like CAS Approvals were introduced. However, in 2022, the CFPB rescinded these policies, citing concerns about their effectiveness. The current administration has reinstated and revised the policies shortly before the handover to the new leadership.

The updated policies introduce stringent requirements under a new section called “Conditions to Promote Innovation, Competition, Ethics, and Transparency.” These conditions are aimed at addressing consumer needs, combating market monopolies, preventing conflicts of interest, and fostering transparency. One significant change is the market need requirement, which mandates that applicants must demonstrate a consumer benefit from their product or service, proving that it meets an unmet consumer need. However, the criteria for what constitutes an “unmet” or “untapped” need remain somewhat ambiguous, presenting a challenge for potential applicants.