CSBS Issue Briefings - January 2020

CSBS ISSUE BRIEFING

Sandboxes

CSBS Official Public Position State regulators oppose any effort by the Consumer Financial Protection Bureau (CFPB) to preempt state enforcement authority via its No-Action Letter policy (NAL Policy) or “Product Sandbox” proposal. The CFPB should not attempt to prevent state regulators from enforcing specific federal consumer financial laws against entities that receive relief under these policies. The proposal also removes language from the existing policy regarding consultation with state regulators prior to granting a NAL. Summary In September 2019, the CFPB finalized proposed revisions to its existing NAL Policy, established in 2016. It also finalized the proposed creation of a Product Sandbox that would provide additional statutory and regulatory relief. Several changes to the NAL policy include: • NAL’s will be binding on the CFPB, whereas previously they were staff-level, no action recommendations. • NAL applications will no longer be required to share data about the product or service with the Bureau. • The revised version of the NAL policy will remove language noting that the Bureau will consult and communicate with the appropriate state regulators in evaluating the issuance of a NAL. The Product Sandbox would also include the same relief that would be granted by the NALs. However, it would offer additional relief in the form of approvals by order from statutory and regulatory provisions under the CFPB’s rulemaking authority. The proposal states that entities that receive the approval relief within the Product Sandbox would have a safe harbor from enforcement actions (related to the Truth and Lending Act, the Equal Credit Opportunity Act and the Electronic Funds Transfer Act) by any federal or state authorities, as well as from lawsuit brought by private parties. State regulators believe the extent of this relief exceeds the authority of the CFPB under Title X of the Dodd-Frank Act. While the CFPB can choose not to enforce federal consumer financial laws under its purview, it is not authorized to prevent state officials from enforcing federal consumer financial laws. Why it Matters to State Regulators While CSBS does not have policy on the state-level sandboxes, several states have enacted or are working on enacting regulatory sandboxes. We will continue to work with state regulators to monitor such developments. At the federal level, Dodd-Frank limited the ability of federal agencies to preempt state law and empowered the state to enforce any of the eighteen “enumerated consumer laws” as defined by Title X of the Dodd-Frank Act. State financial regulators reserve the right to use the authority Congress provided them under the statute to protect their consumers, regardless of an entity’s status as a participant within the Bureau’s Product Sandbox or other actions taken (or stayed) by the CFPB. State regulators believe broad language detailing the scope of relief could lead entities to mistakenly believe they are exempt from laws with which compliance will continue to be required.

FOR STATE REGULATOR USE ONLY