UPDATED: ‘No-action’ letter, ‘reg sandbox’ proposals draw fast criticism from incoming Democrat

A proposal to establish a “regulatory sandbox” encouraging banks to test new, innovative financial products as part of changes to the “no-action letter policy” has drawn sharp criticism from the Democrat poised to take over the key House committee overseeing financial regulation.

The Bureau of Consumer Financial Protection (BCFP, formerly known as the CFPB) Monday issued a proposal to revise the so-called “no-action” letter process by eliminating what it called redundant or burdensome elements, streamlining its processing and review of applications and expanding the types of relief available. The proposal is out for public comment until Feb. 11.

The agency is also proposing a “product sandbox,” intended to provide similar “no action” relief. Two additional forms would also be available: “approval relief,” expressly stating that acts taken or omitted in conformity with the approval fall within a statutory “safe harbor” from liability; or “exemptive relief,” an exemption from a statutory or regulatory provision.

The sandbox proposal provides relief only for limited time, according to the agency, typically two years.

The proposals prompted almost immediate criticism from the incoming chairman of the House Financial Services Committee.

“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,” Rep. Maxine Waters (D-Calif.) said in a statement released Tuesday. Waters, now ranking member, on Monday was nominated to be the chairman of the committee when the Democrats take over the House Jan. 3.

“This is yet another step to weaken the Consumer Bureau and curtail its enforcement tools,” she said.

She added that it is important for financial regulators to encourage responsible innovation. This proposal, she said, “is a deeply irresponsible overreach that instead encourages and abets consumer abuses by putting certain financial institutions in an enforcement-free-zone.”

She signaled that, once the Democrats take over the committee leadership, she would hold the Trump administration accountable and ensure that the “Consumer Bureau can resume its important work protecting American consumers.”

Proposed Policy on No-Action Letters and the BCFP Product Sandbox (Federal Register notice)

Waters Statement on Proposal to Weaken Enforcement at the Consumer Bureau

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