The Consumer Financial Protection Bureau (CFPB) finalized its revised No-Action Letter (NAL) Policy and issued its first NAL under the revised policy on September 10, in response to a request by the US Department of Housing and Urban Development (HUD) on behalf of more than 1,600 housing counseling agencies (HCAs) that participate in HUD’s housing counseling program.
Regulatory uncertainty can hinder the development of innovative products and services that benefit consumers. NALs provide increased regulatory certainty through a statement that the CFPB will not bring a supervisory or enforcement action against a company for providing a product or service under certain facts and circumstances.
The CFPB notes that industry commenters were generally supportive of the proposed NAL policy in December 2018, but advocated for discrete changes to certain provisions. In contrast, all but one of the consumer group commenters opposed the proposed NAL policy on numerous grounds, as did one group of state attorneys general. The CFPB does not appear to have made any meaningful changes to the proposed policy in response to the consumer groups’ concerns. Instead, the CFPB makes clear that it views the commenters’ concerns as a fundamental disagreement with the agency about the CFPB’s consumer protection mission under Regulation X of the Dodd-Frank Act. In rejecting these concerns, the CFPB explains that it interprets its mission to also include facilitating access and innovation in markets for consumer financial products and services.
The final NAL Policy (which revises the CFPB’s 2016 NAL Policy) provides, among other things, a more streamlined review process for the product or service in question. In particular, the NAL Policy states the CFPB’s general intention to grant or deny an application within 60 days of notifying the applicant that the CFPB has deemed the application to be complete. In addition, the CFPB has moved away from its prior position that NALs focused on the UDAAP prohibition are expected to be particularly uncommon; the CFPB has no such expectation going forward. The NAL Policy also specifies new procedures regarding requests for NAL modifications. This change is especially significant for those consumer financial products and services that depend on machine learning and artificial intelligence (AI), which will evolve and undergo routine reevaluation. The CFPB also states that it intends to separately propose an interpretive letter program “as soon as practicable.” We believe that these changes will encourage more applicants.
First NAL Under the Revised Policy
In 2018, HUD brought concerns to the CFPB about HCAs and lenders not entering into agreements that would fund counseling services due to uncertainty about the application of the Real Estate Settlement Procedures Act (RESPA). HUD’s NAL application described how HUD’s regulatory and program requirements permit participating counseling agencies to enter into arrangements with mortgage lenders for funding of housing counseling services provided to consumers subject to specified conditions (housing counseling funding agreements). Such conditions include that the parties enter into a memorandum of understanding (MOU) reflecting the terms of the housing counseling funding agreement, and that the MOU be compliant with certain HUD requirements to which the parties adhere.
The NAL essentially states that the CFPB will not take supervisory or enforcement action under RESPA or its UDAAP authority against HUD-certified HCAs that have entered into certain fee-for-service arrangements with mortgage lenders for prepurchase housing counseling services (that could otherwise be construed as referrals under RESPA Section 8(a) and Regulation X). The NAL is conditioned on the MOUs satisfying several requirements, including that the services rendered are bona fide and that the level of payment does not exceed a level that is reasonable and customary for the area. According to the CFPB, the NAL is intended to facilitate HCAs entering into such agreements with lenders and will enhance the ability of HCAs to obtain funding from additional sources. The CFPB states that it also intends to issue NALs based on the NAL template to mortgage lenders that have entered into such funding arrangements in appropriate cases.
This NAL also is noteworthy because it addresses some of the perceived uncertainty regarding key interpretative questions related to kickbacks and the application of RESPA Section 8 and the corresponding provisions of Regulation X in the real estate settlement context.
The CFPB also released its Trial Disclosure Policy and Sandbox Policy on September 10. We will be providing summaries and additional commentary in short order.