According to information from the Americans for Financial Reform, 80 organizations expressed “strong opposition” to the proposed regulations with several penning a February 11 letter in opposition. Further, the Americans for Financial Reform Education Fund, the Center for Economic Integrity (Arizona), the Center for Responsible Lending and the National Association of Consumer Advocates, among others, issued expanded comments on the dangers of loosening baking regulations, including concerns associated with emerging fintechs.
In the comments (PDF), the organizations enumerated the risks associated with the Consumer Financial Protection Bureau (CFPB) rule changes, namely for its proposal to offer some companies relief from “unlawful practices or exemptions from consumer protection statutes and regulations.” The consortium expressed worry that the ‘sandbox’ climate created in in Arizona has not lived up to its billing and is evidence the dangers of deregulating the financial technology industry. Last year, Arizona was the first state to build a fintech sandbox.
“The CFPB is proposing a dramatic new program that would give companies permission to violate the law, based on inadequate reasoning and without following necessary procedures,” said Remington A. Gregg, counsel for civil justice and consumer rights at Public Citizen in a statement. “Instead of dreaming up unnecessary programs that are aimed at providing corporate wrongdoers with immunity from the law, the CFPB should focus on its primary responsibility of protecting consumers from predatory behavior and corporate wrongdoing.”
With respect to the criteria for relief, one of the criticisms levied by the consumer advocates is the vague, broad definition of “innovation.” According to the comments: “The Arizona Regulatory Sandbox Program does not require that ‘innovations’ actually benefit consumers. The enabling law requires applicants to state how their product or service benefits consumers … but the Attorney General’s application form does not ask for that specific information.”
Broadly, the new rules would allow CFPB staff to “rubberstamp applications” without much review of “one-sided presentations” from companies facing regulation but looking to skirt the law by offering sketchy products.
“The CFPB cannot simply deputize an employee to hand out letters or approvals that exempt companies offering risky new products from complying with consumer protection laws,” said Lauren Saunders, associate director at the National Consumer Law Center.
Linda Jun, senior policy counsel at Americans for Financial Reform, said the new plan would invite abuse: “With these approaches, the CFPB is writing an open invitation for companies to abuse consumers without consequence. The bureau is also overstepping its legal authority.”
CFPB Lays the Groundwork for ‘Disclosure Sandbox”
A proposed “Disclosure Sandbox,” open to fintechs, banks, credit unions or other covered entities, ”would revise transparency protocols" and, according to information from the CFPB, would “more effectively encourage” new disclosures. The new rules would allow for:
- Coordination with state regulators to allow entities in "regulatory sandboxes" to participate in the CFPB Disclosure Sandbox without needing to apply separately to the CFPB
- A streamlined review processes that focuses on the “quality and persuasiveness” of applications
- The establishment of an "expected" two-year timeframe
- The specification of procedures to permit companies to “continue to use disclosures that test successfully”
“The revised policy is based on the same statutory authority as the existing policy, which allows the Bureau to deem a covered person conducting a trial disclosure program to be in compliance with or exempt from a requirement of a Bureau rule or certain federal laws, “according to information from the CFPB.
