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CFPB proposal would weaken oversight of “fintech” and put consumers at risk

Consumer Reports opposes CFPB proposal that would give providers “safe harbor” from some consumer protection laws

WASHINGTON, D.C. – A proposal by the Consumer Financial Protection Bureau (CFPB) would put consumers at risk by loosening oversight of financial products and services touted as “fintech,” according to Consumer Reports.  In a letter sent to the CFPB, Consumer Reports called on the Bureau to refrain from creating a “sandbox” that would allow companies to operate in the consumer market without appropriate oversight and with exemptions from several important consumer protection laws and regulations.

“Few, if any fintech products are truly novel,” said Christina Tetreault, senior policy counsel for Consumer Reports.  “Most fintech offerings fall within established legal definitions of products and services for deposit-taking, money transmission or lending, Consumer financial products should not be exempt from oversight simply because they rely on the latest whiz bang technology or gather and often share large amounts of customer data.”

The CFPB currently has a policy that can effectively deal with products and services that pose novel legal questions. Under its 2016 final No Action Letters (NAL) Policy, companies whose products face substantial legal or regulatory uncertainty can seek assurance that the Bureau will not take legal action against them related to that particular practice.  In return, providers are required to share information on an ongoing basis with the CFPB about how consumers are impacted by their offering.

Under the existing policy, NALs are meant to be rare, and only used when a truly novel situation arises.  The CFPB’s proposal would allow NALs to be issued more broadly and providers would not be required to provide the Bureau with data about how consumers are impacted.  The CFPB has made clear that it intends to issue many NALs under its proposed new policy.  And unlike its current policy, the Bureau expects to issue waivers for unfair, deceptive, or abusive acts or practices.

The CFPB has also proposed the creation of a so-called “sandbox,” which would allow companies to test products and services in the open market without having to comply with all applicable consumer protection laws.  Companies participating in the proposed Product Sandbox would not be subject to CFPB enforcement or supervisory action and would have a “safe harbor” from complying with consumer protections governing electronic transactions, misleading credit practices, and fair lending.

“This proposal opens the door to broad exemptions from laws and regulations, and is unnecessary for innovation to flourish,” said Tetreault.  “The CFPB should avoid treating consumers as guinea pigs by weakening oversight of fintech products and services.”

Michael McCauley: mmccauley@consumer.org or 415-431-6747, ext 7606