Director Kraninger’s Speech at Innovation Policies Launch Event

Good morning! Thank you for the introduction. It’s great to be here in Atlanta today. One reason I’m in town is to open a new Bureau regional office. This will be our fourth regional office located outside of D.C. and by having a presence here in Atlanta, we will be better able to protect consumers. It also gave me an opportunity to make a major announcement outside of Washington, D.C. and include key partners from a different part of the country. 

As you know, the mission of the CFPB is to protect consumers. You may typically think of this mission as consisting of regulation, supervision, enforcement, and education. These tools are all provided in the Dodd-Frank Act, and I’m determined to use the Bureau’s capabilities to carry out our mission.   

But that is not all that is in the Dodd-Frank Act. The Bureau is also tasked with the mission of facilitating innovation and access to financial products and services for consumers. To achieve this portion of our mission to protect consumers, the Bureau has been updating our innovation policies and engaging with a variety of stakeholders, as well as collaborating with other federal, state, and global regulators on these issues. 

Innovation also provides an opportunity for us to reduce regulatory uncertainty by identifying and addressing outdated, unnecessary, or unduly burdensome regulations that impede the development of new financial products and services and drive increasing costs to consumers. And, innovation can benefit consumers by increasing competition, generating better and less expensive products and services for consumers. New products and services can expand access, especially to unbanked and underbanked households, giving more consumers access to the benefits of the financial system.  

Innovations that reduce the cost of providing financial products and services can also reduce consumer prices, especially in a market where innovation supports vigorous competition. And innovation can vastly improve the functionality of existing products and services—to note one example, the development of online and mobile banking means that consumers can manage their financial lives any time of day, from their own homes or even on their way to work but hopefully not while driving. We cannot predict the particular innovations that will develop in the coming years, but by engaging, we can help ensure that consumer protection includes having access to a vibrant, competitive consumer financial market.

Today, we are announcing three new policies to improve how the Bureau exercises its authority to facilitate innovation and reduce regulatory uncertainty. These efforts can contribute to an environment where innovation can flourish - giving consumers more options and better choices.

First is our Compliance Assistance Sandbox or CAS policy.

Now, this Sandbox is an environment where innovators, whether at startups or established companies, can develop new technologies to address consumer needs. Unlike the proposed version of the sandbox, there are no regulatory exemptions or statutory exemptions from existing law. As you can tell by the name, the goal of our sandbox is to facilitate conduct that is compliant with the law.

In this sandbox, the Bureau will work with companies that are testing new financial products and services while sharing data with the Bureau. Our CAS Policy enables testing of a financial product or service where there is regulatory uncertainty arising under three enumerated consumer laws – the Truth in Lending Act, the Equal Credit Opportunity Act, and the Electronic Fund Transfer Act. These three statutes impose a broad range of complicated restrictions over a wide variety of consumer financial products or services. Many innovators therefore should be able to use our sandbox to test new financial products and services without the chilling effect of concerns about triggering supervision or enforcement or creating private liability about possible violation of these laws. To help address that problem, an approved applicant participating in the sandbox will have a “safe harbor” from liability during the testing period.     

The second policy we are announcing is a revised trial disclosure program or TDP policy.

Under the TDP Policy, covered persons seeking to improve consumer disclosures may test alternative disclosures for a limited time with Bureau permission. 

The new policy streamlines the review process and provides for time limited extension for successful disclosure tests. Show us that different disclosures work better and we will use that information to improve our rules.

The third policy we are announcing is the revised no-action letter policy, that’s NAL for short.

The NAL Policy provides regulatory certainty through a Bureau statement that, under certain facts and circumstances, we won’t bring a supervisory or enforcement action regarding specified aspects of a product or service. The new policy improves on the 2016 NAL policy by having a more streamlined review process  focused on the benefits and risks to consumers of the product or service in question.

These are the policies we are implementing to foster innovation. As we apply these three policies, we will be looking at both the benefits of the innovation and also at whether they pose harm to consumers. This is fundamental to my priority for the prevention of harm to consumers.

I know when many people hear innovation or regulatory uncertainty they immediately think about issues surrounding high-tech products and smartphone apps. But addressing innovation and regulatory uncertainty is more than that, and it has the potential for broader application and greater beneficial impact. 

Today, I am very pleased to announce that the United States Department of Housing and Urban Development is receiving the first no-action letter under our new policy on behalf of more than 1,600 HUD-certified housing counseling agencies that serve more than one million households annually. HUD provides support to a nationwide network of community-based Housing Counseling Agencies or HCAs. These HUD certified counselors offer pre-purchase homeownership counseling to potential borrowers looking to purchase their first home. They also enable borrowers to make informed choices based on their financial circumstances so that they can achieve safe and sustainable homeownership.

Over the years, the Bureau has heard concerns from HUD, HCAs, and mortgage lenders about regulatory uncertainty related to the Real Estate Settlement Procedures Act. After seeing the Bureau’s proposed NAL Policy, HUD approached us on the issue and we began discussions. 

The no-action letter essentially states that the Bureau will not take supervisory or enforcement action under RESPA against HUD-certified HCAs that have entered into certain fee-for-service arrangements with lenders for pre-purchase housing counseling services. Prior to this NAL, there was concern that such arrangements would be considered payment for “referrals” under RESPA, and therefore, would be prohibited.  

We also have agreed upon a template NAL that sets the foundation for mortgage lenders to apply for NALs on this issue. 

The no-action letter we’ve granted and template process will let HUD, HCAs, and lenders serve consumers while providing needed regulatory certainty regarding RESPA exposure.

This collaboration is intended to benefit millions of consumers, and we look forward to the prospect of other entities taking advantage of these new policies.

Finally, we have also invited all states to join us in an effort to enhance coordination among federal and state regulators to facilitate financial innovation. This coordination effort is called the American Consumer Financial Innovation Network or ACFIN.  

By helping federal and state regulators coordinate on innovation, ACFIN enhances shared objectives such as competition, consumer access, and financial inclusion. It promotes regulatory certainty for innovators, which will benefit the economy and consumers alike. The network will also seek to keep pace with market innovations and help ensure they are free from fraud, discrimination, and deceptive practices.  

Members of ACFIN accomplish these objectives through information-sharing and coordination of innovation-related policies and programs, such as office hours programs where regulators can learn about innovation in the market and provide informal regulatory feedback. We’ve worked in partnership with multiple state regulators to make this happen, and we welcome greater participation and coordination with our state partners.  

We formally extended this invitation last week, and so far seven state Attorneys General have joined with us in this effort. Those states are Alabama, Arizona, Indiana, South Carolina, Tennessee, Utah and Georgia Attorney General Chris Carr whom we will hear from shortly.

In closing let me reiterate that whether it’s via regulation, supervision, enforcement, education or these policies intended to drive innovation, we’re going to work to serve and protect consumers.
Again, I thank my colleagues at HUD for working with us to address a concern for housing counselors. We are glad to support their important work helping Americans achieve their dream of owning a home. And thank you to everyone for joining us today.

Have a great day.