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Attorney General William Tong



Attorney General William Tong joined 21 other state attorneys general in signing a letter authored by New York Attorney General Letitia James urging the Consumer Financial Protection Bureau (CFPB) to abandon recently-proposed policies that would erode critical consumer protections under the guise of fostering innovation in the consumer financial marketplace.

"The CFPB has an obligation to protect consumers and advance regulations that put their best interests first. But under its misguided proposals, CFPB would abandon its critical watchdog role over the risks that new and emerging technology pose to consumers in the financial marketplace. Innovation should not come at the expense of consumers," said Attorney General Tong.

The proposal announced in December 2018 would greatly expand the CFPB’s use of no-action letters, or informal guidance provided by a federal agency stating that it does not intend to bring an enforcement proceeding based on facts described in an application. No-action letters are typically non-binding and can be revoked at any time, but under the new CFPB proposal, no-action letters would no longer be non-binding staff guidance, would be of unlimited duration, and could only be revoked under limited circumstances.

The proposal would also create a regulatory “sandbox” that would allow financial services companies to test products without being subject to usual regulatory and licensing requirements.

Under the Proposed Sandbox Policy, approvals or exemptions granted by the CFPB would grant the recipient immunity not only from a CFPB enforcement action, but also from enforcement actions by any federal or state authorities, as well as from lawsuits brought by private parties. The CFPB, however, has no authority to issue such sweeping immunity absent formal rulemaking.

The proposal is an unprecedented departure from the CFPB’s current, deliberately modest policy with respect to no-action letters, as well as the use of such letters by other federal agencies.

The states objected to the CFPB’s proposed changes to its no-action letter policy for a number of reasons:

  1. The effect of the changes would appear to make no-action letters binding on the CFPB indefinitely;
  2. The proposal to streamline the application process by committing to issue no-action letters within 60 days of receipt, and reducing the information applicants must provide, could result in the CFPB making decisions hastily and without access to the data necessary to make an informed decision;
  3. Permitting trade associations to submit applications on behalf of members could compromise the accuracy and veracity of an application submitted by a party other than the one seeking relief;
  4. Allowing no-action letters to address unfair and deceptive practices, which are issues that are typically fact-intensive inquiries and would be ill-suited for such treatment.

The states objected to the sandbox policy on many of the same grounds. The states also argued there was no statutory authority for the CFPB to confer anything approximating the sweeping and absolute immunity of the type proposed. Even if it could, the states reiterated their argument that doing so would be inappropriate given the uncertainty surrounding much of the technology at issue.

In addition to their objections to the substance of the proposed policies, the states argued the CFPB is required to follow the formal rulemaking requirements of the Administrative Procedure Act, 5 U.S.C. §§ 550 et seq., if it wants to implement them.

The states’ comment letter is available here and the proposed policies here.

In addition to Attorney General Tong, the additional 21 state attorneys general who signed the letter include: Letitia James, New York Attorney General; Xavier Becerra, California Attorney General; Kathleen Jennings, Delaware Attorney General; Karl A. Racine, District of Columbia Attorney General; Kwame Raoul, Illinois Attorney General; Tom Miller, Iowa Attorney General; Aaron M. Frey, Maine Attorney General; Brian E. Frosh, Maryland Attorney General; Maura Healey, Massachusetts Attorney General; Dana Nessel, Michigan Attorney General; Keith Ellison, Minnesota Attorney General; Aaron D. Ford, Nevada Attorney General; Gurbir S. Grewal, New Jersey Attorney General; Joshua H. Stein, North Carolina Attorney General; Ellen F. Rosenblum, Oregon Attorney General; Josh Shapiro, Pennsylvania Attorney General; Peter F. Neronha, Rhode Island Attorney General; Thomas J. Donovan, Jr., Vermont Attorney General; Mark R. Herring, Virginia Attorney General; Bob Ferguson, Washington State Attorney General; and Joshua L. Kaul, Wisconsin Attorney General.

Assistant Attorney General John Langmaid and Joseph Chambers, head of the Finance Department, are assisting the Attorney General with this matter.

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