The CFPB's No-Action Letter (NAL) process is a key feature of the Bureau's Office of Innovation. In 2019, the CFPB revised its Policy on No-Action Letters to "remov[e] barriers to innovation" and "reduc[e] uncertainty regarding the meaning or application of statutory and regulatory provisions." Since revising the NAL Policy, the Bureau has granted three template applications and four NAL applications – most recently granting a NAL regarding a short-term, small-dollar credit product.
On November 5, 2020, the CFPB approved a national bank's NAL application for "a streamlined digital only small-dollar credit product" intended to address the bank's checking account customers' "short term liquidity needs." As described in the NAL application, the product consists of a three-month installment loan of between $100 and $500 (in $100 increments) and would include a $5 fee but no interest or other charges.
The NAL application followed the Small-Dollar Credit Template requested by the Bank Policy Institute (BPI) and approved by the CFPB in May 2020. Under the Small-Dollar Credit Template, a NAL application must include 13 guardrail certifications and information about the specific features and practices related to the product. The template's guardrail certifications include:
- Status. The applicant is a $10 billion insured depository institution or insured credit union, or is an insured depository institution or insured credit union affiliated with such an entity.
- Eligibility. The Product is offered and provided only to consumers who hold a deposit account with the applicant.
- Product Structure. The Product is structured as either an installment loan or a line of credit.
- Dollar Amount. $2,500 or less.
- Repayment Term and Structure.
- Installment loan: (i) The repayment term is more than 45 days and less than one year; and (ii) payments are amortized on a straight-line basis across more than one payment.
- Line of credit: (i) 45-day minimum and 1-year maximum repayment period per draw, (ii) amortized on a straight-line basis across more than one payment (for multiple payments). If a repayment structure includes a repayment term of 45 days or less and a single payment is utilized, it will be limited to cases where a draw is no more than 10% of the maximum dollar amount established for the Product.
- No Balloon Payments. None of the required payments under the Product are more than twice as large as any other required payment.
- No Rollovers. Rollovers (i.e., the extension or renewal of a loan or draw on which a scheduled payment has not been made, for an additional fee) are prohibited. Nor would a borrower be eligible to receive a new loan or draw to repay an outstanding balance associated with a prior loan or draw. Furthermore, a borrower with an existing loan or draw is not eligible to receive a new loan or draw until the existing loan or draw is fully repaid.
- Underwriting. Underwriting includes transaction activity in the consumer's accounts with the applicant ("cash flow" underwriting).
- Collateral. No collateral requirements.
- Costs and Fees. No late payment fees or prepayment.
- Disbursement. Funds are disbursed into the borrower's deposit account with the applicant within three to five business days after the borrower is approved for the product.
- Disclosures. Disclosures and marketing are designed to comply with applicable law and, where appropriate, are shortened and modified for online and mobile channels.
- Servicing. The product is serviced by the applicant, not a third party.
While the NAL itself applies only to the applicant, the use of the Small-Dollar Credit Template could inspire other institutions to submit similar products. Pursuant to the NAL, the Bureau will not make supervisory findings or bring a supervisory or enforcement action under its authority to prevent unfair, deceptive, or abusive acts or practices, as long as the offer or provision of the credit product is conducted as described in the application, and the product performs as expected. However, the NAL Policy is a "non-binding general statement of policy" related to the CFPB's exercise of its "enforcement and supervisory discretion" and thus is subject to change, as the Bureau's priorities may shift.