Recent action by the Consumer Financial Protection Bureau (CFPB) may bring some relief to fintech developers and the broader financial services industry as new products run into otherwise insurmountable regulatory hurdles that do not take into account or adapt to new technologies.
In a recent announcement by the CFPB’s Office of Innovation, its director has proposed the creation of a “Disclosure Sandbox” to encourage trial disclosure programs.
The greatest concern for many new developers and possible funding sources for those developers is that a new and innovative product may not be able to provide disclosures in the same way that traditional products have done, simply because consumer device sizes are shrinking while the amount of information regulators are requiring to be displayed without “clicking through” many screens is increasing. This poses a conundrum for the developer, which must reconcile competing issues and demands, including the size of a device screen, the limits of human eyesight—and patience!—and the demands of regulators.
The new proposal would provide substantial certainty to the proponent in the form of CFPB preclearance, it would do so speedily (within 60 days according to the CFPB), and it would provide a mechanism to coordinate “sandbox” approvals with state officials, including state attorneys general and bank regulatory authorities. The proposed disclosure sandbox also would be available to banks and other financial institutions subject to CFPB jurisdiction. One additional advantage to the applicant is that it could obtain coordinated reviews and approvals from state agencies and the CFPB without having to go through multiple application processes.
For new application and product development purposes, such a sandbox ought to be attractive because it provides regulatory certainty, which is a “must have” for organizations that may have limited compliance resources and timelines, and those offering products and services that must change rapidly to keep up with technological developments and market expectations. The ability to launch a product in the market without undue delay can encourage developers, regulated financial institutions and investors alike, while also assuring that consumers are protected because the CFPB is providing a meaningful level of regulatory “cover” for the required disclosures.
From the perspective of a developer, financial institution, or investor, one would do well to start the “sandbox” process early enough to have final sign off at the time the product is ready for launch, and including some flexibility in the submission to account for technology changes that might occur during the application process.