CFPB offers templates for banks, servicers to seek 'no-action' letters
The Consumer Financial Protection Bureau took steps to help banks gain approval for offering small-dollar installment loans and to enable mortgage servicers to use an online platform for loss-mitigation efforts.
The bureau released an approved template for banks to use in seeking a CFPB "no-action letter" — designed to allow companies to develop products without fear of supervisory action — to offer installment loans or lines of credit for amounts of up to $2,500. The template was requested by the Bank Policy Institute, a Washington trade group.
The bureau’s action came two days after four federal regulatory agencies released new guidance on how banks and credit unions can offer small-dollar loans without raising regulatory concerns.
The agency also approved a template requested by the Los Angeles-based Brace Software for servicers to seek "no action" approval to use the firm's platform for homeowners applying online for loss mitigation.
While the bureau does not endorse specific products or providers, the templates provide parameters that it has approved. Companies can use the templates to get speedy approval of their own no-action letters to receive a safe harbor from regulatory actions taken by the CFPB.
Brace provides a white-label, digital loss mitigation platform that adheres to timelines set by the Real Estate Settlement Procedures Act and provisions of the Fair Debt Collection Practices Act.
The Bank Policy Institute’s template envisions products structured either as small-dollar installment loans or open-end lines of credit that specifically exclude the risky features of payday loans such as high-cost fees and repeat rollovers that trap consumers in cycles of debt.
The institute’s template explicitly excludes deposit advance loans and loans made in conjunction with payday lenders.
Alex Horowitz, a senior research officer at the Pew Charitable Trusts’ consumer finance team, said small installment loans and lines of credit from banks "would create a much better option for the millions of households that today use high-cost loans outside the banking system.”
Last year, the CFPB allowed trade groups and service providers to submit templates that provide specific guidelines or parameters for products and services. Banks and financial firms are expected to then apply to the bureau for a no-action letter using the templates.