At a meeting with a group of state attorneys general in Washington, DC, earlier this week, Consumer Financial Protection Bureau (CFPB or Bureau) Director Kathy Kraninger expressed her strong desire to provide more consistent interpretation of statutes and rules enforced by the Bureau and to further work with state counterparts to make that consistency even broader.
Such collaboration with state enforcement officials will be important to allow key efforts by the CFPB’s Office of Innovation to succeed. For example, the Bureau’s system of statutory/regulatory relief for fintech startups, known as the “regulatory sandbox,” is limited in its practical import to the extent that state enforcement officials do not provide similar relief. Similarly, the meaningfulness of the CFPB’s commitment to issue no-action letters to industry participants that are deploying innovative financial products and services is bolstered where states respect the substance of those letters.
While this effort would provide important regulatory relief for the fintech community at the federal level, recent efforts in California, New York, and Pennsylvania to establish state law CFPB equivalents suggest that in some states, this effort will run into substantial headwinds when it comes down to the specifics of any federal relief granted.
In short, banks and nonbank financial institutions should carefully evaluate how innovative programs can be developed in a way that leads to federal regulatory relief, but also doesn’t run afoul of state regulatory authorities looking to ramp up their enforcement and compliance activities.