United States: CFPB Issues No-Action Letter on the Bank’s Small Dollar Lending Program
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The CFPB issued a no-action letter to Bank of America stating that the agency would not take enforcement action against the bank in connection with a small dollar loan program. In particular, the CFPB stated that it would take no action under Sections 1031 (“Prohibition of Unfair, Misleading or Abusive Acts or Practices”) and 1036 (“Prohibited Acts”) of Dodd-Frank.
According to Bank of America’s no-action letter inquiry, the bank’s small dollar loan product (“Balance Assist”) is designed as a time-limited, amortizing small dollar installment loan with repayment over three months. The Balance Assist program would offer loans in increments of $ 100 to $ 500 with a flat administration fee of $ 5 regardless of the amount borrowed and with no additional administration fees. Bank of America stated that its Balance Assist product will only be offered to consumers with Bank of America checking accounts with inflows in excess of a predetermined threshold. In addition, the bank carries out a credit check of potential borrowers and can reject those with a bad credit history.
Commentary Rachel Rodman
The CFPB’s no-action letter is important for two reasons. First, the Bureau has issued relatively few no-action letters, and so any guidance the agency provides under the program is important. Second, the Bureau is blessing a small-dollar short-term loan product from a major bank, suggesting that the Bureau believes that major financial institutions have a role to play in providing consumers with an alternative to costly forms of credit such as payday loans.
Commentary Steven Lofchie
The CFPB’s letter provides that the no-action position will only be available to Bank of America and not to anyone else. This is in line with the view recently expressed by CFTC Chairman Heath P. Tarbert that a regulator’s non-action position should be specific to an individual company.
The political basis for this approach to no-action positions is not obvious. Basically, the law should be the same for everyone. Here’s a suggestion: Perhaps anyone else who relies on the letter should be asked to publicly disclose their identity, which would allow the regulator to further evaluate the wisdom or success of the letter without taking action. If the purpose of the exclusivity is to compensate the original recipient for their work in obtaining the letter, which is reasonable, this exclusivity period may be limited in time, given the common assumption that the law treats everyone equally.
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