United States: What CFPB's First No-Action Letter Signals

 The Consumer Financial Protection Bureau ("CFPB" or "Bureau") yesterday issued its first ever No-Action Letter ("NAL") through its Project Catalyst initiative, and the industry – particularly entities in the realm of emerging financial technologies ("FinTech") – are looking to determine what it may herald for the future. The CFPB issued the NAL to Upstart Network, Inc. ("Upstart"), an online lender aiming to supplement traditional credit history with alternative data, including consumers' education and work record, to support credit decisions. The NAL is less of a harbinger of the agency's intent to provide regulatory relief to the FinTech sector, than a confirmation of its continuing exploration of alternative data as a means to increase the availability of credit to underbanked populations, which could prove highly beneficial to the industry.

The NAL Policy & the Upstart NAL

The CFPB announced its NAL policy in October 2014, to promote responsible innovation in situations of uncertainty concerning compliance with existing statutes and regulations. To be considered, the financial product must show promise of "substantial consumer benefit" as well as apparent legal uncertainties. The Project Catalyst initiative is gaining prominence at the Bureau, and issuance of the Upstart NAL, the first of its kind, marks a major step forward for this initiative and the CFPB's commitment to action – rather than just words – to promote financial technology innovation as a means to increase consumers' access to fair and transparent financial products.

According to Upstart, its credit model benefits customers by providing credit access and better loan terms to traditionally underserved borrowers who have little or no traditional credit history. The NAL, which has a three-year term subject to renewal, states that the CFPB "has no present intention" to initiate supervisory or enforcement action against Upstart under the Equal Credit Opportunity Act and its implementing regulation, Regulation B. As a condition of the NAL, Upstart must regularly report a variety of lending and compliance information to the CFPB, including information on Upstart's loan information, decision-making process, and strategy to mitigate consumer risk and increase access to credit. Besides imposing these reporting requirements, which some companies might find cumbersome, the CFPB drafted the NAL to be narrowly restricted to Upstart's particular credit model.

Portend for FinTech & Alternative Data

Other firms, including those exploring the use of alternative data similar to Upstart, cannot rely on the Upstart NAL, given its case-specific application and reporting requirements. Nor should they perceive it as the harbinger of many more NALs or regulatory relief for FinTech innovation in the near future. Yet the CFPB's commitment to explore the use of alternative data, confirmed by the Upstart NAL, is an encouraging signal for online lenders and their partners.

The CFPB is eager to send the message that it is at the regulatory forefront in encouraging consumer-friendly financial innovation through its Project Catalyst, launched in November 2012 and finalized in February 2016. The Project Catalyst office has announced a range of initiatives, ranging from the NAL experiment, to the disclosure waiver trial program which allows applications for waiver of requirements for consumer disclosures, to the "office hours" program through which the Project Catalyst team makes periodic regional visits at which financial technology innovators may pitch their business models. At the Electronic Transactions Association's FinTech Policy Forum held yesterday, Project Catalyst Senior Advisor Moira Vahey touted the success of the program, including the oversubscription of its upcoming regional "office visits." The FinTech industry has been eager to meet CFPB staff, not only to learn about the agency's regulatory intentions, but more particularly to educate the agency on the variety of business models and to advocate for "right size" regulation in place of outmoded and "one size fits all" regulations that often hinder innovation. Despite its positive interactions with the Project Catalyst staff, however, the FinTech industry should not expect to temper the CFPB's rigorous regulatory scrutiny. As an example, the CFPB's Enforcement team continues to pursue aggressive action in this sector undaunted by court rebukes such as that in the August 2017 ruling of U.S. District Judge Richard Story of the Northern District of Georgia, excoriating the CFPB's resistance to his discovery orders and dismissing claims against third-party payment processors in the Bureau's action against Universal Debt Solutions.

The Project Catalyst initiative to date has not had significant substantive impact on the CFPB's regulatory activities. Yet the Upstart NAL indicates that the agency is opening to take action in discrete areas relevant to financial technology innovation, where it sees a potential for major consumer benefit. The CFPB has been on the fence about the use of alternative data, on the one hand recognizing the potential to increase credit access for the underbanked who have little traditional credit history, and on the other hand fearing the threat that the availability of such alternative data could increase lending discrimination. The CFPB's February 2017 Request for Information on the use of alternative data and modeling techniques in the credit process is a major step forward in confronting these issues. The Upstart NAL is another in increasing the agency's commitment to move that ball forward. In both cases, the CFPB is focused – not only on learning about emerging tools and techniques, market developments and alterations – but also the collection of information about potential benefits and risks, consumer concerns and provider mitigation steps. A strong, substantive industry response to demonstrate that the benefits outweigh the risks will be crucial to the CFPB's acceptance of the use of alternative data. Such a regulatory imprimatur could greatly profit FinTech and other industry players by facilitating efficient underwriting and online lending, as well as increasing the advantages of bill payments and other electronic transactions on the FinTech platform that can provide useful sources of alternative data.

The attorneys of Stroock's Financial Services Litigation, Regulation and Enforcement Group are well-positioned to answer any questions you may have about federal and state authorities' FinTech initiatives, as well as other consumer financial regulatory and litigation issues.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.