CFPB Grants No-Action Letter to Bank of America

The Consumer Financial Protection Bureau (CFPB) announced it granted Bank of America a “no-action letter” (NAL) covering small-dollar loans.

The approval of the Bank of America’s application means that the bank has increased certainty that it will not receive any supervisory or enforcement action for a credit product that it plans to offer in the next year.

In an earlier statement from the CFPB, it said the purpose of NALs is to “provide increased regulatory certainty through a statement that the Bureau will not bring a supervisory or enforcement action against a company for providing a product or service under certain facts and circumstances.”

Last month, Bank of America announced that it would launch a short-term, payday loan program. This January, checking account customers who have had a checking account for at least a year are allowed to borrow up to $500 for a flat fee of $5. Borrowers must repay the loan in three equal monthly installments over 90 days.

In May of 2020, four federal regulatory agencies released guidance to banks, encouraging them to increase small-dollar lending to help consumers hurt by the coronavirus pandemic.

“The Bureau approved the [no-action letter] Template to further competition in the small-dollar lending space, which fosters access to credit while including important protections for consumers who seek small-dollar loan products,” the CFPB said in a press release.

The letter is based on the template that the CFPB approved in May, which was submitted by the Bank Policy Institute. That initial template established the underlying criteria and operating guardrails for a bank to offer small-dollar loan products for up to $2,500 in the form of an installment loan or line of credit product.

Earlier this year, the CFPB granted Bank of America another NAL about the financial institution’s funding arrangements with housing counseling agencies (HCAs) certified by the U.S. Department of Housing and Urban Development (HUD).

Even though the CFPB does not endorse specific products, the template provided banks with the parameters that the CFPB had approved. The parameters allow for banks to expedite the approval of their product. The NAL template also provides both the borrowers and the lenders with the benefit of regulations concerning small-dollar credit products.

The CFPB also has submitted a Paperwork Reduction Act notice to the Office of the Federal Register, which pertains to the release and collection of information to ensure the maximum utility from the data collected.

“The testing of different consumer disclosures supports the Bureau’s commitment to ensuring that consumers have the information they need to understand the small-dollar products available to them so they can make the choices that are best for them and their personal circumstances,” the CFPB said in a press release.

In July, following the CFPB releasing its payday lending rule, the agency announced it was trying to identify information that could be disclosed to consumers during the small-dollar lending process to allow them to make informed choices.

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