Disclosure is one of the linchpins of consumer protection, enshrined in the basic mission statement of the Consumer Financial Protection Bureau, which declares: “An informed consumer is the first line of defense against abusive practices.”
That makes the agency’s latest initiative all the more notable. The CFPB on December 13 proposed allowing banks, credit unions and other financial services providers to test new consumer disclosures on a case-by-case basis.
The agency would issue limited-time exemptions from existing federal disclosure laws and allow companies to “research and test informative, cost-effective disclosures.” The companies would then share the results with the CFPB.
The proposal, which is open for public comment for the next 60 days, is rooted in the Dodd-Frank Act, which specifically authorizes the CFPB to approve “trial disclosure programs.” The law also instructs the agency to facilitate innovation in the consumer financial services market.
“The proposed policy will allow companies to conduct real world trials of disclosure alternatives,” bureau director Richard Cordray said in a news release. “That will help the Bureau identify what works and does not work to provide consumers with the clear information they need to make financial decisions in a marketplace of evolving programs and products.”
Ronald Rubin, a partner at Hunton & Williams who previously worked as an enforcement attorney for the CFPB as one of its first hires, gave the agency “a lot of credit for this effort to encourage companies to improve their disclosure programs, but the success or failure of the proposed policy will ultimately depend upon how reasonable the bureau is in evaluating companies’ trial innovations.
“If the bureau sets the bar too high, or makes the approval process too difficult, companies will quickly become discouraged and stop trying,” he said.
To be granted a waiver, a company must explain how proposed disclosure language could improve on its existing version; come up with procedures to test whether it is in fact better; and promise to share the information with the CFPB.
The CFPB would grant waivers based on whether it thinks a proposed disclosure would better help consumers “understand the costs, benefits, and risks associated with consumer financial products or services,” and whether it might be more cost-effective or mitigate risk.
In issuing waivers, the agency would consider the strength of a company’s compliance-management program relative to the size and complexity of its business and the “extent to which the company intends to permit public disclosure of test results.”
The decision to approve a waiver would be within the CFPB’s sole discretion. Once a waiver is issued, the CFPB would have the authority to revoke it if the company doesn’t comply with the stated terms and conditions.
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