The Consumer Financial Protection Bureau issued a no-action letter to Upstart Network, the first of its kind since the government watchdog created the no-action letter program to encourage innovations that have consumers’ best interests in mind.
In a letter to the Upstart Network, which is an online lending platform that uses non-traditional sources of consumer data to evaluate an applicant’s ability to pay back a loan, the CFPB said the staff has “no intention to recommend initiation of an enforcement or supervisory action against Upstart with regard to application of the Equal Credit Opportunity Act (ECOA)2 and its implementing regulation, Regulation B,3 to Upstart’s automated model for underwriting applicants for unsecured non-revolving credit, as that model is described in the Request and confidential Model Risk Management & Compliance Plan (“Compliance Plan”).”
The intent of the no-action letter is to reassure companies that the CFPB won’t go after them or pursue action if they launch new products in the financial industry. Companies can apply for a statement from the CFPB if the product or service provides consumers with a substantial benefit, and there's a lot of uncertainty if certain laws would be applied to the service.
With news of the no-action letter, Upstart Network doesn’t have to worry about potential enforcement action. The CFPB said the letter will expire three years after it is issued, although the company can seek to renew it. Upstart is required to report lending and compliance data to the CFPB on a regular basis in order to limit any risk to consumers. This reporting will also give the CFPB a better understanding of how using alternative data to determine creditworthiness of borrowers impacts lending decisions in the marketplace. The move is part of efforts to encourage FinTechs to roll out services that help consumers.