On December 30, 2020, the CFPB approved Synchrony Bank’s application to offer a “dual-feature credit card” (DFCC) under the CFPB’s Compliance Assistance Sandbox (CAS) policy. According to Synchrony’s application, the DFCC allows consumers to graduate from a secured-use credit card to an unsecured feature after at least one year and if the customer satisfies certain eligibility criteria.
The CAS policy, which was finalized in September 2019, has the “primary purpose” of “provid[ing] a mechanism through which the Bureau may more effectively carry out its statutory purpose and objectives by better enabling compliance in the face of regulatory uncertainty.” The CFPB’s approval of an application under the CAS policy “enable[es] compliance in the face of regulatory uncertainty.” Since September 2019, the CFPB has approved one other application under the CAS policy for Payativ, Inc., involving what it described as an “Earned Wage Access” (EWA) program. Specifically, Payativ sought and received a determination that the EWA program did not involve the extension of “credit” as defined by section 1026.(2)(a)(14) of Regulation Z.
As indicated by the CFPB’s approval order for Synchrony, secured credit cards offer consumers with lower credit scores access to credit and allow those consumers to help build (or rebuild) their credit profile. However, the CFPB has observed that secured credit cards are often priced like unsecured entry-level credit cards, even though they are secured. Synchrony’s DFCC will offer a “substantially lower” APR than current secured credit cards on the market. Also, while the APR will increase if the consumer graduates to the unsecured credit card, Synchrony plans to provide transparency to the consumers about the difference between secured and unsecured features of the card and will require an affirmative opt-in before the card is converted from secured to unsecured.
CFPB’s approval of Synchrony’s DFCC follows recent efforts by the CFPB’s Office of Innovation to encourage financial service entities to offer unique products and disclosures. In addition to the CAS policy, the CFPB also has No-Action Letter and Trial Disclosure Sandbox policies. Unlike the CAS policy, there have been multiple No-Action Letter applications and approvals (and extensions) over the past year. Notwithstanding the limited sample of approved applications at this point, the CFPB seems willing to allow financial services companies to obtain approval for innovative products for consumers.