Upstart pulls out of CFPB fintech sandbox

Last week, the CFPB recalled a letter of no action granting limited regulatory immunity to Upstart, a listed fintech company whose AI-powered guarantees in 2021 helped provide nearly $ 12 billion in loans through lending partners. CFPB Director Rohit Chopra recently declared inaction letters and the agency’s related fintech sandbox program “ineffective.”

Upstart called for the letter’s resignation in response to “changing priorities” at the agency, as well as “the need to keep our risk models accurate and up to date in a period of significant economic change,” Nat Hoopes, Upstart’s vice president and chief of public policy and regulatory affairs, wrote. in a blog post for the company.

CFPB had previously hoped to help new products market through non-action letters and regulatory sandbox programs. But Chopra, appointed by President Biden, announced a reorganization of the agency’s innovation office last month, urging companies to instead apply for formal regulatory requests when seeking greater clarity on specific rules.

• Upstart received the agency’s first no-action letter ever in 2017 and had it extended for three years in 2020. The letter gave assurance that CFPB would not pursue fair lending actions against the company during that time.

• In April, Upstart CFPB announced that it planned to add new variables to its underwriting and pricing model, as required by the non-action letter. CFPB responded with a notice of termination. In the warning, Chopra wrote that “in view of the risk that [no-action letter] is misunderstood as an approval, the CFPB will have to carry out stricter monitoring and assessment of the Upstart model and any changes to the model. “

• Upstart “correctly identified” that the review would prevent it from making quick business decisions, according to CFPB’s notice. As a result, the company requested that the expiration of the non-action letter be moved from 30 November 2023 to the end of May.

CFPB has not completed the sandbox program and no action. Despite the recent shift, the agency said it still accepts applications for both. However, it seems unlikely that any of them will benefit much, as the agency has now declared them ineffective and stated that they prefer regulatory requests.

• Upstart said they will “continue to test” their loan applications for fairness and hope to work closely with CFPB’s new Office of Competition and Innovation.

• “Effective cooperation between governments and financial technology innovators remains crucial to improving the financial access of the millions of borrowers left behind by the current US credit system,” wrote Upstart’s Hoopes.

CFPB takes a tougher stance on fintech. In addition to the reorganization of the innovation office, Chopra’s CFPB has been pushing to expand its supervisory authority over non-banking institutions, including technology providers for the financial industry. The agency has announced surveys of employer-run debt and “buy now, pay later” companies while warning about the risk of bias from algorithms used by financial institutions. With that on the plate, the agency no longer seems interested in playing in the sandbox.

– Ryan Deffenbaugh (e-mail | twitter)