Understanding No-Action Letters and Their Impact

These letters are usually issued in response to a company's request for an opinion on a specific issue. According to the SEC, a no-action letter is "a formal, non-binding interpretation of the law that is not precedential." This means it doesn't set a legal precedent, but it can still provide valuable guidance.

No-action letters are not a guarantee of future non-action, but they can reduce the risk of enforcement action. The SEC can revoke or modify a no-action letter at any time, so it's essential to stay compliant with regulations.

The no-action letter is a powerful tool, but it's not without its regulatory requirements. This policy is exempt from the notice and comment rulemaking requirements under the Administrative Procedure Act, pursuant to 5 U.S.C. 553(b).

As a result, no notice of proposed rulemaking is required, which means the Regulatory Flexibility Act doesn't require an initial or final regulatory flexibility analysis. This can help streamline the process for covered entities.

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The CFPB has determined that the issuance of the Bulletin does not impose any new or revise any existing recordkeeping, reporting, or disclosure requirements on covered entities or members of the public that would be collections of information requiring approval by the Office of Management and Budget under the Paperwork Reduction Act.

The Consumer Financial Protection Bureau (CFPB) has established a policy and procedures for issuing No-Action Letters, which provide a mechanism for companies to receive guidance on compliance with federal consumer financial laws.

The CFPB's primary purpose in issuing No-Action Letters is to facilitate compliance with applicable federal consumer financial laws and promote innovation.

The CFPB will generally not consider applications from former CFPB attorneys representing companies as outside counsel, to avoid ethical conflict and maintain the highest integrity in the No-Action Letter program.

The CFPB intends to balance a variety of factors when deciding whether to grant an application for modification of a No-Action Letter, including the quality and persuasiveness of the application.

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The CFPB expects to grant or deny such applications within 30 days of notifying the applicant that the CFPB has deemed the application to be complete.

Policy and Procedures Overview

No-Action Letters will automatically be rescinded when recipients materially change their product or service so that it no longer fits the description provided in the application and described in the Letter, unless a modification is approved under Subpart D.

The Policy on No-Action Letters is a crucial part of the Consumer Financial Protection Bureau's (CFPB) operations, aimed at promoting innovation, competition, ethics, and transparency in the consumer financial industry.

The CFPB's primary purposes for implementing this policy are to provide a mechanism for more effectively carrying out its statutory purpose and objectives, and to facilitate compliance with applicable Federal consumer financial laws.

The Policy is not intended to restrict or limit the CFPB's discretion in exercising its authorities, including the provision of no-action or similar compliance assistance other than pursuant to the Policy.

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The Policy is divided into six sections: Conditions to Promote Innovation, Competition, Ethics and Transparency; factors the CFPB considers in assessing applications for a No-Action Letter; standard procedures for issuing No-Action Letters; procedures for modification and termination of No-Action Letters; coordination with other regulators; and disclosure of information relating to No-Action Letters.

Here are the six sections of the Policy:

The CFPB will generally not consider applications from former CFPB attorneys representing companies as outside counsel, to avoid ethical conflicts and maintain the highest integrity in the No-Action Letter program.

No-Action Letters will automatically be rescinded when recipients materially change their product or service, unless a modification is approved under Subpart D.

The CFPB intends to provide a No-Action Letter signed by the Director that sets forth the specific terms and conditions of the No-Action Letter provided to recipients. This letter will identify the recipient, specify the subject matter scope, and state that it's limited to the recipient's offering of the described aspects of the product or service.

A No-Action Letter will require the recipient to apprise the CFPB of material changes to information included in the application and material information indicating that the described aspects of the product or service are not performing as anticipated. This ensures that the CFPB is kept informed of any changes that may affect the validity of the letter.

The CFPB will not make supervisory findings or bring a supervisory or enforcement action against the recipient predicated on the recipient's offering or providing the described aspects of the product or service under the laws identified in the No-Action Letter, unless the letter expires or is terminated. This provides a clear understanding of the CFPB's intentions and limitations.

A No-Action Letter will also state that the recipient may reasonably rely on any CFPB commitments made in the letter, and that the CFPB may terminate the letter if it determines that it's necessary or appropriate to do so. This includes situations where the recipient fails to substantially comply in good faith with the terms and conditions of the letter, or where the described aspects of the product or service do not perform as anticipated.

Here are the key components of a No-Action Letter:

No action, interpretative, and exemptive letters are available for free on SEC.gov as well as on subscription databases like Lexis and Westlaw.

These letters are SEC staff responses to private requests for indication of whether certain contemplated conduct is in compliance with the appropriate statutory provisions and rules.

A selection of these resources is listed below, offering a valuable reference point for those seeking guidance on exemptive and interpretative relief.

Eli Lilly, a prominent issuer, recently received a no-action letter from the SEC regarding a shareholder proposal on diversity, equity, and inclusion (DEI) metrics.

The proposal, submitted by As You Sow, a California non-profit, requested that Lilly commission a report on the effectiveness of its DEI efforts using quantitative metrics.

Lilly argued that the proposal related to ordinary business matters, but the Staff disagreed, finding that the proposal implicated human capital management issues with a broad societal impact.

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This decision reflects a shift in the SEC's approach to ESG-related proposals, where a nexus to DEI can transform a workforce-related proposal from mundane to meaningful.

The Staff's decision also highlights the importance of carefully reviewing and analyzing prior proposals and decisions to avoid being caught off guard by similar proposals in the future.

In a similar scenario, a coalition of activists submitted a shareholder proposal to another prominent issuer, asking the company to conduct a third-party, independent racial equity audit.

The issuer argued that the proposal was substantially the same as a prior proposal, but the Staff required the company to include the proposal in its 2023 proxy materials, citing a narrow construal of the language of Rule 14a-8(i)(12)(i).

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Eli Lilly is a pharmaceutical company that has been a major player in the industry for over a century. Founded in 1876 by Colonel Eli Lilly, the company is known for its innovative approach to medicine and its commitment to improving human health.

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The company's first major product was a line of medicines called "Eli Lilly's Cold and Cough Medicine", which became popular in the late 19th century. Eli Lilly's Cold and Cough Medicine was a significant milestone for the company, marking its entry into the pharmaceutical market.

Colonel Eli Lilly's vision for the company was to create medicines that would improve people's lives, and he achieved this by investing heavily in research and development. He believed that by investing in R&D, the company could create medicines that would make a real difference in people's lives.

Eli Lilly's commitment to research and development has continued to this day, with the company investing over $5 billion in R&D in 2020 alone. This investment has led to the development of several groundbreaking medicines, including insulin and Humalog.

The company's focus on innovation has led to numerous breakthroughs in medicine, including the development of the first commercially available insulin in the early 20th century. This innovation has had a significant impact on the lives of people with diabetes worldwide.

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In late 2022, a coalition of activists submitted a shareholder proposal to another prominent issuer, asking the company to conduct a third-party, independent racial equity audit.

This proposal addressed the impact of corporate operations on certain populations and provided recommendations for reducing that impact. The company received the request and asked the SEC to exclude the proposal from its forthcoming 2023 proxy statement under Exchange Act Rule 14a-8(i)(12)(i).

The issuer pointed the SEC to an earlier 2022 proposal by a separate group of activists requesting that the company analyze the impact of corporate operations on marginalized populations and civil rights. The two proposals had nearly identical language, and less than one percent of shareholders supported the previous proposal.

Despite this, the SEC required the company to include the proposal in its 2023 proxy materials, demonstrating that the SEC will narrowly construe the language of Rule 14a-8(i)(12)(i). This means that even trivial modifications to a prior proposal can circumvent the rule and lead to the inclusion of a nearly-identical proposal in the future.

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The CFPB follows a set of rules to govern the disclosure of information regarding No-Action Letters.

The CFPB is subject to the Freedom of Information Act (FOIA) and the CFPB's Rule on Disclosure of Records and Information (Disclosure Rule), which prohibit the disclosure of confidential information.

The Disclosure Rule defines confidential information to include trade secrets and confidential commercial or financial information that is privileged or confidential.

The CFPB will publish No-Action Letters on its website, along with the application previously published on regulations.gov, but will not disclose confidential information.

Where information is both customarily and actually treated as private by the submitter, the CFPB intends to treat it as confidential in accordance with the Disclosure Rule.

The CFPB anticipates that much of the information submitted by applicants will qualify as confidential information under the Disclosure Rule.

The CFPB does not intend to publicly disclose any information that would conflict with consumers' privacy interests.

Here is a summary of the types of information the CFPB will disclose regarding No-Action Letters:

The CFPB intends to balance a variety of factors when deciding whether to grant an application for a No-Action Letter. This includes an assessment of the quality and persuasiveness of the application.

The CFPB will consider information about the applicant and the product or service in question derived through CFPB due diligence processes. This helps to ensure that the application is thorough and accurate.

An assessment of the extent to which granting the application would be consistent with CFPB enforcement and supervision priorities is also a key factor. This ensures that the No-Action Letter aligns with the CFPB's overall goals and objectives.

The CFPB will also evaluate the litigation risk associated with the application. This helps to identify potential issues that may arise in the future.

Available CFPB resources are another factor that the CFPB considers when deciding whether to grant an application for a No-Action Letter. This ensures that the CFPB has the necessary resources to support the application.

In making a decision, the CFPB will weigh these factors carefully to ensure that the application meets the necessary criteria.

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