The CFPB Just Doesn’t Get It
Today, the Consumer Financial Protection Bureau finalized a proposal to create a nonbank registry related to enforcement matters. The final rule requires certain nonbank entities to register information about their company and certain orders and to submit copies of those orders to the CFPB. The Bureau is also requiring certain supervised nonbanks to file annual reports, signed by an executive, regarding compliance with registered orders.
The proposed rule is overly broad and conflicts with a multitude of consumer protections already in place at both the federal and state levels. Such a backward-looking registry is illogical and could lead to multiple actions by multiple regulators for the same activity that has already been addressed. Perhaps most importantly though, the CFPB does not have the authority to create the executive attestation requirement.
“Over the past few months AFSA has said that the CFPB should engage in rulemaking that provides clear rules of the road for industry while protecting consumers. While we applaud the Bureau for taking the time to engage in rulemaking, it is unfortunate that the CFPB ignored the important feedback the rulemaking process provided,” said Celia Winslow, Executive Vice President of AFSA. “Consumers and the nonbank financial services companies that serve them do not need more policies that are conflicting, duplicative, and costly; they need commonsense rules that do not add unnecessary costs to the products and services in the marketplace.”
Just as troubling as the confusion this new rule creates, the proposed registry is structured to “name and shame” companies and their leadership rather than act as a useful tool to effectively monitor and reduce any potential risks to consumers, creating a chilling effect on nonbank financial institutions and state agencies abilities to resolve matters. Institutions may be much less willing to enter into consent agreements knowing that they will be included in such a registry, leaving them vulnerable as a potential target for trivial and costly class-action litigation. The attorneys that bring these class-action lawsuits will benefit more from the registry than consumers will.
Moreover, the inflammatory language the Bureau uses in announcing the rule is troubling, unnecessary, and frankly, incorrect. Troubling, because financial firms do not treat “penalties for illegal activity as the cost of doing business” as the CFPB director alleges. Financial firms spend an enormous amount of time and resources creating compliance management systems and ensuring that they do everything they can to follow the law. Unnecessary, because this rule not only unilaterally expands the Bureau’s authority beyond Congress’ intent, but it also usurps state authorities that already comprehensively track such activities and regulatory actions and are made available via state websites or the multistate licensing system, NMLS. Incorrect, because nonbank financial companies don’t face “inconsistent oversight.” They are licensed and subject to supervision and enforcement from each state in which the do business, as well as federal law under the jurisdiction of the CFPB and the FTC.
June 3rd, 2024
