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CFPB Invokes Authority to Regulate Nonbank Financial Companies

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In a press release, the CFPB has announced that “it is invoking a largely unused legal provision to examine nonbank financial companies that pose risks to consumers.”

Under the Dodd-Frank Act, the CFPB has broad supervision authority, including:

  • All nonbank entities in the mortgage, private student loan, and payday loan industries, regardless of size;
  • Large depository institutions with more than $10 billion in assets;
  • Nonbanks deemed to be “larger participants” by a rulemaking (which currently includes consumer reporting, debt collection, student loan servicing, international remittances, and auto loan servicing); and
  • Nonbanks whose activities the CFPB has reasonable cause to determine pose risks to consumers.

This last authority – nonbanks the CFPB determines pose risks to consumers – is not specific to any particular consumer financial product or service and has not been used before. While the CFPB did implement the provision through a procedural rule in 2013 (which AFSA commented on),  the agency has now begun to invoke this authority. As the Bureau states, “This will allow the CFPB to be agile and supervise entities that may be fast-growing or are in markets outside the existing nonbank supervision program.”

According to the Bureau, “Such risky conduct may involve, for example, potentially unfair, deceptive, or abusive acts or practices, or other acts or practices that potentially violate federal consumer financial law. The CFPB may base such reasonable cause determinations on complaints collected by the CFPB, or on information from other sources, such as judicial opinions and administrative decisions. The CFPB may also learn of such risks through whistleblower complaints, state partners, federal partners, or news reports.”

From the press release, it appears that CFPB may use this authority to examine fintechs, but it could include any nonbank that is not currently supervised.

There will be a 30-day comment period, and AFSA intends to submit a response. Of concern to the association is the following.

  • The Bureau is proposing to make its determination to supervise an entity under this authority public. The Bureau’s justification for invoking this authority is to “level the playing field between banks and nonbanks,” but supervision of a bank is not public, so this proposal would not create a level playing field.
  • There is no definition of “risk” or public process for how the Bureau will determine “risk.”
  • Companies only have 30 days to respond to a notice from the Bureau.
  • Invoking this rule without clarity will lead to substantial uncertainty in the market.

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