On April 25, 2022, the CFPB announced that it is invoking a largely unused legal provision to examine nonbank financial companies that pose risks to consumers. Through the use of this dormant authority, the CFPB believes that it will protect consumers and level the playing field between banks and nonbanks. In addition, the CFPB is seeking public comments on a procedural rule to make this process more transparent.
Before the Dodd-Frank Act, only banks and credit unions were subject to federal supervision. But after the 2008 financial crisis, Congress tasked the CFPB with supervising certain nonbanks, in addition to large depository institutions and their service providers. One of the categories of entities authorized by Congress to be under the CFPB’s supervision are nonbanks whose activities the CFPB has reasonable cause to determine pose risks to consumers. 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. While the CFPB did implement the provision through a procedural rule in 2013, the agency has now begun to invoke this authority.
Additionally, the CFPB has issued a procedural rule to increase the transparency of the risk-determination process. Based on the rule, nonbank entities subject to supervision based on risk will be given notice and the opportunity to respond. The company involved will also have an opportunity to provide input to the CFPB on what information is released to the public.
Read the CFPB’s full announcement here.
The procedural rule can be found here.