The Consumer Financial Protection Bureau (CFPB) announced that it is invoking a largely unused legal provision to examine nonbank financial companies that pose risks to consumers.
The CFPB continues to expand its authority to supervise the financial services space. On Monday, April 25, 2022, the CFPB announced that it will start using its authority to examine nonbank financial services institutions whose activities the CFPB has "reasonable cause to determine pose risks to consumers." The CFPB may deem such risky conduct to include potentially unfair, deceptive, or abusive acts or practices, or other acts or practices that potentially violate federal consumer financial law.
This announcement is rooted in its authority to supervise nonbanks subject to the Dodd-Frank Act to:
- assess compliance with the requirements of Federal consumer financial law;
- obtain information about such persons' activities and compliance systems or procedures; and
- detect and assess risks to consumers and to markets for consumer financial products/services
Fintechs and nonbank service providers in the financial services space providing any consumer financial product or service fall under this authority.
As a backdrop, under its authority, a number of entity categories are subject to CFPB's nonbank supervision program:
- All nonbank entities in the mortgage, private student loan, and payday loan industries.
- "Larger participants" in other nonbank markets for consumer financial products and services with certain thresholds in consumer reporting, debt collection, student loan servicing, international remittances, and auto loan servicing.
- Any nonbank whose activities the CFPB has reasonable cause to determine pose risks to consumers, not specific to any particular consumer financial product or service.
It is this third category where the CFPB sees an opportunity to widen its jurisdiction and potentially disclose the entities that it has determined pose risks to consumers. The basis for such determinations may be CFPB complaints, whistleblower complaints, state and federal partners, and information from other sources (e.g., court opinions/decisions or news reports).
Some potential risks may include:
- The CFPB may potentially deem all manner of activity "risky," and can therefore exercise its supervisory authority.
- Entities that may have believed that they were outside the reach of the CFPB should reconsider and take steps to reduce risk in anticipation of a potential exam.
- Any designation that a particular entity poses risks to consumers will likely mean the resulting examination will be a precursor to an enforcement investigation.