CFPB targets non-banks for oversight – Dodd-Frank, Consumer Protection Act
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The Consumer Financial Protection Bureau (“CFPB”) recently announced that it will exercise so-called “dormant” authority to supervise non-banks that are not otherwise subject to the CFPB’s supervisory authority. Since 2011, the CFPB has limited its oversight activities to banks, referred to as “large participants” in specific industry sectors such as credit reporting and mortgage and payday lenders. This expanded supervisory authority therefore suggests that the CFPB focus on gaining supervisory access to fintechs that are not involved in lending and that offer products or services to consumers. Basically, if a business is considered a “Covered Person” for the purposes of the Consumer Financial Protection Act (the “CFPA”, also known as Title X of the Dodd-Frank Act), then the CFPB could potentially claim to have supervisory authority over that company.
This supervisory authority is based on language in the CFPA which gives the CFPB supervisory authority when it “has reasonable grounds to determine” that a non-bank business “is engaging, or has engaged, in behavior that poses risks to consumers with respect to the offering or provision of consumer financial products or services.” 12 USC 5514(a)(1)(C). In 2013, the CFPB promulgated a rule of procedure in 12 CFR Part 1091 that defines how the CFPB can use this authority that has remained dormant to this day.
The rule provides that when the CFPB seeks to use this authority, it will send a “reasonable cause notice” that lists consumer complaints or other information that the CFPB has obtained that indicates that the non-bank covered person is engaging in conduct that poses risks to consumers. . Firms may initially rebuff the supervision attempt, but the appeal goes to the CFPB’s own Associate Director of the Lending Supervision, Enforcement and Equity Division, and then to the CFPB Director, no of them only being obligated to provide a particular level of unbiased review. In addition, although supervision is generally covered in confidentiality, the CFPB has additionally amended its rule of procedure so that, to the extent that the CFPB decides that a particular company is legitimately subject to supervision under this authority, the CFPB Director may choose to publish information indicating not only that the company is subject surveillance, but also the reasons why this company seems to present risks for consumers.
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