On April 25, the Consumer Financial Protection Bureau (CFPB or Bureau) announced that it would begin invoking a provision in Dodd-Frank, previously used only infrequently, to conduct supervisory examinations over a greater number of nonbank financial companies that may “pose risks to consumers.”

Under Dodd-Frank, the CFPB has authority to examine three categories of nonbank entities:

  1. Nonbank entities that offer or originate mortgages, private student loans, and payday loans, regardless of the nonbank entity’s size.
  1. Larger nonbank participants, designated under the CFPB’s various “larger participant” rules, in other markets for consumer financial products and services — e.g., consumer reporting, debt collection, student loan servicing, international remittances, and auto finance.
  1. Nonbanks engaging, or have engaged, in “conduct that poses risks to consumers.”

The CFPB is eyeing this third category — not specific to any consumer financial product or service — as an opportunity to widen its supervisory jurisdiction and potentially disclose the entities that it has determined pose risks to consumers. The Bureau adopted a rule in 2013 governing the procedure for determining whether a nonbank covered person falls under the third category. In the April 25 announcement, the CFPB also released an amendment to the 2013 procedural rule that will give the Bureau’s director the unilateral discretion to publish decisions about whether a company falls under the third category on the CFPB’s website. This is a radical departure from well-established rules and regulations protecting confidential supervisory information (CSI). The decision to publish the names of the companies subject to the CFPB’s supervision will be significant because doing so announces the CFPB’s conclusion that the company has engaged in conduct that “poses risks to consumers.”

Under Section 1091.103(a) of its procedural rule, the CFPB is required to issue a Notice of Reasonable Cause that specifically sets forth its bases for proceeding, summarizing the documents, records, or other items relied upon for the conclusion that a particular market participant poses risks to consumers. The Bureau states that it may base such reasonable cause determinations on complaints collected by the CFPB, information from other sources (such as judicial opinions and administrative decisions), whistleblower complaints, state partners, federal partners, or news reports. Noticeably absent in the list are consumer groups; however, it is likely that those groups will be influential in this process. Once an entity is designated for supervision under this provision, the designation stays in place until rescinded by the Bureau director, and the affected company can petition to be removed from supervision only after two years of supervision, and then only once per year thereafter.

As the Bureau’s press release notes, this authority to subject individual market participants to supervision is not specific to any particular part of the consumer finance industry, or any particular product. The Bureau said little in the press release about where it planned to use this authority, other than one reference to “fintechs,” and the statement that it planned to “supervise entities that may be fast-growing or are in markets outside the existing nonbank supervision program.” We will see where the Bureau invokes this procedure, but the director’s prior remarks about fintechs and the reference to fintechs in the April 25 press release are noteworthy to that industry.

The main takeaway, we believe, is that the CFPB is seeking to expand its sphere of supervisory jurisdiction by hand-picking individual companies not currently subject to its supervisory authority. Whether it limits itself to a handful of entities or designates a large number of companies that “pose risks to consumers” is also an open question. But we believe that any designation that a particular industry actor poses risks to consumers will likely mean the resulting examination will be a precursor to an enforcement investigation.

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Photo of Chris Willis Chris Willis

Chris is the co-leader of the Consumer Financial Services Regulatory practice at the firm. He advises financial services institutions facing state and federal government investigations and examinations, counseling them on compliance issues including UDAP/UDAAP, credit reporting, debt collection, and fair lending, and defending…

Chris is the co-leader of the Consumer Financial Services Regulatory practice at the firm. He advises financial services institutions facing state and federal government investigations and examinations, counseling them on compliance issues including UDAP/UDAAP, credit reporting, debt collection, and fair lending, and defending them in individual and class action lawsuits brought by consumers and enforcement actions brought by government agencies.

Chris also leverages insights from his litigation and enforcement experience to help clients design new products and processes, including machine learning marketing, fraud prevention and underwriting models, product structure, advertising, online application flows, underwriting, and collection and loss mitigation strategies.

Chris brings a highly practical focus to his legal advice, informed by balancing a deep understanding of the business of consumer finance and the practical priorities of federal and state regulatory agencies.

Chris speaks frequently at conferences across the country on consumer financial services law and has been featured in numerous articles in publications such as the Wall Street Journal, the New York Times, the Washington PostAmerican BankerNational Law JournalBNA Bloomberg, and Bank Safety and Soundness Advisor.

Photo of Jeremy Rosenblum Jeremy Rosenblum

Jeremy focuses his practice on federal and state lending and consumer practices laws, with emphasis on the interplay between federal and state laws, joint ventures between banks and nonbank financial services providers, the development and documentation of new financial services products (especially products…

Jeremy focuses his practice on federal and state lending and consumer practices laws, with emphasis on the interplay between federal and state laws, joint ventures between banks and nonbank financial services providers, the development and documentation of new financial services products (especially products designed to serve the needs of unbanked and under-banked consumers), bank overdraft practices and disclosures, geographic expansion initiatives, and compliance with federal and state consumer protection laws, including statutes prohibiting unfair, deceptive and abusive acts and practices (UDAAP); usury laws; the Truth in Lending Act (TILA); the Electronic Funds Transfer Act; E-SIGN; the Equal Credit Opportunity Act; and the Fair Credit Reporting Act (FCRA).

Jeremy regularly interacts with regulators on behalf of industry trade groups. He has drafted a number of amicus curiae briefs to the U.S. Supreme Court and other courts on behalf of a number of industry and business trade groups, including the American Bankers Association, the Consumer Bankers Association, the U.S. Chamber of Commerce, the Mortgage Bankers Association, the Financial Services Roundtable, and the American Financial Services Association.

In addition, Jeremy represents banks, thrifts, and other entities in regulatory diligence matters, charter transactions; mergers, acquisitions, and conversions; asset securitizations; purchases of loan servicing rights; and public offerings and private placements of equity and debt instruments.

Photo of James Kim James Kim

James advises fintechs, banks, investors, and other clients regarding federal and state consumer financial laws and regulations, including Title X of the Dodd-Frank Act (UDAAP), TILA, RESPA, EFTA, and the FCRA. He helps clients navigate examinations and investigations with the Consumer Financial Protection…

James advises fintechs, banks, investors, and other clients regarding federal and state consumer financial laws and regulations, including Title X of the Dodd-Frank Act (UDAAP), TILA, RESPA, EFTA, and the FCRA. He helps clients navigate examinations and investigations with the Consumer Financial Protection Bureau (CFPB), Federal Deposit Insurance Corporation (FDIC), Federal Reserve Board, Federal Trade Commission (FTC), and various state agencies.

James also assists clients with product development, regulatory due diligence, and matters involving cutting-edge issues, such as financial technology, data aggregation, credit and prepaid cards, and marketplace lending.

James served as a senior enforcement attorney with the CFPB, where he coordinated with the FTC, Office of the Comptroller of the Currency, FDIC, Federal Communications Commission, and state attorneys general. He was lead counsel in the CFPB’s first enforcement actions involving mobile payments, and a member of an interdepartmental credit card/prepaid card/emerging payments issue team.

James is highly rated by Chambers USA, which uses client and peer feedback to list top attorneys in private practice. As one client told Chambers in 2021: “James is excellent. He came from the CFPB so he has the insider knowledge…He has a very strong background in enforcement and supervision matters, a very quick turnaround time and meets the deadline every single time.”