The Consumer Financial Protection Bureau (CFPB) said that it will investigate nonbank financial enterprises that represent a threat to customers using a rarely used regulatory provision. The CFPB thinks that resurrecting this jurisdiction will safeguard customers and better compete between banks and nonbanks. The CFPB is also gathering public input on a technical rule that would make the process more open.
“Given the rapid growth of consumer offerings by nonbanks, the CFPB is now utilizing a dormant authority to hold nonbanks to the same standards that banks are held to. This authority gives us critical agility to move as quickly as the market, allowing us to conduct examinations of financial companies posing risks to consumers and stop harm before it spreads.”
CFPB Director Rohit Chopra
The CFPB has jurisdiction under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to utilize traditional law enforcement to prevent corporations from participating in an activity that puts consumers in danger; this can include contentious litigation. Nonetheless, the statute empowers the CFPB to perform supervisory tests of regulated firms’ books and records. The examiners from the CFPB routinely send a report to businesses with issues that need to be resolved, and reputable institutions usually respond quickly.
Nonbank Oversight
Prior to the Dodd-Frank Act, only banks and credit unions were regulated by the federal government. However, following the 2008 financial crisis, where nonbank corporations contributed significantly, Congress charged the CFPB with overseeing certain nonbanks, as well as big depository institutions with assets of more than $10 billion and their network providers. Nonbanks are financial institutions that are not chartered as banks, thrifts, or credit unions; many functions nationwide and call themselves “fintechs.”
The CFPB’s nonbank oversight program is authorized by Congress in various sections. Primarily, all nonbank firms, no matter the size, are in the mortgage, private student loan, and payday loan industries. Another type of monitored entity is “larger participants” in nonbank marketplaces for consumer financial products and services, as defined by the law. In the sectors of customer reports, debt collection, student loan servicing, foreign capital inflows, and auto loan servicing, the CFPB undertook rulemakings to specify standards for organizations susceptible to regulation.
Nonbanks whose operations the CFPB has probable grounds to believe increase the risk to customers are the third category of entities subject to CFPB nonbank monitoring. This power des not apply to any particular investment good or service for consumers. The CFPB did enact the measure through a substantive rule in 2013, but it has only recently begun to use it. It will enable the CFPB to be more flexible in its regulation of organizations that are rapidly expanding or operating in markets not covered by the current nonbank supervision program.
Actions or practices that are generally unjust, misleading, or oppressive as well as other acts or practices that could contravene federal consumer financial law, are examples of dangerous conduct. These probable cause conclusions may be based on CFPB complaints or secondary sources, such as legal precedent and administrative actions. Whistleblower reports, state collaborators, congressional partnerships, and media stories are all possible sources of information for the CFPB.
Transparency
The CFPB is releasing a procedural regulation to improve the openness of the risk identification process. Organizations entitled to risk-based regulation are served with warnings and a chance to reply, unlike other legislation regulating nonbank supervision. The CFPB revising one area of its risk identification procedures to permit the disclosure of specific details about final judgments made, and to provide direction to the industry on how the CFPB will determine. The company in question will be able to submit feedback to the CFPB on what information is made public.