On April 25, 2022, the Consumer Financial Protection Bureau announcement a significant shift in its oversight practices, saying it would begin “invoking a largely unused statutory provision to review non-bank financial companies that pose risks to consumers.” This potentially opens up a wide range of non-bank financial service providers to regulatory reviews in which CFPB examiners will have direct access to interview employees and review company records.
The Bureau intends to use its authority under 12 USC § 5514(a)(1)(C) to supervise any non-bank Covered Person that “the Bureau has reasonable grounds to determine.” . . engages or has engaged in conduct that poses risks to consumers in relation to the offer or supply of financial products or services to consumers”. The Bureau’s “reasonable cause” may be based on consumer complaints or “other information” – which, according to the Bureau’s press release, may include court opinions, administrative rulings, whistleblower complaints, news reports or other actions of federal or state agencies. To make this determination, the Bureau must provide the entity with a “reasonable cause notice” containing the basis for the Bureau’s assertion that the entity engaged in risky behavior, and an opportunity to respond. To see 12 CFR § 1090.105.
The Bureau says expanding its supervisory authority in this way will allow it “to be nimble and oversee entities that may be growing rapidly or in markets outside of the existing non-banking supervisory program.” CFPB Director Rohit Chopra further noted that this authority allows the Bureau to “hold non-banks to the same standards as banks.” In particular, the Bureau appears intent on using this previously dormant provision to oversee fintech companies, without undertaking a specific set of notice and comment rulemaking.
Although the Bureau implemented this provision in 2013, it has largely declined to exercise this power since then other than as a remedy in consent orders with unsupervised entities. Instead, the Bureau’s supervisory authority has traditionally extended to (1) banks and credit unions with over $10 billion in assets, (2) non-banks that are engaged in industries listed by law, including mortgages, payday loans and private student loans, and (3) “larger participants” in other non-bank markets. To see 12 USC § 5514(a)(1)(A), (B). Notably, the Bureau’s power to oversee large participants requires the Bureau to engage in the development of notice and comment rules before doing so. Conversely, the use of a “reasonable cause” determination under Section 5514(C) allows the Bureau to extend its supervisory authority to other non-bank entities based solely on the director’s determination. that an entity engages in behavior that poses risks to consumers. Some of the Director’s initiatives so far indicate that he has a very broad view of what constitutes risk, such as “junk fees”.
While announcing its intention to revive the use of Section 5514 to monitor non-bank entities, the Bureau also announced a new rule of procedure that allows it to publish its final decisions regarding the risk determination process on its site. website. Previously, these determinations would have been treated as confidential surveillance information, but the Bureau’s new rule would disclose this information. The Bureau is seeking public comment on this rule of procedure.