CFPB Invokes Dormant Authority to Examine Nonbank Companies Posing Risks to Consumers
- Source: consumerfinance.gov
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On April 25, 2022, the Consumer Financial Protection Bureau (CFPB) announced plans to reinstate quiescent Dodd-Frank Authority to examine nonbank financial companies it deems risky to consumers. The Bureau specifically identified FinTechs as among the targets subject to such authority. CFPB Director Rohit Chopra stated, “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.”
Prior to the Dodd-Frank Act of 2010, only banks and credit unions were subject to federal oversight. Following the 2008 financial crisis, in which nonbank companies played a crucial role, the law was enacted to overhaul financial regulation and create new agencies like the Consumer Financial Protection Bureau. The CFPB was tasked with protecting consumers against abusive financial service practices, including supervising certain nonbanks.
The CFPB was given the authority to supervise several categories of entities including:
- All nonbank entities in the private student loan, mortgage, and payday loan industries, irrespective of size;
- Larger participants in other nonbank markets including consumer reporting, student loan servicing, international remittances, debt collection, and auto loan servicing; and
- Nonbanks the CFPB has reasonable cause to believe pose risks to consumers, implemented through a procedural rule in 2013 which the agency has begun to revive authority.
The third category subject to supervision is not directed at a specific consumer financial product or service and allows the CFPB to oversee entities that are in markets outside of existing nonbank supervision.
What nonbank financial companies should be prepared for in examination:
- Evaluation of compliance with requirements of federal consumer financial law;
- Providing evidence of compliance systems or procedures; and
- Assessment of risks to consumers for financial products and services.
As enforcement of nonbank financial companies continues to expand, recent announcements such as this point towards a new era of consumer protection.