The CFPB Intends to Begin Examining Fintechs Whose Financial Activities, Products or Services Pose Risks to Consumers

On April 25, 2022, the CFPB announced that it intends to begin using a largely unused authority to examine nonbank/non-depository financial companies, that operate nationally including fintechs (“nonbanks”) that “pose risks to consumers”.  The CFPB’s announcement appears to be in response to the banking industry criticism that nonbanks’ activities are not held to the same standards that banks are held to. According to the announcement, the CFPB believes that utilizing this examination authority will help protect consumers, by allowing it to move quickly to conduct examination of nonbanks to stop harm before it spreads, and to level the playing field between banks and nonbanks.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), the CFPB has several categories of supervision authority over nonbanks, including the authority to conduct examinations of books and records of nonbanks. The first category of supervised entities are nonbanks in the mortgage, private student loan, and payday loan industries, regardless of size.  The second category of supervised entities includes “larger participants” in other markets for consumer financial products and services, which the CFPB defined by rule to include the nonbank markets of consumer reporting, debt collection, student loan servicing, international remittances, and auto loan servicing.

The third category of supervised entities include nonbanks whose financial activities, products or services, the CFPB has reasonable cause to determine, after notice and a reasonable opportunity to respond, “pose risks to consumers”. The CFPB issued a procedural rule governing supervision over nonbanks based on risk determination in 2013 (the “procedural rule”), but as the announcement acknowledge supervision under the procedural rule remained largely dormant.

According to the announcement, risky conduct may involve, for example, potentially unfair, deceptive, or abusive acts or practices, or other acts or practices that potentially violate federal consumer financial law. The announcement also affirms that the CFPB may base its reasonable cause determinations based on complaints collected by the CFPB, e.g., through the CFPB’s consumer complaint portal, or based on information from other sources, including, judicial opinions, administrative decisions, whistleblower complaints, state and federal authorities and regulators, or news reports.

As part of the announcement, the CFPB is also seeking public comments on an amendment to the procedural rule that will provide the CFPB broad authority to publish supervisory documents and any decision or order reached by the CFPB as part of its exam on its website.  The proposed revision to the procedural rule would allow the nonbank to object to the publication, within 7 days after receiving the decision or order, and the decision on such objection may also be published by the CFPB on its website.

Comments to the proposed amendment must be received within 30 days after the date of publication of procedural rule in the federal register.

If you have any questions regarding this CFPB announcement or the proposed revision to the procedural rule, please contact Solomon Maman.

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