In addition to its supervisory authority over financial institutions, the Dodd-Frank Act also gave the Consumer Financial Protection Bureau (“CFPB”) the power to supervise any nonbank (regardless of its size) that it has reasonable cause to believe “is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services.” Importantly, the supervisory authority extends to affiliate service providers of nonbanks. In determining whether the nonbank poses risks, the CFPB will also consider whether the nonbank’s conduct involves potentially unfair, deceptive or abusive acts or otherwise violates applicable federal consumer financial law.
The final rule enacting procedures related to CFPB nonbank supervision was published last month and is effective 30 days from publication. Accordingly, it is likely that the CFPB will begin enforcing regulations against certain nonbank entities in the near future. Although the CFPB will presumably undertake serious consideration in identifying which nonbanks to supervise, the nonbanks must still be provided notice of the CFPB’s decision to supervise them, as well as an opportunity to respond. The time period for responding is only 30 days, so nonbanks should be proactive in putting together supporting materials to show why they should not be regulated by the CFPB.
This supervisory power is in addition to the CFPB’s authority under Dodd-Frank to supervise any of the following nonbanks: mortgage loan providers/originators, student loan issuers, payday loan companies, providers considered to be “larger participants” of a market for consumer financial products or services. (The “larger participants” have already been finalized by the CFPB with respect to credit reporting and debt collection markets.)
There is significant uncertainty about how the CFPB will use its nonbank supervisory authority, but as it designates nonbanks to supervise and determines how to apply rules across markets, there will be greater guidance available. Contact Spilman or other knowledgeable counsel to discuss any questions about this final rule.