The CFPB is preparing to broaden its scope of surveillance | Troutman pepper

On April 25, the Consumer Financial Protection Bureau (CFPB or Bureau) announced that it would begin to invoke a Dodd-Frank provision, previously used infrequently, to conduct supervisory reviews on more companies. non-bank financial institutions that could “present risks to consumers.”

Under Dodd-Frank, the CFPB is empowered to review three categories of non-bank entities:

  1. Non-bank entities that offer or issue mortgages, private student loans, and payday loans, regardless of the size of the non-bank entity.
  1. Large non-bank participants, designated under the CFPB’s various “large participant” rules, in other markets for consumer financial products and services — for example, consumer reports, debt collection, student loan servicing, international remittances, and auto financing.
  1. Non-banks engaging, or have engaged, in “conduct that poses risks to consumers”.

The CFPB sees this third category — not specific to a consumer financial product or service — as an opportunity to broaden its oversight jurisdiction and potentially disclose entities it believes pose risks to consumers. In 2013, the Bureau adopted a rule governing the procedure for determining whether a non-bank insured falls into the third category. In the April 25 announcement, the CFPB also released an amendment to the 2013 Rules of Procedure that will give the Director of the Bureau unilateral discretion to publish decisions on whether a company falls under the third category. This is a radical departure from the well-established rules and regulations protecting confidential surveillance information (CSI). The decision to publish the names of companies subject to CFPB oversight will be significant as it announces the CFPB’s finding that the company has engaged in behavior that “poses risks to consumers”.

Under Section 1091.103(a) of its Rules of Procedure, the CFPB is required to issue a Notice of Reasonable Cause that specifically sets out its procedural bases, summarizing the documents, records, or other matters on which the conclusion that a particular market player poses risks to consumers. The Office states that it may base these determinations of reasonable grounds on complaints collected by the CFPB, information from other sources (such as court opinions and administrative rulings), complaints from whistleblowers, state partners, federal partners or news reports. Consumer groups are conspicuously absent from the list; however, it is likely that these groups will influence this process. Once an entity is designated for supervision under this provision, the designation remains in place until it is revoked by the Director of the Bureau, and the company concerned cannot request to be removed from the monitoring only after two years of monitoring, then only once a year thereafter.

As the Bureau’s press release notes, this power to subject individual market participants to surveillance is not specific to any particular part of the consumer credit industry or any particular product. The Bureau said little in the press release about where it plans to use this authority, other than a reference to “fintechs” and the statement that it plans to “oversee entities that may experience growth.” fast or be in markets outside the existing non-banking sector. monitoring program. We’ll see where the Bureau invokes this procedure, but the director’s preliminary remarks on fintechs and the reference to fintechs in the April 25 press release are noteworthy for this industry.

The key takeaway, in our view, is that the CFPB is seeking to expand its oversight sphere by hand-picking individual companies that are not currently subject to its oversight authority. Whether it is limited to a handful of entities or designates a large number of companies that “pose risks to consumers” is also an open question. But we believe that any designation that a particular industry player poses risks to consumers will likely mean that the resulting review will be a precursor to an enforcement investigation.

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