A bi-partisan group of House members has sent a letter to CFPB Director Chopra to express concern about the CFPB’s rule setting forth its procedures for establishing supervisory authority over nonbanks engaged in conduct that poses risk to consumers.
The Dodd-Frank Act provides that the CFPB can supervise a nonbank covered person that the CFPB “has reasonable cause to determine, by order, after notice to the covered person and a reasonable opportunity for such covered person to respond . . . 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.” In April 2022, the CFPB announced that it planned to invoke this “dormant” authority and amended its procedural rule governing proceedings in which the CFPB invokes such authority. In November 2022, the CFPB issued further amendments to the procedural rule.
In their letter, the lawmakers express concern about the absence of an adequate definition for “risks to consumers” in the procedural rule. (The rule leaves the term undefined.) The lawmakers highlight the “critical services [nonbank financial institutions provide] to consumers across the credit spectrum ,including low-income individuals.” They observe that under the CFPB’s procedural rule, nonbank entities providing these critical services can be labeled “risky” before an examination is completed, despite their compliance with state and federal regulations. According to the lawmakers, “[t]his could lead to confusion in the marketplace about specific entities and have unintentional consequences, including deterring potential consumers and further limiting already tenuous credit access to at-risk consumer groups.”
The lawmakers urge the CFPB to provide a clear definition or specific examples of “risk to consumers,” calling it “critical to educating both consumers and financial institutions, such as small, mid-size, and emerging operators on what the CFPB considers inappropriate conduct.” In their view, “having clear rules and expectations around limiting ‘risks to consumers’ is critical to ensure financial institutions are able to continue to provide credit access in all communities.”