June 30, 2022

Volume XII, Number 181

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CFPB to Examine Nonbank Financial Companies – Including Fintechs – that Pose Risk to Consumers

As nonbanks comprise an ever-greater share of the consumer-finance market, on April 25, 2022, the Consumer Financial Protection Bureau (CFPB, or the Bureau) announced it would invoke its “unused” legal authority to examine nonbanks “that pose risks to consumers.” CFPB Director Rohit Chopra explained that leveraging this “dormant” authority would allow the Bureau to hold nonbanks to the same standards banks are held to, as well as enable the Bureau to rein in risky behavior and more quickly prevent consumer harm. Concurrent with its announcement, the CFPB issued a procedural rule to complement the 2013 rule it now plans to invoke. The proposed rule would enable the CFPB to publish certain information about any final determination made using its supervisory powers.

The dormant authority the CFPB plans to invoke was granted to it under the Dodd-Frank Act and implemented by rule in 2013. But the Bureau’s decision to leverage it now signals a plan to expand, perhaps markedly, the universe of entities that, in practice, the Bureau will examine. Enforcement actions and litigation typically are conducted at arm’s length, subject to rules and protections of the courts. Supervisory examinations, on the other hand, provide the Bureau with a closer, more intimate look at the affairs of the subject entity. Further, unlike enforcement actions, where respondent entities have time to retain counsel and plan a response, supervisory exams are often unplanned and, thus, less controlled. Nonbank entities across all sectors of consumer finance, including, for example, “buy now, pay later,” (BNPL), peer-to-peer payment companies, and other fintechs, would immediately be subject to the new supervisory authority.

The April 25 announcement represents another in a sequence of CFPB actions to implement new rules or utilize dormant ones that enable it to scrutinize providers of consumer financial products and services and advantage it in administrative actions. For example, in February 2022, the Bureau amended its Rules of Practice for Adjudicating Proceedings. And in October and December 2021, the CFPB leveraged its power to issue Market Monitoring Orders to open inquiries into BNPL and big tech’s practices regarding consumer payment systems. In light of the announcement, nonbank entities not otherwise subject to the Bureau’s supervisory jurisdiction, larger fintechs in particular, may consider reviewing their compliance management systems to ensure readiness for a CFPB exam should the Bureau seek to conduct one.

©2022 Greenberg Traurig, LLP. All rights reserved. National Law Review, Volume XII, Number 118
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About this Author

Tonya M. Esposito Shareholder Greenberg Traurig, LLP
Shareholder

Tonya M. Esposito focuses her practice on a variety of consumer issues, including financial services, antitrust, and marketing and advertising. She has considerable experience representing clients in private litigation, as well as in government investigations brought by state attorneys general, the Federal Trade Commission (FTC), the U.S. Department of Justice (DOJ), the Food and Drug Administration (FDA), and the Consumer Financial Protection Bureau (CFPB).

With deep experience representing a variety of financial institutions in both litigation...

202-331-3111
Gil Rudolph, Greenberg Traurig Law Firm, Washington DC, Phoenix, Finance Law Attorney
Shareholder

Gil Rudolph is Co-Chair of the firm's Financial Regulatory and Compliance Practice. Gil focuses his practice on the representation of finance companies, banks, mortgage originators and servicers, education lenders, title insurance companies and other consumer financial service providers in regulatory and litigation matters.

Gil also represents various alternative financial service providers, including small dollar/short term lenders, check cashers, pawn and auto title lenders. He additionally represents various participants in the credit, debit...

602-445-8206
Benjamin Saul Financial Compliance Attorney Greenberg Traurig Law Firm DC
Shareholder

Benjamin Saul is a shareholder in the firm’s Financial Regulatory and Compliance Practice. For two decades, Ben has handled high-stakes regulatory, enforcement, and litigation matters for corporate and individual clients in the consumer finance, specialty finance, fintech, and banking sectors. 

Ben has helped clients navigate dozens of contentious supervisory, enforcement, and litigation matters involving the Consumer Financial Protection Bureau (CFPB), and has been a leader in the private bar on CFPB matters since the Bureau’s inception in 2011...

202-331-3123
Associate

Jonathan Huie has deep experience in the areas of government enforcement and regulatory matters across the technology, financial services, and food and drug industries. He advises businesses of all sizes on internal investigations and consumer issues. Jonathan works closely with clients on risk management issues with the goal of avoiding costly litigation and represents them in antitrust and complex commercial disputes when litigation cannot be avoided.

202-533-2356
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