Group of professionals discuss finance

Breaking news and expert analysis on legal and compliance issues

[Back To Home][Back To Archives]

From Banking and Finance Law Daily, June 26, 2013

CFPB adopts rule on supervising nonbanks that pose risks to consumers

By Richard A. Roth, J.D.

The Consumer Financial Protection Bureau has established the procedures it will use when it believes that a nonbank company offering consumer financial products or services presents risks to consumers. According to the CFPB, the rule will cover companies that provide consumer products or services but do not have a bank, thrift, or credit union charter. The Dodd-Frank Act gives the bureau the authority to take steps to supervise such a company if it has reasonable cause to conclude the company has engaged in or is engaging in conduct that poses risks to consumers.

The rule sets the procedures the CFPB will follow in notifying a nonbank that it is being considered for supervision, including how the company can respond to the notice. The rule also establishes how a supervised nonbank company can request to be relieved from bureau supervision. It finalizes a rule that was proposed in May 2012.

Determination of need for supervision. An assistant director of the bureau or other designated employee can initiate a proceeding to bring a nonbank under bureau supervision. The process will begin with the issuance of a Notice of Reasonable Cause telling the company that the CFPB has reasonable cause to believe the company qualifies for supervision.

The notice generally is to state:

  1. a description of the basis for the CFPB’s belief, including a summary of the relevant documents, records, or other information on which the bureau has relied;
  2. that the company has 30 days to respond to the notice and that a failure to do so constitutes a waiver of the right to respond;
  3. the necessary contents of that response; and
  4. that the company can ask to make a supplemental in-person or telephone oral response.

If there is to be a supplemental oral response, the company is to be notified of the time and place within 14 days of the bureau’s receipt of the written response. The initiating official is either to make a recommendation on the notice to the CFPB director within 45 days of receiving the company’s response, or within 45 days of when the notice was served if no response was made. The time limit is extended to 90 days if an oral response is made.

The director has 45 days to accept or reject the initiating official’s recommendation.

The rule says that all documents and other information used by either the bureau or the company during this process will be treated as confidential supervisory information.

The notice is to be accompanied by a proposed consent agreement allowing the company to agree to bureau supervision. If a company agrees, a two-year supervision period will be created without further proceedings. The agreement is not to be construed as an admission of any of the facts in the notice.

Terminating supervision. A petition to end the CFPB’s supervision cannot be filed for two years after a supervision order or consent order is entered. The petition should explain why supervision of the company should be terminated and give a description of what the company has done during the two-year term to address the problematic conduct. The petition is to be referred to the same bureau official who initiated the proceeding.

The official is to provide the CFPB director with a response within 30 days. The director is to grant or deny the petition, or modify the supervision order, within 90 days of when the petition was filed.

The rule does not specify the criteria that a company must meet to end the CFPB’s supervision.

RegulatoryActivity: CFPB DoddFrankAct UDAAP

Banking and Finance Law Daily

Introducing Wolters Kluwer Banking and Finance Law Daily — a daily reporting service created by attorneys, for attorneys — providing same-day coverage of breaking news, court decisions, legislation, and regulatory activity.


A complete daily report of the news that affects your world

  • View full summaries of federal and state court decisions.
  • Access full text of legislative and regulatory developments.
  • Customize your daily email by topic and/or jurisdiction.
  • Search archives for stories of interest.

Not just news — the right news

  • Get expert analysis written by subject matter specialists—created by attorneys for attorneys.
  • Track law firms and organizations in the headlines with our new “Who’s in the News” feature.
  • Promote your firm with our new reprint policy.

24/7 access for a 24/7 world

  • Forward information with special copyright permissions, encouraging collaboration between counsel and colleagues.
  • Save time with mobile apps for your BlackBerry, iPhone, iPad, Android, or Kindle.
  • Access all links from any mobile device without being prompted for user name and password.