Nonbank financial companies that pose a risk to consumers will be examined by the federal consumer financial protection agency under a seldom used legal provision, the agency said Monday, adding it will propose a rule to “make the process more transparent.”
In a release, the Consumer Financial Protection Bureau (CFPB) said using the “dormant authority” provision, provided under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), will help protect consumers and level the playing field between banks and nonbanks.
“This authority gives us critical agility to move as quickly as the market, allowing us to conduct examinations of financial companies posing risks to consumers and stop harm before it spreads,” bureau Director Rohit Chopra said in a statement.
The agency asserted that the 2010 law make several categories of entities subject to the CFPB’s nonbank supervision program (including so-called “fintechs,” or financial technology companies that do not have a bank or credit union charter). Among the entities: all nonbank entities in the mortgage, private student loan, and payday loan industries, regardless of size; and “larger participants” in other nonbank markets for consumer financial products and services.
Its latest announcement, the agency said, covers a third category: nonbanks whose activities the agency has reasonable cause to determine pose risks to consumers. The services do not have to be specific to any particular consumer financial product or service.
“While the CFPB did implement the provision through a procedural rule in 2013, the agency has now begun to invoke this authority,” the agency said. “This will allow the CFPB to be agile and supervise entities that may be fast-growing or are in markets outside the existing nonbank supervision program.”
The proposed rule, the agency said, updates its procedures for risk determinations to authorize the release by the agency of certain information about any final determinations made. The proposal is designed to provide greater guidance to the marketplace on how the CFPB will make its determinations, the agency said.
The company involved will have an opportunity to provide input to the CFPB on what information is released to the public, the bureau said.