The Consumer Financial Protection Bureau (CFPB) plans to revive “dormant” Dodd-Frank Act powers that would allow the watchdog to conduct supervisory exams on nonbanks or any “fintech” it believes is risky.
“Given the rapid growth of consumer offerings by nonbanks, the CFPB is now utilizing a dormant authority to hold nonbanks to the same standards that banks are held to,” said CFPB Director Rohit Chopra in a statement. “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.”
The CFPB said Monday that it is seeking public comments on a procedural rule to make this process “more transparent.”
Before the Dodd-Frank Act of 2010, only banks and credit unions were subject to federal supervision. But that all changed with the 2008 financial crisis, in which nonbank lenders made billions in bad mortgage loans, and, as a consequence, would eventually be placed under the supervision of the CFPB (in addition to depositories with $10 billion or more in assets and their servicers).
The watchdog, now with more teeth, argued that Congress over a decade ago gave it the authority to supervise “larger participants” in consumer reporting, debt collection, student loans servicing, international remittances and auto loan servicing.
The “dormant” rule gives the CFPB supervision over nonbanks whose “activities the CFPB has reasonable cause to determine pose risks to consumers. This authority is not 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. 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.”
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The agency cited potential risky conduct as potentially unfair, deceptive, or abusive acts or practices, or other acts or practices that potentially violate federal consumer financial law.
Complaints to the CFPB or information from judicial opinions and administrative decisions could also trigger a review of a nonbank or fintech. “The CFPB may also learn of such risks through whistleblower complaints, state partners, federal partners, or news reports,” the agency said.
In part because of a friendlier regulatory climate than what depository counterparts work in, nonbanks have become the dominant force in mortgage lending. About 70% of first-lien originations made in 2021 came from nonbank originators.
The CFPB under Chopra has already warned mortgage servicers that not honoring forbearance would quickly land them in hot water. It’s also said it would be taking a close look at “modern day redlining.”
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