CFPB Updates Risk-Based Nonbank Supervision Designation Process

Editor's Note: This article, authored by Stefanie Jackman, James Kim, Jesse Silverman, Chris Willis, Taylor Gess & Carlin McCrory previously appeared in Troutman Pepper’s Consumer Financial Services Law Monitor and is re-published here with permission. 

On April 16, 2024, the Consumer Financial Protection Bureau (CFPB or Bureau) issued a procedural rule streamlining the designation proceedings for nonbank supervision based on a particular entity posing “risks to consumers.” As discussed in "Troutman's Take" below, the changes are designed to encourage nonbanks to volunteer to be supervised, while making it easier for the CFPB to impose supervisory oversight when companies do not consent.

In 2013, the CFPB issued procedures to govern nonbank supervisory designation proceedings, but did not actually utilize those procedures, at least not that were highlighted publicly. In 2022, the CFPB announced that it would begin to make active use of this “dormant authority,” discussed here. The CFPB initiated its first public round of supervisory designation proceedings, discussed here, in 2023 and in 2024 issued its first supervisory designation order in a contested matter, discussed here.

The CFPB states that it is issuing the rule pursuant to its authority under the Consumer Financial Protection Act of 2010 to monitor markets for consumer financial products and services that pose risks to consumers and to conduct a risk-based nonbank supervision program for the purpose of assessing compliance with federal consumer financial laws.

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