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The Consumer Financial Protection Bureau (CFPB) issued a release on December 12, 2022, considering a proposed rule that would require nonbank financial institutions to register with the CFPB following a confirmed violation of consumer protection laws.

This proposed rule notably seeks not only registration, but also reporting by nonbank institutions, each time they are subject to local, state, or federal consumer financial protection agency or court orders. The CFPB also seeks to publish the aforementioned orders and the institution’s reported information in an online repository. CFPB Director Rohit Chopra explained the rationale for this proposed rule, suggesting it will “help the CFPB, the law enforcement community, and the public limit the harms from repeat offenders.”

In support of this suggested rule, the CFPB noted its congressional obligation to monitor risks to consumers within the financial products and services space and explained that the registry allows the CFPB to complete this task. Per the CFPB, this proposed rule would function to more easily track repeat offenders of consumer protection statutes and would create an additional layer of monitoring for repeat offenders to ensure compliance with agency and court orders.

In the proposed rule, the CFPB has proposed the following specific measures:

  • Covered orders: Covered orders are defined as any final agency, court orders, and judgments. This includes  but is not limited to consent and stipulated orders, involving violations of federal consumer protection laws or state laws involving unfair, deceptive, or abusive acts or practices.
  • Unsupervised nonbanks: Before this proposed rule, unsupervised nonbanks were not required to report to the CFPB for actions taken by other agencies or courts involving consumer financial products or services. If adopted as a final rule, the proposed rule would require reporting of any covered orders to the CFPB.
  • Larger supervised nonbanks: Supervised nonbanks would be required to designate a senior executive to submit annual statements attesting to the company’s compliance with any covered orders and whether any violations of or noncompliance with these covered orders occurred within the reporting year.

The CFPB’s release also considers further expansion of the proposed rule to cover insured banks and credit unions. However, given the regulation of insured banks and credit unions by other federal agencies, the CFPB decided to prioritize oversight of nonbank institutions at this time.

Takeaways

The CFPB has yet again focused on strengthening its oversight in the consumer financial services industry by proposed additional monitoring of nonbank institutions that report a covered order. In the CFPB’s view, nonbank institutions with significant numbers of covered orders may face increased scrutiny by the CFPB, which may in theory result in CFPB investigations. Whether the proposed rule will become a final rulemaking in its current form is yet to be determined. However, nonbank institutions in the consumer financial services industry have 60 days from the proposed rule’s publication in the Federal Register to submit their comments.

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Photo of David T. Long Jr. David T. Long Jr.

David Long counsels clients in complex banking and financial services matters in both state and federal courts across the country. Based upon the specific needs of his clients, he advises individuals and corporate clients on their claims and outlines strategies to achieve the…

David Long counsels clients in complex banking and financial services matters in both state and federal courts across the country. Based upon the specific needs of his clients, he advises individuals and corporate clients on their claims and outlines strategies to achieve the best result for each client.

David also has extensive experience representing and advising multinational corporations to ensure compliance with state and federal regulations.

Photo of Andrew J. Narod Andrew J. Narod

Andrew Narod is an experienced litigator who represents bank and non-bank financial services institutions and other types of businesses in class-action litigation, complex commercial litigation, and other high-profile litigation disputes nationwide. His clients entrust him to navigate some of their most sensitive litigation…

Andrew Narod is an experienced litigator who represents bank and non-bank financial services institutions and other types of businesses in class-action litigation, complex commercial litigation, and other high-profile litigation disputes nationwide. His clients entrust him to navigate some of their most sensitive litigation matters in some of the most difficult venues in the country.

Photo of Christopher K. Friedman Christopher K. Friedman

Chris Friedman is a regulatory compliance attorney and litigator who focuses on helping consumer finance companies and small business lenders, as well as banks, fintech companies, and other participants in the financial services industry, address the challenges of operating in a highly regulated…

Chris Friedman is a regulatory compliance attorney and litigator who focuses on helping consumer finance companies and small business lenders, as well as banks, fintech companies, and other participants in the financial services industry, address the challenges of operating in a highly regulated sector. Chris focuses on both small business lenders and alternative business finance products and has helped non-bank small business lenders, banks who make small business loans, commercial credit counselors, lead generators, and others in the industry. He helps clients launch new products, conduct due diligence, engage in compliance reviews, evaluate litigation risk, and solve some of the unique legal problems faced by companies who work with small businesses. In that vein, Chris has written extensively about the upcoming rulemaking related to Dodd-Frank 1071, which will require data collection and reporting by companies making loans to certain small businesses.