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29 April 2022

FinTechs In Crosshairs As CFPB Invokes Dormant Authority To Examine Nonbanks

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Sheppard Mullin Richter & Hampton

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Sheppard Mullin is a full service Global 100 firm with over 1,000 attorneys in 16 offices located in the United States, Europe and Asia. Since 1927, companies have turned to Sheppard Mullin to handle corporate and technology matters, high stakes litigation and complex financial transactions. In the US, the firm’s clients include more than half of the Fortune 100.
On April 25, the CFPB announced that it is using its "dormant authority" in order to conduct examinations of nonbanks posing risks to consumers.
United States Technology
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On April 25, the CFPB announced that it is using its "dormant authority" in order to conduct examinations of nonbanks posing risks to consumers. The Bureau has direct supervisory authority over banks and credit unions, certain nonbanks, in addition to large depository institutions with more than $10 billion in assets, and their service providers. With this announcement, the CFPB intends invoke its authority under the Dodd-Frank Act to examine 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."

In conjunction with the announcement, the CFPB issued an amendment to a 2013 procedural rule allowing it to publish all or part of a determination that a company's products and activities pose risks to consumers. Such a determination was previously treated as confidential, however, the amendment would give the CFPB Director the unilateral discretion to publish decisions on whether to start examining a particular nonbank on the agency's website. According to the CFPB, the new rule is meant to "increase the transparency of the risk-determination process."

Comments to the proposed rule can be submitted within 30 days after its publication in the Federal Register.

Putting It Into Practice: While ostensibly directed at FinTechs, this announcement is broader in scope and is not limited to any particular industry or product type and could be used on virtually any industry participant. Further, making the Director's decisions in such proceedings public sends a strong signal to all market participants about practices the CFPB believes present a risk to consumers and could be the subject of further supervisory or enforcement activity.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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