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On December 6, the CFPB issued an order establishing supervisory authority over a major tech company. While the company is already subject to CFPB's enforcement authority, the Bureau has determined that the company meets the legal requirements for supervisory oversight. This marks only the second occasion where the CFPB has publicly released a supervisory designation order in a contested matter.
Under the Bureau's "risk-based" supervisory authority, the Bureau can exercise jurisdiction over any covered person whose conduct "poses risks to consumers" with regard to the offering or provision of consumer financial products or services. See CFPA § 1024(a)(1)(C). Here, the Bureau alleged the tech company's products posed two distinct risks to consumers. First, the CFPB determined that the tech company's practices in connection with investigating allegedly erroneous transactions have posed risks to consumers. Second, the CFPB determined the tech company's practices in connection with the prevention of fraudulent and unauthorized transactions have posed risks to consumers.
The CFPB's supervisory designation procedure involves notifying entities not currently subject to a supervisory examination and offering them the choice to either consent to or contest the notice (we discussed this process in greater detail here). Such notices are typically based on consumer complaints and other indicators of risk.
According to the CFPB's procedural rules, the Director has the authority to publicize the final order even though the procedural process is considered confidential supervisory information. Importantly, the order does not constitute that the entity has engaged in wrongdoing and does not require the CFPB to conduct a supervisory examination.
Putting It Into Practice: Notably, the tech company discontinued offering the product that prompted the consumer complaints. To the Bureau, that mattered little as they went ahead to exercise supervisory jurisdiction. Finally, the Bureau's order prompted a lawsuit by the tech company. It will be interesting to see what position the new Director takes in this litigation.
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