CFPB Updates Procedures For Determining Nonbank Supervision

Overview

On September 25, 2025, the Consumer Financial Protection Bureau (CFPB) issued a final rule, effective October 27, 2025, rescinding most of its prior amendments¹ governing the supervisory designation procedures (Code of Federal Regulations, Title 12, Part 1091) and restoring key features of the pre-2022 framework by reinstating the CFPB's 2013 rule. While the CFPB has exercised its nonbank designation authority over the years on a confidential, consented basis, only a few contested designations are publicly known, including World Acceptance Corporation's in 2023 and Google Payment Corporation's in 2024 (the CFPB withdrew the latter designation in 2025).

The CFPB's supervisory authority extends to any persons or entities that "the Bureau has reasonable cause to determine [...] is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services."² For nonbank entities potentially subject to CFPB supervision under this provision, the final rule enhances procedural flexibility and maintains confidentiality of designation proceedings, while limiting public visibility into how and why the CFPB designates particular entities.

This alert summarizes the final rule's key features, analyzes their practical implications, and outlines strategic considerations for clients.

Key Features of the Final Rule

The final rule largely rescinds the supervisory designation procedural rules promulgated by the CFPB under the prior administration and reverts to the CFPB's pre-2022 framework. There are three changes that are especially significant for nonbanks:

1. Confidentiality restored: Contested designation proceedings, including decisions, orders, and related materials, will now be treated as confidential. Under the rules in place between 2022 and 2024, the CFPB director had discretion to release these materials publicly, creating reputational risk for firms that chose to contest designation. By restoring confidentiality, the final rule reduces the risk of "naming and shaming" and levels the treatment of nonbanks that consent versus those that challenge designation.
2. Reintroduction of a recommending official: The final rule reinstates an independent recommending official who issues a recommended determination before the CFPB director makes a final decision. This change restores an intermediate step that was removed in 2024 and gives nonbanks an additional layer of review, providing more procedural safeguards and a more robust record for any future challenge.
3. Advance notice of issues: The initiating CFPB official must now respond in writing to a nonbank's submission and provide notice of the points that may be raised at a hearing rather than introducing new issues without warning. This procedural protection ensures greater fairness and predictability for nonbanks defending against designation.

Other modifications in 2022 and 2024, such as rules regarding notices of reasonable cause, time or word limits, withdrawal of notices, multi-respondent proceedings, and issue-exhaustion requirements, were rescinded, largely restoring procedural flexibility to the CFPB's pre-2022 framework.

Critical Considerations for Nonbanks

Reduced Exposure Due to Confidentiality
Contested designation proceedings will now remain confidential, eliminating the prior disincentive for entities to contest a designation. For example, certain nonbanks previously chose to consent to supervision rather than contest the designation and risk public exposure. Although, under the new rule, the public may never know if a company has been designated for CFPB supervision, even if it contests such designation, confidentiality does not insulate a nonbank from all consequences. Contractual obligations may still require disclosure to bank partners or investors who may reassess pricing or risk exposure once they learn of the designation. Similarly, if any nonbank entity finds it is necessary to disclose its CFPB supervision designation in a public filing, it may impact the nonbank's relationships, because markets and business partners may perceive that type of nonbank entity as having higher regulatory risk. Therefore, while media and consumer scrutiny may be less likely, nonbanks can still face material business ramifications from supervisory designation.

Enhanced Procedural Protections
Nonbanks benefit from an independent recommending official, flexible response options (via written, oral, or video reply), and advance notice of points raised by the initiating official. These procedural safeguards provide additional runway to develop legal, factual, and policy arguments during the designation process. However, the recommending official's ability to request supplemental briefings from a nonbank could also potentially increase nonbank costs in responding. Despite these additional procedural safeguards, the designation determination continues to rest, ultimately, with the CFPB director.

Asymmetric Visibility and Uncertainty
Unlike banks, which are subject to well-established and publicly understood supervisory regimes, nonbanks designated by the CFPB may remain entirely confidential. This creates a degree of opacity in which market participants, competitors, or even similarly situated entities may not know which entities are being supervised or why. Without such transparency, nonbanks may be unable to benchmark their compliance expectations against peers or rely on public precedent to understand how the CFPB is exercising its designation authority, and this uncertainty may fuel perceptions of inconsistent or policy-driven outcomes, increasing the importance of proactive compliance, monitoring, and scenario planning inside organizations.

Practical Next Steps for Nonbanks to Consider

• Reassess "designation-readiness" playbook: Review operations and conduct to identify activities that may be deemed as posing risks to consumers under 12 U.S.C. § 5514(a)(1)(C) and prepare internal processes to respond within required deadlines (e.g., 30-day response, oral argument, supplemental briefing), including with respect to the internal sign-off process for when, how, and what to disclose about a supervision designation.
• Monitor complaints and consumer feedback: In addition to maintaining records of compliance efforts generally (e.g., risk assessments, audits), implement robust complaint tracking and monitoring programs. Because the CFPB may rely on consumer complaints to identify nonbanks for supervision, maintaining a clear record of complaints, resolutions, and remediation efforts provides critical insight into potential designation risk and helps strengthen a nonbank's position if a proceeding arises.
• Plan for disclosure: Work with securities, compliance, and partnership teams to pre-vet management discussion and analysis and other disclosure language regarding supervision, ensuring confidential supervisory information is protected while meeting regulatory disclosure obligations and addressing disclosure expectations from bank partners and other counterparties.
• Conduct stress testing: Model potential supervision-related costs (e.g., compliance staffing, system build-outs, legal fees) and assess potential investor or partner reactions to disclosure.
• Monitor CFPB communications: Track CFPB speeches, consent orders, guidance, and emerging policies to anticipate how it may interpret "risks to consumers." A standard definition of the term "risks to consumers" is expected in a forthcoming rulemaking, following the CFPB's proposed rule published in August 2025, which was open to public comments through September 25, 2025.
• Prepare litigation and challenge strategy: If designated, evaluate whether to contest the designation, particularly when the recommending official's analysis may be weak or inconsistent, and preserve rights for internal appeals, supplemental briefing, and record review.

Footnotes

1. The CFPB's September 25, 2025 final rule rescinds 87 FR 25397 (Apr. 29, 2022), 87 FR 70703 (Nov. 21, 2022), and 89 FR 30259 (Apr. 23, 2024).

2. 12 U.S.C. § 5514(a)(1)(C).

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.